Erez Law is currently representing investors in FINRA arbitration claims related to former Morgan Stanley financial advisor Angel Aquino (CRD# 2687333). The Erez Law client alleges that Aquino was dangerously concentrating her investment portfolio in high risk and unsuitable Puerto Rico bonds, causing her to suffer staggering losses in excess of $1.3 million. The Miami, Florida broker was with Morgan Stanley from 2010 to 2017. In July 2017, his employment with Morgan Stanley ended.
Erez Law and co-counsel Aldarondo & Lopez Bras filed a FINRA arbitration on behalf of a former customer of Aquino. The client, who is an elderly resident of Puerto Rico, alleged that she entrusted Aquino with the majority of her net worth and irreplaceable retirement savings. The customer was a longtime customer of Aquino, who serviced her account first at Merrill Lynch, from offices in Puerto Rico, and then with Morgan Stanley when he began working there. Aquino serviced her account until his employment with Morgan Stanley terminated in July 2017.
The elderly customer lacked investment experience and sophistication and relied completely on Aquino’s recommendations. She was interested in secure investments that would preserve her savings for retirement while generating a modest degree of income. Instead, it is alleged that Aquino recommended aggressive and unsuitable investments and strategies with devastating results. The client’s account was dangerously concentrated in high risk and unsuitable Puerto Rico bonds and Puerto Rico focused closed-end funds (CEFs).
The Puerto Rico CEFs are organized as Puerto Rico corporations and are not registered with the Securities and Exchange Commission and are not traded on an exchange. The Puerto Rico focused CEFs are only available to Puerto Rico residents, and given the very limited amount of qualified buyers, these CEFs’ liquidity risk was always inherently exceedingly high. Furthermore, the Puerto Rico focused CEFs are leveraged. The funds are generally permitted to borrow up to 100% of their equity, permitting the fund to hold $2 of securities for every $1 of capital invested in the funds. The funds pay to their shareholders the difference between their borrowing cost and the interest received on their holdings. The distributions paid by the Puerto Rico focused CEFs are mostly tax-free.
Aquino recommended concentrating approximately 95% or more of the customer’s portfolio in Puerto Rico investments. Aquino also recommended the excessive and unsuitable use of leverage, which only further exacerbated the already elevated risks associated with his reckless concentrated investment strategy. Aquino also recommended that she use a loan to obtain needed liquidity in lieu of selling securities and withdrawing funds from her account, representing to the customer that the interest rate on the loan was extremely low so that it was a superior strategy to borrow when she needed liquidity. By recommending the use of leverage, Aquino was able to sell the client additional bonds and generate additional commissions that he could not earn without the use of leverage. The use of leverage combined with the concentration of the portfolio in Puerto Rico debt only served to drastically increase the risks to which the client was unknowingly exposed.
Puerto Rico suffers from long-term financial and economic deficiencies that rendered its credit increasingly more speculative. The deterioration of Puerto Rico’s financial condition culminated in its debt being downgraded to junk status or speculative (below investment grade). For the past several years, Puerto Rico has been struggling with compounding debt and economic decline. As a result, the value of Puerto Rico’s municipal tax-free bonds has considerably fallen. Since September 2013, when the steep decline in Puerto Rico bond values began, investors holding these bonds have suffered massive losses. In May 2017, Puerto Rico filed for bankruptcy protection from creditors in what is being described as the largest municipal bankruptcy filing in history.
Despite the continued issues on the island, Aquino continued to fail to recommend an adequately diversified portfolio and needlessly exposed the customer to the credit risk of a single, and financially troubled territory. Aquino continuously and repeatedly recommended that the client continue with his reckless and concentrated investment strategy without a reasonable basis for over concentrating the accounts in high risk and unsuitable Puerto Rico bonds and Puerto Rico focused CEFs, even after the client expressed concerns.
