ZURICH—UBS Group AG has confirmed a U.S. Justice Department
criminal probe of an unnamed former employee in Puerto Rico, and
disclosed a pair of related investigations by other regulators,
adding new twists to the Swiss bank's legal drama in the
commonwealth.
The former UBS employee is José Ramirez, a financial adviser who
was fired last year, according to a person familiar with the
matter. Mr. Ramirez, sometimes known by the nickname the "Whopper,"
has previously been the target of civil claims that he advised
clients to take loans from UBS to buy funds from the bank
underpinned by Puerto Rico debt securities that lost value, despite
the terms of the loans barring their use to purchase
securities.
In a filing on Tuesday, Zurich-based UBS confirmed the Justice
Department's inquiry, and also disclosed for the first time that
the Financial Industry Regulatory Authority, or Finra, and the
Securities and Exchange Commission have made related information
requests about clients' use of loans to buy the UBS funds.
UBS said it is cooperating with the investigations.
An attorney representing Mr. Ramirez said in a statement that
any suggestion about the specific targets of the Justice Department
inquiry would be "sheer speculation."
"Business and personal reputations are precious," the attorney,
Guillermo Ramos-Luiñ a said. "Mr. Ramirez and I are not going to
make comments that could tarnish anyone's reputation."
A spokeswoman for the U.S. Attorney's Office in Puerto Rico
declined to comment.
UBS customers have previously filed civil claims against UBS and
Mr. Ramirez, alleging that they have lost significant amounts of
their savings after being advised to borrow money to buy the bond
funds. According to Mr. Ramirez's record as a broker with Finra, he
received a so-called Wells notice from the SEC in March, notifying
him that the regulator was considering civil charges that he had
violated parts of the Exchange Act and the Securities Act.
A separate customer dispute in the Finra record notes that a
client alleged that in 2013 he gave Mr. Ramirez $250,000 to pay
down a loan, which was then instead used to purchase more funds.
The record indicates that this complaint was denied.
Mr. Ramirez's attorney declined to comment on Mr. Ramirez's
Finra record.
Puerto Rico has emerged as the source of significant legal
trouble for UBS. Its problems there began in 2013, with a decline
in the value of bonds issued by the financially troubled
commonwealth. That led to a wave of complaints from customers who
had purchased funds that included the debt, and now to a number of
regulatory probes.
According to UBS, the information requests from the SEC and
Finra have related to clients' use of loans to invest in the Puerto
Rico bond funds, and to "supervision issues."
The Justice Department's criminal inquiry is focused on "the
practice of certain customers and a UBS financial adviser of using
non-purpose loans to invest in closed-end fund securities in
violation of their loan agreements," the bank said in its Tuesday
filing.
Complaints and arbitrations stemming from its issues in Puerto
Rico have led to claimed damages that now amount to more than $1.1
billion, UBS said in the filing.
Last month, Puerto Rico Gov. Alejandro Garcia Padilla said the
commonwealth would have to delay payments to bondholders for "a
number of years." That, UBS said in the filing, may only increase
the number of claims filed against the bank.
Write to John Letzing at john.letzing@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires