SEC v. Jose G. Ramirez, Jr., No. 3:15-cv-02365, District of Puerto Rico (Sept. 29, 2015) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

SECURITIES AND EXCHANGE COMMISSION,

   Plaintiff,

                  v.           CIVIL No. 15-_________ (          )

JOSE G. RAMIREZ, J R.,            JURY TRIAL DEMANDED

   Defendant.
__________________________________________________/

COMPLAINT
 Plaintiff United States Securities and Exchange Commission alleges as follows:
INTRODUCTION
1. The  Commission  brings  this  enforcement  action to  enjoin  Jose  G.  Ramirez,  Jr.
from violating the antifraud provisions of the federal securities laws.  From approximately 2006
through 2013, Ramirez, then a registered representative for UBS Financial Services Incorporated
of  Puerto  Rico  (“UBSPR”),  made  material  misrepresentations  and  omissions  to customers and
engaged  in  a  fraudulent  scheme  involving  the  offer  and  sale  of  approximately  $50  million  of
certain  UBSPR  affiliated,  non  exchange-traded closed-end  mutual  funds  (“CEFs”).    Ramirez
effected   a   scheme which   increased   his   compensation   by   soliciting   certain   customers   to
improperly use  proceeds  from  non-purpose  lines  of  credit  (“LOCs”)  offered  by  UBSPR’s
banking affiliate, UBS Bank USA (“BUSA”), to purchase additional shares of UBSPR CEFs.
2. Ramirez   knew   that   UBSPR   policy   and   the   LOC   agreements   with   BUSA
prohibited customers  from  using  LOC  proceeds  to  purchase  securities.    To  circumvent  these
restrictions, Ramirez  instructed  customers  to:    (a) transfer  money  from  their  BUSA  LOC
accounts to a bank account not affiliated with UBSPR; (b) after waiting a few days, deposit the

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money from the outside bank account to the customer’s UBSPR brokerage account; and (c) use
the funds in the brokerage account to purchase CEFs.  Ramirez misrepresented to customers that
transferring and re-depositing LOC proceeds in this manner did not violate UBSPR’s policy and
the  customer  LOC  agreements.    Ramirez  also  made  material  misrepresentations  to  these
customers regarding the safety of this strategy and did not disclose the risks of maintenance calls
BUSA could make in the event the value of the customer’s account (including its CEF holdings)
decreased below specified levels of collateralization.  Yet, in 2013, once the Puerto Rican bond
market declined, customers received at least $37 million in maintenance calls.
3. Ramirez personally profited from his misrepresentations and scheme.  Ramirez’s
compensation was based, in part, on his LOC production and the amount of funds his customers
drew upon their LOCs.  Ramirez also earned commissions on the CEFs his customers purchased.
As a result of his wrongful conduct, Ramirez received illicit profits of at least $2.8 million.
4. As  a  result  of  the  conduct  alleged  in  this  Complaint,  Ramirez  violated  Sections
17(a)(1),   (2),   and   (3)   of   the   Securities   Act   of   1933   (the “Securities   Act”)   [15   U.S.C.
§§ 77q(a)(1),  (2),  and  (3)]  and  Section  10(b)  of  the  Securities  Exchange  Act  of  1934  (the
“Exchange  Act”)  [15  U.S.C.  §  78j(b)]  and  Rules  10b-5(a),  (b),  and  (c) thereunder  [17  C.F.R.
§§ 240.10b-5(a), (b), and (c)].
5. Unless restrained and enjoined, the Defendant is reasonably likely to continue to
violate the federal securities laws.
6. The   Commission   therefore   respectfully   requests   the   Court   enter   an   order:
(i) permanently  restraining  and  enjoining  the  Defendant  from  violating  the  federal  securities
laws;   (ii)   directing   the   Defendant   to   pay   disgorgement   with   prejudgment   interest;   and
(iii) directing the Defendant to pay civil money penalties.

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DEFENDANT
7. Ramirez,  age  56,  currently residing  in  Fulton, Maryland,   was  a  registered
representative of UBSPR at the firm’s Guaynabo, Puerto Rico, branch.   In January 2014, UBSPR
terminated Ramirez because of the conduct described in this Complaint.  Ramirez held Series 7,
8,  and  63  securities  licenses.    Based  on  Ramirez’s  failure  to  respond  to  the  Financial  Industry
Regulatory  Authority’s  (“FINRA”)  request  for  information  during  his  on-the-record  testimony,
Ramirez  has  been  permanently  barred  from  association  with  any  FINRA  member  in  any
capacity.
OTHER RELEVANT ENTITIES
8. UBSPR,  a  Puerto  Rico  corporation  with  its  principal  place  of  business  in  Hato
Rey,  Puerto  Rico,  is  a  broker-dealer  registered  with  the  Commission  since  1982.    UBSPR  is  a
subsidiary of UBS Financial Services, Inc. (“UBSFS”).  During the relevant time period, UBSPR
was Puerto Rico’s largest broker-dealer, holding about 49% of the total retail brokerage assets in
Puerto Rico.
9. UBSFS, a  Delaware  corporation  with  its  principal  places  of  business  in  New
York,  New  York  and  Weehawken,  New  Jersey,  and is  also  a  broker-dealer  registered  with  the
Commission.  UBSFS is a wholly-owned subsidiary of UBS AG, a foreign private issuer based
in Switzerland.
10. BUSA  is  a  Salt  Lake  City,  Utah-based  FDIC-insured  industrial  bank  organized
and  licensed  since  2003.    BUSA  is  regulated  by  the  Utah  Department  of  Financial  Institutions,
the FDIC and the Consumer Financial Protection Bureau.  BUSA is UBSPR’s banking affiliate.

