Answer:
On September 29, 2015, the Commission issued separate, but related, settled Orders Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (collectively, the “Orders”)1 against UBS Financial Services Inc. of Puerto Rico (“UBSPR”) and, UBSPR Guayanabo branch office manager, Ramiro L. Colon, III (“Colon”) (collectively, the “Respondents”). Each Order found that UBSPR, through Colon, violated Section 15(b)(4)(E) of the Securities Exchange Act of 1934 (“Exchange Act”) by failing to supervise Jose Ramirez, Jr., a registered representative and associated person of UBSPR and UBSPR’s Guayanabo branch, who engaged in conduct that violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
According to the Orders, from approximately 2011 through 2013, Ramirez made material misrepresentations and omissions to customers and engaged in a fraudulent scheme involving the offer and sale of approximately $50 million of certain UBSPR affiliated, non-exchange-traded, closed-end funds (“CEFs”).2 Ramirez solicited certain customers to improperly use proceeds from non-purpose lines of credit (“LOCs”) offered by UBSPR’s banking affiliate, UBS Bank USA (“BUSA”), to purchase additional shares of UBSPR CEFs. According to UBSPR’s Order, UBSPR lacked procedures and systems to prevent and detect the broker’s misconduct. On at least two occasions, UBSPR was made aware that Ramirez may have been violating internal policy, but UBSPR’s procedures failed to address reasonable follow-up for violations of the policy.
Respondent UBSPR was ordered to pay disgorgement of $1,188,149.41, prejudgment interest of $174,196.97, and a $13,637,653.62 civil money penalty; Colon was ordered to pay a $25,000 civil money penalty. UBSPR and Colon paid the amounts ordered in their respective orders, which total $15,025,000 (the “Fair Fund”). The UBSPR Order created a Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, for the amounts ordered. The Fair Fund is subject to the continuing jurisdiction and control of the Commission and the Fair Fund is currently on deposit at the United States Department of Treasury’s Bureau of the Fiscal Service (“BFS”) for investment.
These funds, together with any interest and income earned thereon, calculated after deductions expended or to be expended for taxes and fees (the “Net Fair Fund”), will be distributed in accordance with the provisions of the Distribution Plan to the Eligible Claimants as defined in the Fair Fund Notice who file timely and valid Claim Forms following the procedures set forth in the Fair Fund Notice and on the Claim Form. The Distribution Plan is further explained in the Answer to Question No. 7 in the Fair Fund Notice.
1 See Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions, Exchange Act Rel. No. 76013 (Sept. 29, 2015), Admin. Proc. File No. 3-16846 and Order Instituting Administrative Proceedings, Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions, Exchange Act Rel. No. 76014 (Sept. 29, 2015), Admin. Proc. File No. 3-16847.
2 CUSIP’s for the relevant CEFs are: 745274100, 74527K104, 74527M100, 74527N108, 74527Q101, 745276105, 745296103, 74529P101, 74527G103, 87675M102, 87675H103, 87675W100, 74514M105, 74514P108, 74514T100, 74527W108, 74528E107, 744907106, 744908104, 744909102, 74528A105, 74528B103, 74528D109.