Category Archives: FMR Co. Inc.

Kiplinger Warns Investors Of Dangers in Puerto Rican Bonds

Last month, on September 17, 2013, Kiplinger warned investors of the dangers of Puerto Rican municipal debt. This month Massachusetts securities regulator William Galvin initiated an inquiry by contacting UBS,  Oppenheimer and Fidelity’s FMR Co. regarding their sales practices related to the island’s bonds.

According to the Kiplinger article, Puerto Rico, which has population of less than 4 million people have outstanding government debt of $53 billion. The only states with more debt are New York and California. In case you wonder, those states have populations of 19.5 million and 38.2 million, respectively. The municipal debt per person is astronomical in Puerto Rico compared to New York and California. This equates to per capita debt of $11,000 in Puerto Rico. Compare that to the per capita income of $10,500 and it is easy to understand the reason there is a problem.
Kiplinger lists the following 20 funds with greatest exposure to Puerto Rican bonds:
Fund % in PR Bonds
Franklin Double Tax-Free Income A 65.9%
Oppenheimer Rochester VA Muni A 31.1%
Oppenheimer Rochester NC Muni A 30.6%
Oppenheimer Rochester MD Muni A 30.3%
Oppenheimer Rochester AZ Muni A 27.1%
Oppenheimer Rochester MA Muni A 26.5%
Oppenheimer Limited Term NY Muni A 26.2%
Oppenheimer PA Muni A 25.1%
Rochester Municipals A 24.8%
Oppenheimer Rochester Michigan Muni A 22.2%
Wells Fargo Advantage WI Tax-Free Inv 21.0%
HighMark WI Tax-Exempt A 20.4%
Oppenheimer NJ Muni A 20.2%
Oppenheimer Rochester AMT-Free NY Muni A    19.0%
Oppenheimer Rochester Ohio Muni A  15.9%
Nuveen MD Muni Bond I 15.0%
Nuveen CT Muni Bond A 14.5%
Nuveen WI Muni Bond A 14.1%
Nuveen VA Muni Bond A 13.5%
Western Asset Oregon Municipals A 13.5%
Brokers and brokerage firms have a duty to make suitable recommendations to investors. Given the problems Puerto Rico has had with its economy over recent years, it would not be suitable to recommend to conservative investors to invest in funds which had significant exposure to Puerto Rican municipal debt.
If you have suffered losses due to the decline of funds you own containing Puerto Rican bonds, you may be able to recover damages.

Rex Securities Law , located in Boca Raton, FL, provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Rex Securities Law

561 391 1900

Puerto Rico Bonds Subject of Regulatory Investigation

by Robert H. Rex, Esq. 

On October 9th, 2013, Massachusetts Securities Regulator William F. Galvin announced that inquiry letters have been sent to Fidelity’s FMR Co., Inc.; Oppenheimer Funds (a unit of Massachusetts Mutual Life Insurance Co.; and UBS Financial Services in connection with the sale of Puerto Rican municipal debt. 

The release makes the following points: 
  • Puerto Rico is currently on the verge of insolvency and many of its obligations are at or near junk rating, thus the risks associated with its municipal debt obligation are disproportionally high. 
  • Puerto Rican municipal debt obligations have been popular with retail investors because they have historically been accompanied by high yield and are exempt from all taxes – local, state and federal.
  • Because of the advantageous yields and tax benefits many Massachusetts municipal bond funds have a high concentration of Puerto Rican debt.

Puerto Rico’s Financial Crisis

The economy in Puerto Rico began a recession in 2006 and forecasts for 2014 are not optimistic. This shrinking economy has severley weakened the municipal bond market. Puerto Rico’s debt is over $70 billion, there is unemployment of over 7% and the population of the island has been shrinking for more than 10 years. 

During August/September 2013 Puerto Rico’s bonds have lost 40% or so of their value and now have yields on a par with Greece. Rating agencies have lowered ratings on Puerto Rican debt to a level just above Junk Bond status. 

Morningstar reports that most (77%) mutual funds hold Puerto Rico bonds. In addition to the companies being investigated by Massachusetts other companies such as Eaton Vance, Franklin Templeton, Highmark, Nuveen, Wells Fargo, Western Asset and others sold mutual funds containing these troubled investments. 

Investors would be wise to check their portfolios to see if any of your mutual funds contain Puerto Rican municipal debt. 

For a listing of some of the UBS Puerto Rico bond funds, see this. 

For a listing of the 20 funds with the greatest exposure to Puerto Rican bonds, see this. 

Investors suffering losses on Puerto Rico municipal bonds, whether purchased directly or contained in a mutual fund you own,  may be able to recover damages. 

Call us for a no charge consultation with an experienced securities attorney. 

Rex Securities Law

Nationwide representation. 

561 391 1900