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JURISDICTION AND VENUE
11. This  court  has  jurisdiction  over  this  action  under  Sections  20(b),  20(d)(1),  21(e),
and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), 78u(e), and 77v(a)], and Sections
21(d) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa(a)].
12. This  Court  has  personal  jurisdiction  over  the  Defendant,  and  venue  is  proper  in
the District of Puerto Rico, because, among other things, some or all of the acts and transactions
constituting the violations alleged in the Complaint occurred in this District.  In addition, venue
is  proper  in  this  District  under  28  U.S.C.  §  1391  because  a  substantial  part  of  the  events  and
omissions giving rise to the Commission’s claims occurred in the District of Puerto Rico.
13. In connection with the conduct alleged in this Complaint, Defendant, directly and
indirectly,  singly,  or  in  concert  with  others,  made  use  of  the  means  or  instrumentalities  of
interstate  commerce,  the  means  or  instruments  of  transportation  or  communication  in  interstate
commerce, and of the mails.
FACTUAL BACKGROUND
A. Bank Lines of Credit
14. In   approximately   2003,   BUSA,   UBSPR’s   banking   affiliate,   began   offering
UBSPR  brokerage  customers  a  line  of  credit  that  was  “non-purpose” –  meaning  funds  drawn
under the LOC could not be used to purchase, carry, or trade securities – at no initial cost to the
customer  and  at  interest  rates  below  those  charged  for  margin  loans.    UBSPR  offered  BUSA’s
LOCs to its  customers  to  enable them to  meet  more  of  their  financial  needs  through  UBSPR
instead of outside commercial banks.

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15. UBSPR promoted the use of LOCs in a number of ways:
a. UBSPR   encouraged its registered   representatives   to   include   LOC
documentation with account opening documents for new customers;
b. UBSPR  registered  representatives  recommended  that  customers  open  an
LOC  even  if  they  had  no  immediate  need  to  access  the  funds,  explaining that  the  LOC
was a free service offered by the firm at a low interest rate; and
c. UBSPR  incentivized  its  registered  representatives  to  offer  LOCs  by
compensating them based on: (a) the amount of each new LOC; and, later, (b) the amount
customers drew upon their LOCs.
B. Restriction on Use of Lines of Credit
16. Internal  UBS  marketing  materials  stated  that  the  purpose  of  the  LOCs  was  to
provide existing customers with liquidity and immediate access to cash in order to cover business
expenses, acquire real  estate,  make  certain  periodic  expense  payments,  or  pay for luxury  items
without having to liquidate investment holdings, thus deferring capital gains.
17. UBSPR   customers   were   prohibited   from   using   LOC   proceeds   to   purchase
securities.  UBSPR policy prohibited it, as did the customer’s LOC loan agreement with BUSA,
which restricted the borrower from using the proceeds of any advance to purchase, carry or trade
in securities.
18. Ramirez knew that UBSPR policy did not allow customers to use LOC proceeds
to  purchase  securities.      UBSPR  registered  representatives  received  training  on  this  very
prohibition.  Further, each LOC application contained a “UBS Bank USA Know Your Customer:
Appropriateness  and  Client  Verification”  (“Client  Verification”)  form.    This  form  required  the

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signature of the registered representative indicating the registered representative had explained to
customers they could not use the LOC proceeds to purchase or carry securities.
C. Closed-End Funds
19. The CEFs are closed-end investment management companies incorporated under
the laws of the Commonwealth of Puerto Rico and available only to Puerto Rico residents.  Since
1995,  UBSPR  offered  its  customers  twenty-three  CEFs,  for  which  UBSPR served  as  primary
underwriter and  as  sole  or  co-manager.    The  CEFs  are  not  registered  with  the  Commission,  are
not traded  on  any  exchange  or  quoted  on  any  quotation  service,  and  are  non-marginable
securities.  UBSPR has been the only secondary market dealer or liquidity provider for the sole-
managed Funds and the dominant dealer for several co-managed CEFs.
20. Nearly  all  of  the  CEFs  invest  in  similar  securities.    The  CEFs’ investment
portfolios are generally  concentrated  in  Puerto  Rico  municipal bonds,   which  produce  tax-free
interest income, and the dividends the CEFs pay to their shareholders are tax-exempt to residents
of Puerto Rico.  Indeed, for eligibility for such tax benefits, CEF portfolios have to be comprised
of  at  least  67%  in  Puerto  Rico issuers.    The  CEFs  are  significantly  leveraged,  financing
approximately  50%  of  their  total  assets,  and thus,  as  a  leveraged  product,  bear  the concomitant
level of risk.
21. Although the  CEFs  invest  a  high  percentage  of  their  portfolios in  Puerto  Rico
bonds, the CEFs are not fixed-income securities.  The dividends payable to shareholders can vary
based  on  a  number  of  factors,  including  prevailing  variable  margin  loan  rates  payable  by  the
particular CEF, interest rates, the market value of the securities within the CEFs, and various fees
and expenses.

