International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Sunday, November 18, 2018

Former Registered Financial Advisor Pleads Guilty to Bank Fraud For Role in Scheme to Fraudulently Obtain and Misuse Credit Lines, Generating Over $1 Million in Improper Commissions

A former registered financial advisor previously employed by UBS Financial Services Inc. of Puerto Rico (UBS-PR) pleaded guilty for his role in a scheme to fraudulently obtain and misuse non-purpose credit lines for purchasing securities, resulting in over $1 million in improperly generated commissions, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Douglas A. Leff of the FBI’s San Juan, Puerto Rico Field Office.

José G. Ramirez-Arone Jr., 60, currently of Fulton, Maryland, previously of San Juan, Puerto Rico, pleaded guilty to one count of bank fraud before U.S. District Judge Thomas F. Hogan of the District of Columbia.  Sentencing has been scheduled for Feb. 8, 2019, before Judge Hogan. 

As part of his guilty plea, Ramirez-Arone admitted that, in his role as a financial advisor, he participated in a scheme in which various of his clients at UBS-PR fraudulently obtained non-purpose credit lines (i.e., credit lines for which purchasing securities was expressly prohibited by an internal UBS-PR policy) offered by UBS Bank USA (UBS-UT), a Utah-based subsidiary of UBS Financial Services, Inc.  He admitted knowing that his clients then misused them by drawing funds from the credit lines for purchasing securities, directly violating the credit lines’ terms of use. 

Ramirez-Arone further admitted that the scheme took advantage of the low interest rate of UBS-UT’s non-purpose credit lines, and the payout interest rate of closed-end funds (CEFs) offered by UBS-PR, which were mainly comprised of Puerto Rican bonds.  Ramirez-Arone admitted that the CEFs had a payout interest rate exceeding the low interest rate of the non-purpose credit lines.  To capitalize on the difference between the low and high interest rates by engaging in arbitrage, Ramirez-Arone advised various clients that they could draw funds from a UBS-UT non-purpose credit line and invest the funds in a UBS-PR CEF, he admitted.

In addition, Ramirez-Arone admitted that, to circumvent the prohibition against purchasing securities with non-purpose credit line funds, and to obscure from UBS-PR the origin of the funds, he advised clients to obtain a UBS-UT non-purpose credit line by misrepresenting in a credit line application the proposed reason for needing the credit line, which was an important piece of information for UBS-UT.  He further admitted that he advised clients—after the credit line was issued—to transfer UBS-UT non-purpose credit line funds to a third-party bank (i.e., outside of the UBS banking system), before transferring the same funds back into the UBS banking system to UBS-PR for investment in a CEF.  This practice diminished UBS-UT’s ability to recognize that funds originating from a UBS-UT non-purpose credit line were later being invested in a UBS-PR CEF.  As a result of at least a portion of his illicit activity, from in or about January 2011 through in or about September 2013, Ramirez-Arone improperly generated approximately $1,225,500 in commissions, he admitted.

This case was investigated by the FBI.  Trial Attorney Cory E. Jacobs of the Criminal Division’s Fraud Section is prosecuting the case.

https://lawprofessors.typepad.com/intfinlaw/2018/11/former-registered-financial-advisor-pleads-guilty-to-bank-fraud-for-role-in-scheme-to-fraudulently-obtain-and-misuse-credit-l.html

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