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  • Writer's pictureThe San Juan Daily Star

Whistleblowers want suit against UBS for fraud to go back to local courts

The plaintiffs in the case said removal of the case to the U.S. District Court for the District of Puerto Rico should be denied, and immediate remand should be ordered, firstly because the defendants cannot meet the burden of establishing federal jurisdiction.

By The Star Staff

Two whistleblowers have asked the federal Title III court that oversees the government’s bankruptcy in a recent motion to remand their $50 million lawsuit against UBS Bank to the commonwealth court.

On May 24 of this year, the plaintiffs Francisco Pujol Meneses and Harold D. Vicente González filed a complaint against UBS Bank, USA and UBS Financial Services Inc. in the Commonwealth Court of Puerto Rico on the commonwealth’s behalf and in their capacity as informants of a fiscal fraud they say was perpetrated against the Puerto Rico government.

On July 13 of this year, the defendants asked that the case be removed to the U.S. District Court for the District of Puerto Rico, purportedly based on the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), as a proceeding allegedly “related to” the commonwealth bankruptcy. The plaintiffs said removal should be denied, and immediate remand should be ordered for several reasons. First, they argued the defendants cannot meet the burden of establishing federal jurisdiction. Second, the government’s action is clearly a police power action to deter illegal acts such as tax evasion and tax fraud; and third, the action is not related to any remaining Title III matter pending under PROMESA.

The two Puerto Rico residents brought the suit in what is known as a ‘qui tam’ action, which allows private citizens, known as relators, to sue on behalf of a government to recover money that was fraudulently obtained. In return, they receive a portion of the amount recovered. UBS argued that the case relates to Puerto Rico’s Title III bankruptcy because it can potentially affect distributions under the commonwealth’s plan of adjustment. In this case, the relators or whistleblowers allege that UBS issued thousands of loans, provided other banking services in Puerto Rico without proper licenses, and failed to pay income taxes.

The fraudulent scheme, more specifically, consisted of the failure by the defendant UBS Bank to file income tax returns and the evasion of the payment of income tax to the Treasury Department of the Commonwealth of Puerto Rico as well as municipal taxes (“patentes”) to four municipalities of Puerto Rico for interests earned and collected by UBS relating to loans granted in Puerto Rico, to borrowers residing in Puerto Rico, which were used mainly to finance the purchase or holding of shares of stock of closed end Puerto Rican mutual funds, the suit says.

Those loans were collateralized or guaranteed with liens encumbering the shares of the funds. The shares were maintained in accounts in Puerto Rico with their affiliate UBS Financial Services Incorporated of Puerto Rico.

The relators are seeking the $48.5 million in allegedly unpaid taxes in the decade leading up to 2013 and $1.5 million in outstanding municipal license fees, which can be tripled, in addition to penalties, surcharges and interest.

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