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D. Ramirez’s Scheme, Misrepresentations and Omissions
22. Because customers could borrow money through their LOCs at rates as low as 1.5
percent and the CEFs were generating returns of greater than 6 percent, Ramirez saw an arbitrage
opportunity  for  customers  and  an  opportunity  to  increase  his  production  and  commissions  if
customers purchased additional CEF shares with the proceeds of LOCs.  Ramirez presented this
opportunity to customers as a way to make additional money by using the LOCs to increase their
CEF  holdings,  notwithstanding  his  knowledge  that  UBSPR  and  BUSA  prohibited  customers
from using the LOC proceeds to purchase securities.
23. In   order   to   circumvent UBSPR’s policy   against   using   LOCs   to   purchase
securities,  and  evade  detection  of  his  scheme,  Ramirez  instructed  customers  to  withdraw  funds
from  their  BUSA LOC  accounts,  deposit  those  funds  into  an  account  at  another  bank,  wait
several days, and then re-deposit the funds from the outside bank account into a UBS brokerage
account,  where  the  funds  would  then be  used  to  purchase  CEFs.    This  was  despite  Ramirez
signing the Client Verification form attesting that he had explained to customers that they could
not use LOC proceeds to purchase or carry securities.
24. Ramirez misrepresented to customers that they were not violating UBSPR policy
as  long  as  they  first  transferred  the  proceeds  to  an  outside  bank  account.    In  several  meetings
with  customers  where  Ramirez  presented  this  strategy,  Ramirez  would  take  a  dollar  bill  out  of
his wallet and say, “If I give you this dollar and you bring [another dollar] back next month, it’s
not the same dollar.”  Based on Ramirez’ advice, customers either wrote a check or requested a
wire  transfer  from  their  BUSA LOC  account  for  deposit  into  their  personal  bank  accounts  at
outside  banking  institutions  and  then  re-deposited  the  funds  into  their  brokerage  accounts  and
purchased CEF shares.

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25. When combined with the leverage inherent in the CEFs, Ramirez, by treating the
LOC accounts as de facto margin accounts, exposed customers – many  of  whom  were listed in
their account documents as being “conservative” or “moderate” with regard to risk tolerance – to
a significantly greater risk than they otherwise would have been exposed to.
26. Ramirez misrepresented the true risk of the CEFs, and would instead refer to them
as stable investments akin to bonds.   Ramirez routinely told customers that their investments in
CEF’s were so safe that “Plaza Las Americas will go bankrupt before anything happens to your
money.”
27. Ramirez also did  not  explain  to  customers  that  if  the  value  in  the  collateral
account decreased below a certain level, the customer would be notified via a maintenance phone
call  from  UBSPR.    Further,  Ramirez  did  not  explain  to  the  customer  that  if,  after  receiving  the
maintenance  call,  the  customer  did  not  deposit  sufficient  funds  or  collateral, UBSPR  could
liquidate  the  customer’s  investments  in  order  to  satisfy  the  outstanding  maintenance  call.
Nonetheless, Ramirez signed multiple Client Verification forms,  falsely representing that he had
explained these risks to the customer.
28. In 2011, when confronted with suspicions of this scheme by his branch manager,
Ramirez  denied  any  impropriety  and  expressed  outrage  that  his  integrity  was  being  questioned.
Ramirez  gave  an  alternative  explanation  that  funds  transferred  into  the  customer’s  UBS
brokerage  account  soon  after  the  customer  withdrew  a  similar  amount  from  his  LOC  account
were actually the proceeds of a real estate transaction of the customer.  This was a lie.  Ramirez
continued to engage in his misconduct for approximately two more years after being confronted
by his manager.

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29. Throughout, Ramirez’s LOC production, and thus LOC related compensation, far
outpaced his peers.  Ramirez was one of the leaders in banking products production, not only in
Puerto  Rico,  but  across  UBSFS  nationwide,  despite  the  fact  that,  unlike  stateside  registered
representatives, registered representatives in Puerto Rico could not offer mortgages to customers.
Ramirez  received  recognition  as  a  “Banking  Champion”  from  UBSFS,  which  entitled  him  to
additional compensation and also invitations to corporate events.
E. Consequences of Ramirez’s Fraudulent Conduct
30. In 2013, the Puerto Rico bond market declined.  The erosion caused a substantial
decrease in the value of the CEFs, in part because the CEFs employed leverage up to 50 percent
of  the  total  CEF  assets.    Many  of  Ramirez’s  customers  with  LOCs  collateralized  by  brokerage
accounts holding CEFs began receiving maintenance calls.
31. As of late summer 2013, at least 38 Ramirez customer accounts which used LOCs
to  purchase  CEFs  received  maintenance  calls  of  at  least  $37  million.    Customers  were  thus
required  to  increase  their  collateral,  pay  down  the  loan  by  a  certain  amount,  or  risk  their
collateral being liquidated.
32. In  August,  2013,  Ramirez  took  leave  and  was  unreachable  by  his  customers  and
UBSPR.
33. Ramirez was terminated by UBSPR as a result of his conduct.
34. As  a  result  of  his  fraudulent  conduct  Ramirez illicitly  profited at  least  $2.8
million.