It is alleged that Angel Aquino recommended that his customers invest in the following bonds:
- Commonwealth of Puerto Rico Public Improvement Bonds (GO)
- Government Development Bank for Puerto Rico (GDB)
- First Subordinate Series 2010C
- Puerto Rico AAA Portfolio Bond Fund
- Puerto Rico Public Finance Corporation (PFC)
- Puerto Rico Aqueduct and Sewer Authority (PRASA)
- Puerto Rico Electric Power Authority (PREPA)
- Puerto Rico Employees Retirement System (ERS)
- Puerto Rico Fixed Income Fund
- Puerto Rico Fixed Income Fund II
- Puerto Rico Fixed Income Fund III
- Puerto Rico Fixed Income Fund IV
- Puerto Rico Highways & Transportation Authority (PRHTA)
- Puerto Rico Housing Finance Authority (PRHFA)
- Puerto Rico Industrial Development Company (PRIDCO)
- Puerto Rico Infrastructure Financing Authority (PRIFA)
- Puerto Rico Investors Tax Free Fund
- Puerto Rico Investors Tax Free Fund III
- Puerto Rico Investors Tax Free Fund IV
- Puerto Rico Public Buildings Authority (PBA)
- Puerto Rico Sales Tax Financing Corporation (COFINA)
- Tax Free Puerto Rico Fund
- Tax Free Puerto Rico Fund II
- Tax Free Puerto Rico Target Maturity Fund
Regrettably, the above case is not an isolated incident. Aquino has also been the subject of 13 customer complaints, one of which was denied and one was withdrawn, according to his CRD report:
- July 2017. “Claimants alleged, inter alia, unsuitability with respect to municipal bond and closed-end fund investments – 2010 to 2017.” This case is currently pending.
- July 2017. “Claimants alleged, inter alia, unsuitability with respect to municipal bond and closed-end fund investments – 2010 to 2017.” This case is currently pending.
- July 2017. “Claimants alleged, inter alia, unsuitability with respect to Puerto Rico municipal bond investments -2013 to 2017.” This case is currently pending.
- May 2017. “Claimants alleged, inter alia, misrepresentation with respect to purchase of municipal bonds in accounts – 2013 to 2014.” The customer is seeking $365,000 in damages and the case is currently pending.
- May 2017. “Claimants alleged, inter alia, unsuitability with respect to purchase of municipal bonds in accounts – 2013 to 2017.” The customer is seeking $594,000 in damages and the case is currently pending.
- December 2016. “Claimants alleged, inter alia, unsuitability with respect to municipal bond investments – 2012 to 2015.” The customer seeks damages of $6 million.
- July 2016. “Claimants alleged, inter alia, unsuitability with respect to the Puerto Rico closed-end fund investment – 2012 to 2013.” The case was settled for $80,000.
- November 2015. “Claimant alleged, inter alia, unsuitability and misrepresentation with respect to purchases of municipal bonds in accounts – 2012 to 2015.” The customer sought $2,036,911 in damages and the case was settled for $1,875,000.
- July 2015. “Claimants allege, inter alia, unsuitability with respect to the recommendation and overconcentration of municipal bonds in trust accounts – 2012 to 2014.” The customer sought $500,000 in damages and the case was settled for $400,000.
- June 2014. “The customers allege unsuitable investment recommendations and misrepresentations and omission of material facts from March 2007 to September 2009.” The claim was settled for $363,000.
- April 2014. “Claimants allege, inter alia, misrepresentation with respect to the purchases of Puerto Rico Municipal Bonds in their accounts.” The claim was settled for $65,000.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a firm offers a security to its customers, the firm must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for any customer of the firm. The suitability of an investment for a particular individual is at the center of the investment process and one of the key fiduciary duties owed by a firm and its broker to the customer. A firm may be held liable for its failure to recommend suitable investments to its customers.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Morgan Stanley may be liable for investment or other losses suffered by Aquino’s customers.
Erez Law represents investors in the United States for claims against former Morgan Stanley financial advisor Angel Aquino, who is alleged to dangerously concentrate customers’ investment portfolio in high risk and unsuitable Puerto Rico bonds. If you were a client of Morgan Stanley or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.
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