José G. Ramírez Arone Jr., a notorious financial investment broker known as the “Whopper”, pleaded guilty on Friday for bank fraud in the Federal Court of the District of Columbia for a case investigated by the Puerto Rico office of the Federal Bureau of Investigations (FBI). What is known until now, this is the first criminal result that has been registered in the debacle of the UBS investment bank in Puerto Rico since the cases had been brought forth, some of them controversial, including fines and restitution payments at the administrative level both in the Government of Puerto Rico as in the federal government.
According to the documents that NotiCel obtained, the case of Ramírez Arone Jr.’s agreement does not entail cooperation with the authorities on behalf of the broker. The admission of guilt was registered last Friday before Judge Thomas F. Hogan, who ruled on February 8, 2019. The offense carries a penalty of 30 years in prison and a fine of at least $1 million but, as part of the agreement, the prosecution would ask the judge for a sentence of between two years and three months to three years and one month in prison for the man who now resides in Maryland and is 60 years old. There does not seem to be an agreement on the fine that, depending on the facts of the case, can be up to almost $3 million.
The case was filed on October 30 through the complaint mechanism, which in the federal system means a direct accusation that has not passed through the crucible of a grand jury but is accepted by the accused. The process was handled by the prosecutor Cory E. Jacobs, of the Financial Fraud Unit of the Department of Justice in Washington, and not the prosecutor’s office of Puerto Rico, although the FBI office in the Island conducted the investigation.
According to the criminal acts accepted, between January 2011 and September 2013, Ramírez Arone Jr. generated commissions for $1,225,500 as a result of an illegal scheme in which his clients fraudulently obtained lines of credit from UBS Bank in Utah, a subsidiary of UBS Financial Services. The broker knew that his clients used the funds of the credit lines improperly when they used them to buy bonds and investment instruments, something that was prohibited under the terms of the line of credit. These investment instruments were closed funds managed by UBS itself in Puerto Rico and that were highly exposed to the bonds of the Government of Puerto Rico. When these public bonds went down, the Ramírez Arone Jr. scheme collapsed as the funds’ investments lost value and their clients were caught between the fall in the value of the funds and the fact that they had borrowed to buy those investments.
To execute the scheme, Ramírez Arone Jr. specifically instructed his clients to make a false representation in the part of the application of the line of credit that asked what would be the use of the funds of the line.
Although the criminal complaint covers since 2011, an administrative investigation of the Securities and Exchange Commission (SEC) indicates that the fraudulent conduct began at least in 2006 and that UBS Puerto Rico did not have the procedures to detect the fraudulent conduct, for which it agreed to disburse SEC $15 million in fines and restitution for victims. In addition, this administrative process covered the supervisor of Ramírez Arone Jr., the manager of the branch of UBS in Guaynabo, Ramiro L. Colón III, who paid a fine of $25,000 but had no greater consequence than a suspension of his managerial roles for one year.
UBS dismissed Ramírez Arone Jr. in late 2013 after an internal investigation. The broker was considered a star in the financial world of the island due to the high profile of its client base. Ramírez Arona Jr. still faces a civil claim from the SEC.
The disputes of the clients of the broker with UBS are some of the thousands of lawsuits that UBS Puerto Rico has faced in arbitration and for which it has already paid $329.5 million.