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COUNT I
Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(1) of the Securities Act

35. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
36. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of
securities  by  the use  of  any  means  or  instruments  of  transportation  or  communication  in
interstate  commerce  or  by  use  of  the  mails,  directly  or  indirectly  knowingly,  willfully  or
recklessly employed devices, schemes or artifices to defraud.
37. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably  likely  to  continue  to  violate,  Section  17(a)(1)  of  the  Securities  Act  [15  U.S.C.
§ 77q(a)(1)].
COUNT II
Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(2) of the Securities Act

38. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
39. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of
securities  by  the  use  of  any means  or  instruments  of  transportation  or  communication  in
interstate commerce or by use of the mails, directly or indirectly obtained money or property by
means  of  untrue  statements  of  material  fact  or  by  omitting  to  state  material  facts  necessary  in
order  to  make  the  statements  made,  in  the  light  of  the  circumstances  under  which  they  were
made, not misleading.
40. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably  likely  to  continue  to  violate,  Section  17(a)(2)  of  the  Securities  Act  [15  U.S.C.
§ 77q(a)(2)].

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COUNT III
Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(3) of the Securities Act

41. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
42. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of
securities  by  the  use  of  any means  or  instruments  of  transportation  or  communication  in
interstate  commerce  or  by  use  of  the  mails,  directly  or  indirectly  engaged  in  acts,  transactions,
practices  or  courses  of  business  which  operated  or  would  operate  as  a  fraud  or  deceit  upon  the
purchaser.
43. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably  likely  to  continue  to  violate,  Section  17(a)(3)  of  the  Securities  Act  [15  U.S.C.
§ 77q(a)(3)].
COUNT IV
Fraud in Violation of Section 10(b) and Rule 10b-5(a) of the Exchange Act
44. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
45.  From at least as early as 2006 through 2013, the Defendant, directly or indirectly,
by the use  of  any  means or  instrumentality  of  interstate  commerce, or  of  the  mails,  knowingly,
willfully or recklessly employed devices, schemes or artifices to defraud in connection with the
purchase or sale of securities.
46. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]
and Exchange Act Rule 10b-5(a) [17 C.F.R. § 240.10b-5(a)].

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COUNT V
Fraud in Violation of Section 10(b) and Rule 10b-5(b) of the Exchange Act

47. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
48. From at least as early as 2006 through 2013, the Defendant, directly or indirectly,
by the use  of  any  means or  instrumentality  of  interstate  commerce,  or  of  the  mails,  knowingly,
willfully or recklessly made untrue statements of material facts and omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading, in connection with the purchase or sale of securities.
49. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]
and Exchange Act Rule 10b-5(b) [17 C.F.R. § 240.10b-5(b)].
COUNT VI
Fraud in Violation of Section 10(b) and Rule 10b-5(c) of the Exchange Act
50. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint
as if fully restated herein.
51. From at least as early as 2006 through 2013, the Defendant, directly or indirectly,
by the use  of  any  means or  instrumentality  of  interstate  commerce,  or  of  the  mails,  knowingly,
willfully  or  recklessly  engaged  in  acts,  practices  and  courses  of  business  which  operated  or
would operate  as  a  fraud  or  deceit  upon any  person  in  connection  with  the  purchase or  sale  of
securities.

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52. By  reason  of  the  foregoing,  the  Defendant  violated,  and,  unless  enjoined,  is
reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]
and Exchange Act Rule 10b-5(c) [17 C.F.R. § 240.10b-5(c)].
PRAYER FOR RELIEF
WHEREFORE,   the   Commission   respectfully   requests   this   Court   issue   a   Final
Judgment:
I.
 Permanently  enjoining  Defendant  Ramirez  and  his  agents,  servants,  employees  and
attorneys, and all persons in active concert of participation with him who receive actual notice of
the injunction by personal service or otherwise, from violating the federal securities laws alleged
in this Complaint;
II.
 Ordering  Ramirez  to  disgorge  any  and  all  ill-gotten  gains  he  received  as  a  result  of  his
violations of the federal securities laws, plus prejudgment interest thereon;
III.
 Ordering Ramirez to pay civil money penalties pursuant to Section 20(d) of the Securities
Act [15 U.S.C. § 77t(d)], and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; and
IV.
 Granting such other and further relief as the Court may deem just and proper.

