UBS is under investigation by the US authorities for alleged fraud in Puerto Rico related to mutual fund sales.
The probe seeks to find whether UBS executives in Puerto Rico and in the US knew proceeds from loans made by a Utah unit of the Swiss bank were used in a way that violated its own lending rules.
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As part of the probe, investors claim that a former broker in Puerto Rico, Jose Ramirez, allegedly guided them to take loans to buy mutual funds that later plunged, Reuters reported.
The lawsuit claim that the bank’s lending arm extended credit illegally to the clients so that it could invest more cash into its own bond funds.
Karina Byrne, a spokeswoman for UBS, said the bank had fired the broker last year and conducted an internal probe.
The probe, which involved US SEC and US Department of Justice (DoJ) claim that Ramirez, had allegedly arranged loans for his clients from UBS Bank USA of Utah to buy mutual funds, while the bank’s terms and conditions mention that the loans cannot be used to buy securities.
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By GlobalDataRamirez has given clients paperwork that showed that they were borrowing from the bank in Puerto Rico rather in Utah.
The funds were packed with Puerto Rican government bonds, and they dropped in value at the end of last summer following concerns that Puerto Rica might not repay its debt.
In addition, the probe may result in additional payouts for the bank in the near future, adding to expenses for UBS’s Wealth Management Americas division.
