>> announcer: this is "nightly busi with ty good evening and welcome to this special edition of "nightly busi" i'm sue herera. tyler mathisen is off. tonight we're bringing you two investigative stories, stories you may not know a lot about, but stories that affect both business and investors. we begin with a story about puerto rico. it will be years before it recovers from hurricane maria which wiped out large parts of the island and crippled the already crumbling power grid. but another story of devastation began brewing before that storm. it's a story our investigative unit has been working on over the past six months. he picker's report

>> reporter: on this storm-battered, t 3.4 million r are trying to put theiv hurricane maria devastated them. but as the hurricane hit, many on the island were also struggling from another storm. one that decimated their life savings. >> there's hope. there's no hope. in this situation, what a it's sad. very sad. >> reporter: along with two other relatives, he, his wife, and his brother say they lost almost $2 million, duped into putting their retirement savings into funds filled with puerto rico bonds, sold to them as a safe investment. now they're worth next to nothing. the family blames ubs, the global bank with a u.s. wealth management division in weehawken, new jersey. our investigation found that top executives at ubs americas had direct knowledge that brokers

here in puerto rico were selling funds filled with risky puerto rican bonds even as the economy was crumbling. thousands of residents put their life savings into these funds. and as bond prices started plummeting, they lost nearly everything. we obtained about 2,000 pages of internal e-mails, arbitration filings, and other confidential documents that show top executives at ubs knew what was going on with these risky bond funds and did little to stop it. >> i've likened it in my mind to a drug dealer, you know, supplying a drug to its client, that they know is not good for them, but they keep doing it anyway to enrich themselves. >> reporter: this attorney, who represents the family, has filed hundreds of similar cases. >> it's a family that's been financially robbed of their future, of their security. >> reporter: now retired, the couple were university of puerto

rico history professors. she was the school's dean. miguel was an executive at ibm. >> my family is a very conservative family. we were never attracted to play, you know in the market. whatever we could save. >> reporter: they trusted their broker, this man, david lugo. it was lugo, they say, who advised them to put almost all their money into the puerto rican bond funds. the dividends would help pay for their 97-year-old mother's health care. it was a fund sold only to clients in puerto rico, highly leveraged and unregulated by the sec. ubs controlled the trading of the funds. a regulatory loophole enabled these funds because u.s. territories were exempt from the investment company act of 1940. what the funds contained, though, was a ticking time bomb. overconcentrat the local regulator required at least two-thirds of the funds

hold puerto rican securities to be tax exempt. ubs bumped that up to more than 95% in some cases. as the island's economy crumbled from a decade-long recession and mountain of debt, those funds in recent years became practically worthless. have you ever a situation like this? >> this is in my view, having represented investors for 20 years nationally, completely unprecedented. >> repor in early 2012, ubs issued a report on puerto rico, identifying major issues for investors, including the island's economic recovery slower than anticipated, rising debt burden, and saying that conservative investo with concentrated exposure to any single borrower in the municipal market should pursue portfolio diversificatio t brokers were told in december to keep selling the risky bond funds.

one top ubs executive on the island wrote to a group of financial advisers, "my own impression is over a few months prices will be firmer and today's bad news will be yesterday's news. for some today's prices may offer a buying opportunity." ubs needed to continue selling the bond funds or it would be stuck with all the risk on its own balance sheet, says craig mccann. he runs a securities consulting firm and has testified as a plaintiffs' expert witness during many arbitration hearings. >> well after the recession started in 2007 and 2008, and into the period when it was clear that puerto rican bonds were really risky and these funds being leveraged in the worst of those bonds speculative, extremely risky funds, it's clear that ubs was pressuring its brokers to sell these funds. >> reporter: some puerto rico investors may not have understood ubs' research reports highlighting the risks. they were not translated from

english to spanish. according to testimony we obtained by the top ubs executive on the island, neither were the quarterly or annual reports from the funds. a perfect storm of events throughout 2013 put a spotlight on puerto rico's rapidly deteriorating fin situation, as rumors swirled that the island could be the next detroit. the u.s. city which filed for bankrupt that sparked a drop in the value of the bon the investors decided it was time to speak with their broker, david lugo, in person. the family stuck with the bond funds. puerto rico started bankruptcy-lik proce this year. the bonds plummeted in value then and were hit even harder after hurricane maria. to try and recoup some of their losses, the family filed a claim against ubs for, among other things, breach of fiduciary duty, negligence, and fraud. >> all our savings, our entire life of work, went to ubs.

feeling that they were safe. >> reporter: who do you think is to blame here? >> the company, ubs. we didn't know we trusted. we tho >> reporter: ubs is fighting the family's complaint, saying that their losses were due to market forces beyond the company's control and that all the necessary disclos were provided. ubs has already paid over $300 million to former clients who purchased the bond funds and sued the company. clients have filed more than 1600 cases against the firm and about 700 are still pending. the family's broker, lugo, has racked up more than 140 customer disputes on his broker profile related to sales practices of the closed-end funds. one client is alleging damages as high as $90 million. his attorney told us lugo is not

talking. so we went looking for lugo on our second trip to puerto rico in november. six weeks after the hurricane made landfall. we drove into the upscale gated community where we found lugo's home. his wife answered the door. she didn't want to be on camera and asked me to come inside where she called her husband to come home. about ten minutes later, he arrived, getting out of his car and looking at our cameras without saying anything, as he quickly walked in and closed the door. there he asked me to speak with his attorney again by phone. after about a half hour, i left. he said that he's not like other broker, he cares about his clients, there's not much more he can say without his lawyer. lugo is no longer working at the company. years before the funds imploded, a branch manager in puerto rico compiled a list of 22 concerns in an e-mail that his brokers had.