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V.
 Further, the Commission respectfully requests that the Court retain jurisdiction over this
action and  over  Defendant  in  order  to  implement  and  carry  out  the  terms  of  all  orders  and
decrees  that  it  may  enter,  or  to  entertain  any  suitable  application  or  motion  by  the  Commission
for additional relief within the jurisdiction of this Court.

AND DEMAND FOR JURY TRIAL

Dated:  September 29, 2015
Respectfully submitted,

     By: /s/ Russell Koonin
      Russell Koonin
Senior Trial Counsel
PR Court ID No. G02302
Telephone: (305) 982-6385
Email: [email protected]

Sean O’Neill
Staff Attorney
PR Court ID No. G02303
Telephone:  (305) 982-6302
Email:  [email protected]

Attorneys for Plaintiff
      SECURITIES AND EXCHANGE
      COMMISSION
      801 Brickell Avenue, Suite 1800
      Miami, Florida  33131
      Telephone: (305) 982-6300
      Facsimile:   (305) 536-4154

IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF PUERTO RICO 

 
  
SECURITIES AND EXCHANGE COMMISSION,  
 
   Plaintiff, 
 
                  v.           CIVIL No. 15-_________ (          )   
 
JOSE G. RAMIREZ, JR.,         JURY TRIAL DEMANDED 
 
   Defendant. 
__________________________________________________/ 
 

COMPLAINT 

 Plaintiff United States Securities and Exchange Commission alleges as follows: 

INTRODUCTION 

1. The Commission brings this enforcement action to enjoin Jose G. Ramirez, Jr. 

from violating the antifraud provisions of the federal securities laws.  From approximately 2006 

through 2013, Ramirez, then a registered representative for UBS Financial Services Incorporated 

of Puerto Rico (“UBSPR”), made material misrepresentations and omissions to customers and 

engaged in a fraudulent scheme involving the offer and sale of approximately $50 million of 

certain UBSPR affiliated, non exchange-traded closed-end mutual funds (“CEFs”).  Ramirez 

effected a scheme which increased his compensation by soliciting certain customers to 

improperly use proceeds from non-purpose lines of credit (“LOCs”) offered by UBSPR’s 

banking affiliate, UBS Bank USA (“BUSA”), to purchase additional shares of UBSPR CEFs.  

2. Ramirez knew that UBSPR policy and the LOC agreements with BUSA 

prohibited customers from using LOC proceeds to purchase securities.  To circumvent these 

restrictions, Ramirez instructed customers to:  (a) transfer money from their BUSA LOC 

accounts to a bank account not affiliated with UBSPR; (b) after waiting a few days, deposit the 

Case 3:15-cv-02365   Document 1   Filed 09/29/15   Page 1 of 14



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money from the outside bank account to the customer’s UBSPR brokerage account; and (c) use 

the funds in the brokerage account to purchase CEFs.  Ramirez misrepresented to customers that 

transferring and re-depositing LOC proceeds in this manner did not violate UBSPR’s policy and 

the customer LOC agreements.  Ramirez also made material misrepresentations to these 

customers regarding the safety of this strategy and did not disclose the risks of maintenance calls 

BUSA could make in the event the value of the customer’s account (including its CEF holdings) 

decreased below specified levels of collateralization.  Yet, in 2013, once the Puerto Rican bond 

market declined, customers received at least $37 million in maintenance calls. 

3. Ramirez personally profited from his misrepresentations and scheme.  Ramirez’s 

compensation was based, in part, on his LOC production and the amount of funds his customers 

drew upon their LOCs.  Ramirez also earned commissions on the CEFs his customers purchased.  

As a result of his wrongful conduct, Ramirez received illicit profits of at least $2.8 million.  

4. As a result of the conduct alleged in this Complaint, Ramirez violated Sections 

17(a)(1), (2), and (3) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. 

§§ 77q(a)(1), (2), and (3)] and Section 10(b) of the Securities Exchange Act of 1934 (the 

“Exchange Act”) [15 U.S.C. § 78j(b)] and Rules 10b-5(a), (b), and (c) thereunder [17 C.F.R. 

§§ 240.10b-5(a), (b), and (c)]. 

5. Unless restrained and enjoined, the Defendant is reasonably likely to continue to 

violate the federal securities laws. 

6. The Commission therefore respectfully requests the Court enter an order: 

(i) permanently restraining and enjoining the Defendant from violating the federal securities 

laws; (ii) directing the Defendant to pay disgorgement with prejudgment interest; and 

(iii) directing the Defendant to pay civil money penalties.   

Case 3:15-cv-02365   Document 1   Filed 09/29/15   Page 2 of 14



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DEFENDANT 

7. Ramirez, age 56, currently residing in Fulton, Maryland, was a registered 

representative of UBSPR at the firm’s Guaynabo, Puerto Rico, branch.  In January 2014, UBSPR 

terminated Ramirez because of the conduct described in this Complaint.  Ramirez held Series 7, 

8, and 63 securities licenses.  Based on Ramirez’s failure to respond to the Financial Industry 

Regulatory Authority’s (“FINRA”) request for information during his on-the-record testimony, 

Ramirez has been permanently barred from association with any FINRA member in any 

capacity. 

