Warning to UBS Puerto Rico Clients with Credit Lines
Our investigation has uncovered that many clients of UBS Puerto Rico have been given a line of credit or loan by UBS Bank with the investments of the brokerage account at UBS Puerto Rico as collateral. Under the terms of those agreements, UBS can demand repayment of some or the entirety of the loan immediately if the value of the securities held in the brokerage account fall. Alternatively, UBS can simply sell securities within the brokerage account and take the proceeds to satisfy as much of the loan as UBS decides it needs. There are virtually no limitations on UBS’s discretion in making any changes to the amount of collateral required to be maintained in the clients’ brokerage accounts.
Previous articles have described the tremendous losses that many UBS Puerto Rico clients have suffered with Puerto Rico bonds and UBS Puerto Rico proprietary bond funds. Those clients who also had loans from UBS Bank are in an even worse position because the falling value of their accounts means that their loans are under-collateralized. Some UBS clients have undoubtedly seen securities in their brokerage accounts sold and the proceeds applied to their loan balance.
However, UBS Puerto Rico does not want to sell securities to cover collateral needs in brokerage accounts as the market for Puerto Rico bonds and UBS’s proprietary Puerto Rico bond funds is incredibly illiquid right now, with sellers far exceeding buyers. As a result, UBS Puerto Rico may have to buy the investments themselves. To avoid that problem, UBS has begun attempting to use loan modification “Agreements” with some clients.
Essentially, these agreements provide no benefit to the clients. The client would agree to pay back some amount of the outstanding loan, sometimes immediately, and sometimes with a monthly payment plan. In return, UBS agrees to not force the sale of the securities in the brokerage account. However, the agreements further provide that UBS is still permitted to increase the amount of collateral required in the brokerage account at any time and in its sole discretion. That means that, even if a client was fully complying with the modification agreement and made any and all payments required under it, UBS could still double the collateral requirements in the brokerage account overnight. If the client failed to come up with enough additional money and/or securities to deposit immediately, UBS could come in and sell some or all of the securities in the account, notwithstanding the modification agreement. Practically speaking, clients gain no safety or rights by agreeing to the modification agreement.
Clients do, however, potentially give up a tremendous amount of their rights. Included within these modification agreements is a general and global release. Any client that signs such an agreement may ultimately waive any and all legal claims that they have, whether the client knows that the legal rights and/or claims exist or not, against both UBS Puerto Rico and UBS Bank. That means that if the client later determines UBS Puerto Rico and/or UBS Bank broke the law in recommending inappropriate, speculative securities to an investor, or recommended an improper use for a bank loan, or any other potential claim, the client could very possibly be barred from bringing the claim. Ever.
If you have been approached by UBS or your broker about signing some form of modification agreement involving your account at UBS Puerto Rico or UBS Bank, be very careful in reviewing what exactly you are agreeing to. You may also contact the attorneys at Shepherd, Smith, Edwards & Kantas LLP for a free, no obligation consultation to evaluate what effects your signing such an agreement might have.