On October 29, 2013, an Administrative Law Judge dismissed proceedings against two UBS employees against whom the SEC brought Cease-and-Desist Proceedings.  The SEC’s claims were based upon alleged federal securities law violations in connection with closed-end funds created and marketed by UBS.  All of the closed-end funds invested in Puerto Rico municipal debt.  Ironically, the 13 day hearing and post-hearing briefing ended March 15, 2013, five months before the collapse of the closed-end funds that were at issue in the case.  Between August and September 2013, these closed-end funds collapsed, realizing the fears that formed the basis of the SEC’s contentions.  Fortunately for UBS’s clients, the Administrative Law Judge’s opinion left a valuable breadcrumb trail detailing the material information that UBS failed to disclose to its clients, and at times, its own employees.  Equally important is that the breadcrumb trail reveals some information that was available to UBS employees, which information should have been passed on to firm clients. 

The UBS Puerto Rico Closed End Funds were, effectively, hot potatoes.  For those unlucky enough to still be holding the hot potatoes in August and September 2013, they at least have FINRA arbitration as an available tool to help them recover their losses.