OTHER RELEVANT ENTITIES 

8. UBSPR, a Puerto Rico corporation with its principal place of business in Hato 

Rey, Puerto Rico, is a broker-dealer registered with the Commission since 1982.  UBSPR is a 

subsidiary of UBS Financial Services, Inc. (“UBSFS”).  During the relevant time period, UBSPR 

was Puerto Rico’s largest broker-dealer, holding about 49% of the total retail brokerage assets in 

Puerto Rico. 

9. UBSFS, a Delaware corporation with its principal places of business in New 

York, New York and Weehawken, New Jersey, and is also a broker-dealer registered with the 

Commission.  UBSFS is a wholly-owned subsidiary of UBS AG, a foreign private issuer based 

in Switzerland.     

10. BUSA is a Salt Lake City, Utah-based FDIC-insured industrial bank organized 

and licensed since 2003.  BUSA is regulated by the Utah Department of Financial Institutions, 

the FDIC and the Consumer Financial Protection Bureau.  BUSA is UBSPR’s banking affiliate. 

 

 

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JURISDICTION AND VENUE 

11. This court has jurisdiction over this action under Sections 20(b), 20(d)(1), 21(e), 

and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), 78u(e), and 77v(a)], and Sections 

21(d) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa(a)].    

12. This Court has personal jurisdiction over the Defendant, and venue is proper in 

the District of Puerto Rico, because, among other things, some or all of the acts and transactions 

constituting the violations alleged in the Complaint occurred in this District.  In addition, venue 

is proper in this District under 28 U.S.C. § 1391 because a substantial part of the events and 

omissions giving rise to the Commission’s claims occurred in the District of Puerto Rico. 

13. In connection with the conduct alleged in this Complaint, Defendant, directly and 

indirectly, singly, or in concert with others, made use of the means or instrumentalities of 

interstate commerce, the means or instruments of transportation or communication in interstate 

commerce, and of the mails.    

FACTUAL BACKGROUND 

A. Bank Lines of Credit 

14. In approximately 2003, BUSA, UBSPR’s banking affiliate, began offering 

UBSPR brokerage customers a line of credit that was “non-purpose” – meaning funds drawn 

under the LOC could not be used to purchase, carry, or trade securities – at no initial cost to the 

customer and at interest rates below those charged for margin loans.  UBSPR offered BUSA’s 

LOCs to its customers to enable them to meet more of their financial needs through UBSPR 

instead of outside commercial banks.   

 

 

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15. UBSPR promoted the use of LOCs in a number of ways: 

a. UBSPR encouraged its registered representatives to include LOC 

documentation with account opening documents for new customers; 

b. UBSPR registered representatives recommended that customers open an 

LOC even if they had no immediate need to access the funds, explaining that the LOC 

was a free service offered by the firm at a low interest rate; and 

c. UBSPR incentivized its registered representatives to offer LOCs by 

compensating them based on: (a) the amount of each new LOC; and, later, (b) the amount 

customers drew upon their LOCs.  

B. Restriction on Use of Lines of Credit 

16. Internal UBS marketing materials stated that the purpose of the LOCs was to 

provide existing customers with liquidity and immediate access to cash in order to cover business 

expenses, acquire real estate, make certain periodic expense payments, or pay for luxury items 

without having to liquidate investment holdings, thus deferring capital gains. 

17. UBSPR customers were prohibited from using LOC proceeds to purchase 

securities.  UBSPR policy prohibited it, as did the customer’s LOC loan agreement with BUSA, 

which restricted the borrower from using the proceeds of any advance to purchase, carry or trade 

in securities.   

18. Ramirez knew that UBSPR policy did not allow customers to use LOC proceeds 

to purchase securities.  UBSPR registered representatives received training on this very 

prohibition.  Further, each LOC application contained a “UBS Bank USA Know Your Customer: 

Appropriateness and Client Verification” (“Client Verification”) form.  This form required the 

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signature of the registered representative indicating the registered representative had explained to 

customers they could not use the LOC proceeds to purchase or carry securities.   

C. Closed-End Funds 

19. The CEFs are closed-end investment management companies incorporated under 

the laws of the Commonwealth of Puerto Rico and available only to Puerto Rico residents.  Since 

1995, UBSPR offered its customers twenty-three CEFs, for which UBSPR served as primary 

underwriter and as sole or co-manager.  The CEFs are not registered with the Commission, are 

not traded on any exchange or quoted on any quotation service, and are non-marginable 

securities.  UBSPR has been the only secondary market dealer or liquidity provider for the sole-

managed Funds and the dominant dealer for several co-managed CEFs. 

20. Nearly all of the CEFs invest in similar securities.  The CEFs’ investment 

portfolios are generally concentrated in Puerto Rico municipal bonds, which produce tax-free 

interest income, and the dividends the CEFs pay to their shareholders are tax-exempt to residents 

of Puerto Rico.  Indeed, for eligibility for such tax benefits, CEF portfolios have to be comprised 

of at least 67% in Puerto Rico issuers.  The CEFs are significantly leveraged, financing 

approximately 50% of their total assets, and thus, as a leveraged product, bear the concomitant 

level of risk.  

