FINRA Sales Practice Violations

Concentration in Puerto Rico Municipal Bonds

Brokerage firms and its financial advisors who recommended that Puerto Rico investors should invest a substantial portion of their assets into non-traded, closed-end Puerto Rico Bond Funds and Puerto Rico Municipal Bonds may have violated FINRA sales practice rules and regulations. Brokerage firms and its financial advisors knew or should have known that investors are not compensated for the risks of exposure to catastrophic loss for investments concentrated in a single, type of security and geographic location. Simply stated, the tax free income from non-traded, closed-end Puerto Rico Bond Funds paid to Puerto Rico investors could never justify the exposure to the level of risk from investments concentrated in Puerto Rico Municipal Bonds.

Brokerage firms and its financial advisors knew or should have known that financial research supports the need to avoid securities concentration. The concept of not investing all your assets in a single type of security or geographic region is a cornerstone for any suitable asset allocation recommendation. Brokerage firms and its financial advisors failed to disclose the risks associated with the proprietary closed-end funds that were non-traded and illiquid. Puerto Rico financial advisors recommended closed-end Puerto Rico Bond Funds that were non-traded and illiquid, which relied on a poorly explained, restrictive Repurchase Agreement. Securities industry standards consider securities concentration to exist when a portfolio’s holdings exceed more than 10% of an investor’s total wealth. The risks of securities concentration are well known and are at complete odds with what is considered suitable investment advice.

Financial advisor investment recommendations should consider the composition of securities held in an investment portfolio. Recommended investments concentrated in non-traded, closed-end Puerto Rico Bond Funds may represent a violation of the Financial Industry Regulatory Authority (FINRA) sales practice rules and regulations. In many instances, Puerto Rico customer accounts were concentrated in Puerto Rico Bond Funds and Puerto Rico Municipal Bond Funds that were the result of misrepresentations and omissions of material facts, conflicts of interest and the failure to supervise its financial advisors.

Klayman & Toskes, P.A. and the Carlo Law Offices are dedicated to the rights of Puerto Rico investors. Our legal team can help you determine what steps can be taken to protect your investor rights. Puerto Rico investors who suffered losses as a result of concentrated investments in non-traded, closed-end Puerto Rico Bond Funds and Puerto Rico Municipal Bonds recommended by brokerage firms and its financial advisors may be able recover their losses in a FINRA arbitration claim.

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For more information on how to start a claim, or to find out if you have a meritorious cause of action, please contact our law firm, toll free, at (787) 268-6444, for a free consultation.

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