Erez Law is currently investigating Santander Securities, LLC regarding high risk and unsuitable investments in Puerto Rico municipal bonds and closed-end funds (CEFs) invested predominantly in Puerto Rico debt. Approximately 200 cases have been filed against Santander Securities regarding losses due to investments in Puerto Rico bonds and funds. Erez Law represents more than a dozen clients of Santander Securities in FINRA arbitrations. Almost all of the cases involve allegations that Santander Securities financial advisors overconcentrated their clients’ accounts in Puerto Rico bonds or Puerto Rico focused CEFs.
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.
Santander was the underwriter of CEFs that invested predominantly in Puerto Rico debt. The Santander CEFs were not traded on any exchange or quoted on any quotation service and the CEFs were not registered with the Security and Exchange Commission (SEC). Santander has been the only or dominant secondary market dealer or liquidity provider for Santander CEFs. The Santander CEFs were only available to Puerto Rico residents, and given the very limited amount of qualified buyers, the illiquidity risk of the funds was always inherently high.
Santander marketed the CEFs as for those interested in preserving capital and with a high current income. However, investors in these funds lost nearly $1 billion between 2013 and 2015, when the prices and net asset value of most of these funds declined during this period.
The Santander CEFs are leveraged funds that are permitted to borrow up to 100% of their equity. The funds paid the difference between borrowing costs and interest received on its holdings to its shareholders, and distributions paid were mostly tax free. Santander Securities sold 12 CEFs:
- First Puerto Rico AAA Target Maturity Fund I
- First Puerto Rico AAA Target Maturity Fund II
- First Puerto Rico Target Maturity Income Opportunities Fund I
- First Puerto Rico Target Maturity Income Opportunities Fund II
- First Puerto Rico Tax-Advantage Target Maturity Fund I
- First Puerto Rico Tax-Advantage Target Maturity Fund II
- First Puerto Rico Tax Exempt Target Maturity Fund I (Liquidated in August 2012 at $10.07 per share)
- First Puerto Rico Tax Exempt Target Maturity Fund II
- First Puerto Rico Tax Exempt Target Maturity Fund III
- First Puerto Rico Tax Exempt Target Maturity Fund IV
- First Puerto Rico Tax Exempt Target Maturity Fund V
- First Puerto Rico Tax Exempt Target Maturity Fund VI
These funds were launched every four months between May 2001 and January 2005. The final fund, First Puerto Rico Tax Exempt Target Maturity Fund VI, was launched in October 2012.
Santander Securities also sold six open-end funds:
- First Puerto Rico AAA Fixed Income Fund
- First Puerto Rico Tax-Exempt Fund
- First Puerto Rico Tax-Exempt Fund II
- First Puerto Rico Equity Opportunities Fund
- First Puerto Rico Daily Liquidity Fund
- Santander AM Intermediate Fixed-Income Fund
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, Santander Securities may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States for claims against Santander Securities regarding high risk and unsuitable investments in Puerto Rico municipal bonds and closed-end funds (CEFs) invested predominantly in Puerto Rico debt. If you were a client of Santander Securities 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.
"*" indicates required fields