21. Although the CEFs invest a high percentage of their portfolios in Puerto Rico 

bonds, the CEFs are not fixed-income securities.  The dividends payable to shareholders can vary 

based on a number of factors, including prevailing variable margin loan rates payable by the 

particular CEF, interest rates, the market value of the securities within the CEFs, and various fees 

and expenses. 

 

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D. Ramirez’s Scheme, Misrepresentations and Omissions 

22. Because customers could borrow money through their LOCs at rates as low as 1.5 

percent and the CEFs were generating returns of greater than 6 percent, Ramirez saw an arbitrage 

opportunity for customers and an opportunity to increase his production and commissions if 

customers purchased additional CEF shares with the proceeds of LOCs.  Ramirez presented this 

opportunity to customers as a way to make additional money by using the LOCs to increase their 

CEF holdings, notwithstanding his knowledge that UBSPR and BUSA prohibited customers 

from using the LOC proceeds to purchase securities. 

23. In order to circumvent UBSPR’s policy against using LOCs to purchase 

securities, and evade detection of his scheme, Ramirez instructed customers to withdraw funds 

from their BUSA LOC accounts, deposit those funds into an account at another bank, wait 

several days, and then re-deposit the funds from the outside bank account into a UBS brokerage 

account, where the funds would then be used to purchase CEFs.  This was despite Ramirez 

signing the Client Verification form attesting that he had explained to customers that they could 

not use LOC proceeds to purchase or carry securities. 

24. Ramirez misrepresented to customers that they were not violating UBSPR policy 

as long as they first transferred the proceeds to an outside bank account.  In several meetings 

with customers where Ramirez presented this strategy, Ramirez would take a dollar bill out of 

his wallet and say, “If I give you this dollar and you bring [another dollar] back next month, it’s 

not the same dollar.”  Based on Ramirez’ advice, customers either wrote a check or requested a 

wire transfer from their BUSA LOC account for deposit into their personal bank accounts at 

outside banking institutions and then re-deposited the funds into their brokerage accounts and 

purchased CEF shares. 

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25. When combined with the leverage inherent in the CEFs, Ramirez, by treating the 

LOC accounts as de facto margin accounts, exposed customers – many of whom were listed in 

their account documents as being “conservative” or “moderate” with regard to risk tolerance – to 

a significantly greater risk than they otherwise would have been exposed to.  

26. Ramirez misrepresented the true risk of the CEFs, and would instead refer to them 

as stable investments akin to bonds.  Ramirez routinely told customers that their investments in 

CEF’s were so safe that “Plaza Las Americas will go bankrupt before anything happens to your 

money.” 

27. Ramirez also did not explain to customers that if the value in the collateral 

account decreased below a certain level, the customer would be notified via a maintenance phone 

call from UBSPR.  Further, Ramirez did not explain to the customer that if, after receiving the 

maintenance call, the customer did not deposit sufficient funds or collateral, UBSPR could 

liquidate the customer’s investments in order to satisfy the outstanding maintenance call.  

Nonetheless, Ramirez signed multiple Client Verification forms, falsely representing that he had 

explained these risks to the customer. 

28. In 2011, when confronted with suspicions of this scheme by his branch manager, 

Ramirez denied any impropriety and expressed outrage that his integrity was being questioned.  

Ramirez gave an alternative explanation that funds transferred into the customer’s UBS 

brokerage account soon after the customer withdrew a similar amount from his LOC account 

were actually the proceeds of a real estate transaction of the customer.  This was a lie.  Ramirez 

continued to engage in his misconduct for approximately two more years after being confronted 

by his manager. 

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29. Throughout, Ramirez’s LOC production, and thus LOC related compensation, far 

outpaced his peers.  Ramirez was one of the leaders in banking products production, not only in 

Puerto Rico, but across UBSFS nationwide, despite the fact that, unlike stateside registered 

representatives, registered representatives in Puerto Rico could not offer mortgages to customers.  

Ramirez received recognition as a “Banking Champion” from UBSFS, which entitled him to 

additional compensation and also invitations to corporate events.   

E. Consequences of Ramirez’s Fraudulent Conduct 

30. In 2013, the Puerto Rico bond market declined.  The erosion caused a substantial 

decrease in the value of the CEFs, in part because the CEFs employed leverage up to 50 percent 

of the total CEF assets.  Many of Ramirez’s customers with LOCs collateralized by brokerage 

accounts holding CEFs began receiving maintenance calls.   

31. As of late summer 2013, at least 38 Ramirez customer accounts which used LOCs 

to purchase CEFs received maintenance calls of at least $37 million.  Customers were thus 

required to increase their collateral, pay down the loan by a certain amount, or risk their 

collateral being liquidated.    

32. In August, 2013, Ramirez took leave and was unreachable by his customers and 

UBSPR. 

33. Ramirez was terminated by UBSPR as a result of his conduct. 

34. As a result of his fraudulent conduct Ramirez illicitly profited at least $2.8 

million.  

