* SEC says UBS unit misled investors to hide liquidity
* UBS settles charges without admitting or denying
* Two executives plan to contest the SEC's charges
By Sarah N. Lynch and Jonathan Stempel
May 1 U.S. securities regulators charged a
Puerto Rico-based unit of UBS AG and two executives on
Tuesday with misleading investors by masking its control of the
secondary market for 23 proprietary, closed-end mutual funds.
UBS Financial Services Inc of Puerto Rico will pay $26.6
million to settle the charges by the U.S. Securities and
Exchange Commission without admitting or denying the
Miguel Ferrer, the unit's vice chairman and former chief
executive, and its head of capital markets Carlos Ortiz, are
contesting the SEC's administrative proceedings.
"UBS Puerto Rico denied its closed-end fund customers what
they were entitled to under the law - accurate price and
liquidity information, and a trading desk that did not advantage
UBS' trades over those of its customers," SEC enforcement chief
Robert Khuzami said in a statement.
The SEC's charges against the company allege that UBS Puerto
Rico knew about a significant "supply and demand imbalance" and
had internal discussions about a weak secondary market.
But the firm never told investors that it actually
controlled the secondary market where investors were selling
their shares in the fund, the SEC said. UBS allegedly increased
its holdings in closed-end funds to bolster market prices and
make the market appear more stable.
The SEC also claimed that Ferrer made misrepresentations and
did not disclose material facts about the closed-ends funds,
while Ortiz falsely represented that the closed-end fund shares
were priced off of supply and demand. The SEC said Ortiz hid the
inventory increases from investors and rarely changed prices.
In a statement, Ortiz denied the SEC's charges, calling them
"wholly without merit."
"At all times, I, and the team that I supervise, have been
responsible participants in the secondary market for the funds
in an effort to maintain an orderly market. Any claim by the
SEC that fund investors were misled or mistreated is unfounded,"
An attorney for Ferrer was not immediately available for
Of the $26.6 million that UBS will pay, $14 million will go
toward the fine. Another $11.5 million will be paid in
disgorgement and $1.1 million in interest. The money will be
placed into a fund for harmed investors.
"UBS Puerto Rico is pleased to have resolved this matter,
which relates to a period of significant turmoil in the global
financial markets between 2008 and 2009," a UBS spokesman said.
"We disclosed the SEC's investigation more than a year ago,
and since that time have further improved the transparency of
our trading procedures as part of our ongoing commitment to the
local capital market."