  

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COUNT I 

Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(1) of the Securities Act 
 

35. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

36. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of 

securities by the use of any means or instruments of transportation or communication in 

interstate commerce or by use of the mails, directly or indirectly knowingly, willfully or 

recklessly employed devices, schemes or artifices to defraud. 

37. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 17(a)(1) of the Securities Act [15 U.S.C. 

§ 77q(a)(1)]. 

COUNT II 

Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(2) of the Securities Act 
 

38. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

39. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of 

securities by the use of any means or instruments of transportation or communication in 

interstate commerce or by use of the mails, directly or indirectly obtained money or property by 

means of untrue statements of material fact or by omitting to state material facts necessary in 

order to make the statements made, in the light of the circumstances under which they were 

made, not misleading. 

40. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 17(a)(2) of the Securities Act [15 U.S.C. 

§ 77q(a)(2)].   

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COUNT III 

Fraud in the Offer or Sale of Securities in Violation of Section 17(a)(3) of the Securities Act 
 

41. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

42. From at least as early as 2006 through 2013, the Defendant, in the offer or sale of 

securities by the use of any means or instruments of transportation or communication in 

interstate commerce or by use of the mails, directly or indirectly engaged in acts, transactions, 

practices or courses of business which operated or would operate as a fraud or deceit upon the 

purchaser. 

43. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 17(a)(3) of the Securities Act [15 U.S.C. 

§ 77q(a)(3)]. 

COUNT IV 

Fraud in Violation of Section 10(b) and Rule 10b-5(a) of the Exchange Act 

44. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

45.  From at least as early as 2006 through 2013, the Defendant, directly or indirectly, 

by the use of any means or instrumentality of interstate commerce, or of the mails, knowingly, 

willfully or recklessly employed devices, schemes or artifices to defraud in connection with the 

purchase or sale of securities. 

46. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] 

and Exchange Act Rule 10b-5(a) [17 C.F.R. § 240.10b-5(a)].   

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COUNT V 

Fraud in Violation of Section 10(b) and Rule 10b-5(b) of the Exchange Act 
 

47. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

48. From at least as early as 2006 through 2013, the Defendant, directly or indirectly, 

by the use of any means or instrumentality of interstate commerce, or of the mails, knowingly, 

willfully or recklessly made untrue statements of material facts and omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they 

were made, not misleading, in connection with the purchase or sale of securities. 

49. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] 

and Exchange Act Rule 10b-5(b) [17 C.F.R. § 240.10b-5(b)].   

COUNT VI 

Fraud in Violation of Section 10(b) and Rule 10b-5(c) of the Exchange Act 

50. The Commission repeats and realleges paragraphs 1 through 34 of this Complaint 

as if fully restated herein. 

51. From at least as early as 2006 through 2013, the Defendant, directly or indirectly, 

by the use of any means or instrumentality of interstate commerce, or of the mails, knowingly, 

willfully or recklessly engaged in acts, practices and courses of business which operated or 

would operate as a fraud or deceit upon any person in connection with the purchase or sale of 

securities. 

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52. By reason of the foregoing, the Defendant violated, and, unless enjoined, is 

reasonably likely to continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] 

and Exchange Act Rule 10b-5(c) [17 C.F.R. § 240.10b-5(c)].   

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests this Court issue a Final 

Judgment: 

I. 

 Permanently enjoining Defendant Ramirez and his agents, servants, employees and 

attorneys, and all persons in active concert of participation with him who receive actual notice of 

the injunction by personal service or otherwise, from violating the federal securities laws alleged 

in this Complaint; 

II. 

 Ordering Ramirez to disgorge any and all ill-gotten gains he received as a result of his 

violations of the federal securities laws, plus prejudgment interest thereon; 

III. 

 Ordering Ramirez to pay civil money penalties pursuant to Section 20(d) of the Securities 

Act [15 U.S.C. § 77t(d)], and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; and 

IV. 

 Granting such other and further relief as the Court may deem just and proper. 

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14 
 

V. 

 Further, the Commission respectfully requests that the Court retain jurisdiction over this 

action and over Defendant in order to implement and carry out the terms of all orders and 

decrees that it may enter, or to entertain any suitable application or motion by the Commission 

for additional relief within the jurisdiction of this Court. 

 

AND DEMAND FOR JURY TRIAL 

 

Dated:  September 29, 2015 

Respectfully submitted, 
       
 
     By: /s/ Russell Koonin   
      Russell Koonin 

Senior Trial Counsel 
PR Court ID No. G02302 
Telephone: (305) 982-6385 
Email: [email protected] 
 
Sean O’Neill 
Staff Attorney 
PR Court ID No. G02303 
Telephone:  (305) 982-6302 
Email:  [email protected] 

 
Attorneys for Plaintiff 

      SECURITIES AND EXCHANGE    
      COMMISSION 
      801 Brickell Avenue, Suite 1800 
      Miami, Florida  33131 
      Telephone: (305) 982-6300 
      Facsimile:   (305) 536-4154 

Case 3:15-cv-02365   Document 1   Filed 09/29/15   Page 14 of 14


	SECURITIES AND EXCHANGE COMMISSION,