among them, excessive leverage, instability of prices, excess supply, and geographic concentration. l years later, ubs puerto rico chairman miguel ferrer wrote to his bosses in weehawken in april 2013 that financial advisers were requesting a risk analysis of the total puerto rico bonds held on margin to understand the worst and probable scenarios over the next 12 to 18 months. that prompted a sharp response from the second in command at ubs americas. "we will not print and give them our stress analysis. we are not going public." he was even more direct the next morning. "the request is absurd and you should know that." ferrer declined to comment. how many of your former colleagues from ubs are in the same boat as you are? >> all of them. >> reporter: jorge and teresa bravo are a brother and sister team who say ubs recruited them in 2011. in the beginning, all seemed to

be going well as the bravos sold the bond funds to 200 clients. teresa invested $200,000 of her own money. today they say they're reputation is ruined. how many complaints did you have before ubs? >> one. >> only one. >> reporter: how many now? >> 13, 14. >> all because of the product. the product exploded, basically. >> reporter: they say that product, the funds filled with puerto rican bonds, destroyed brokers like the bravos and their clients. >> it's basically a disaster, because right now clients blame you. we lost over 50% of our clients. so our personal lives is almost gone there, you have to stress the litigation pending on your cases. what else can go wrong? it's the perfect storm. g bad. >> reporter: the bravos had enough, writing in their resignation letter that they felt oppressed and hazard by

ubs's executives related to unreasonable demds upon brokers. the company, they say, routinely pushed brokers to sell the funds. but ubs didn't tell you what was inside? >> no, of course not. >> reporter: they didn't t how concentrated it was in puerto rican debt? >> no. >> they were supposed to be diversed with u.s. bonds also. >> reporter: mccann says many of the directives came from the top of ubs. >> what was going on in puerto rico was known in weehawken. and that weehawken and ubs ag benefitted. execut in weehawk hau monitored what was going on in puerto rico. >> reporter: the bravos say they are also in litigation against ubs. the company is fighting the claim, saying that during the bravos' tenure, they received more than $1.6 million in loans from ubs which they refuse to pay back. any comments they make now should be viewed in light of

their obvious financial incentives, ubs says. do you believe that you share any blame in what happened? >> in a way, i guess i did because of believing in ubs management, believing that they were telling me 100% the facts, believing that they were protecting our clients' assets, believing that is going to be the best for the clients. but now i see that of course i didn't have the information. >> reporter: that's not the case, according t mccann, who has little sympathy for brokers like the bravos. >> it may be true that some brokers did not know what was in these funds, did not know what to.s th but they were making millions of dollars selling these funds. i don't find it credible. and if it's true, that's not an excuse, because it was knowable. >> reporter: the sec settled with ubs in 2012. and the company settled again

with the sec and finra in 2015 for a total of nearly $61 million over its puerto rico sales practices. ubs did not admit or deny wrongdoing. the department of justice is also conducting a criminal inquiry into a related matter. ubs says it's we tried to get answers from ubs at its headquarters in downtown san juan where we asked to see the head of ubs puerto rico. after waiting for someone to come to the lobby, we were eventually told no one was available. thers no one who can talk with us? nobod here who can talk to us, the ceo is not in the building and they referred me back to comm department. we repeatedly asked for an on-camera intervi with ubs. the company sent us a written response instead. "the puerto rico funds generated more than $3 billion in earnings for investors in a wide variety of market conditions for two

decades," a spokesman for ubs wrote. he added that ubs sent all holders of the funds multiple writte in plain language the risks, including the use and risk of leverage, the possibility that they could become illiquid and that the concentration in puerto rican securities made them sensitive to changes in the puerto rican economy. the spokesman also said many of the funds generated tax-free returns greater t 12% in 2010, 2011, and 2012. the company adds that in 2013, the sec's chief administrative disclosu. when we went back to puerto rico, we found the family in ev. this is the bua d miguel inheri

father. they had collect rent for years. but that source of income stopped after the hurricanes. the restaurant reopened the day we arrived. >> it's a very sad country right now. because you don't see an end in sight. >> are you worried about how long this can go on? >> oh, yes. very, very worried. we say, what is going to happen? how lo >> reporter: can y afford to live in puerto rico when it's like this? >> this is where we live. we will have to adjust. so for me to say that i can leav puerto rico, it won't happ it won't happe

♪ >> reporter: after puerto rico began bankruptcy proceedings earlier this year and subsequently following the hurricane, there has been even more litigation filed by owners of individual bonds rather than the bond funds. experts say we've only seen the tip of the iceberg in claims in puerto rico and expect a new wave in the new year. >> leslie, does congress show any appetite at all for closing the loophole that really allowed all of this to happen? >> reporter: interestingly enough, there has been legislation put forth twice before, both times through the house by congresswoman nydia velazque of new york, saying

that the loophole is an outdated governing technique, put forth in the 1940s when it was deemed too expensive to regulate puerto rico. that legislation has been blocked twice in the past. now, she put forth the legislation again. it has made its way through the senate to close that loophole. but again, little progress has been made on that front. it's something that we're definitely looking into. >> i know you'll be following that for us. what about the puerto rican government, does bear a inter ibi enough, the puerto rican government has taken a lot of criticism by people in puerto rico and elsewhere for their appetite to take on so much debt. a lot underwriters and advisers to the puerto rico government were ubs and other brokerage firms who were participating in the issuance of this debt as it became $74 billion in total, which is why they have been unable to pay back that debt and have been undergoing restructuring agreemts currently. and so a lot of people look at that and say, was the government, was the puerto rico

government too cozy with the brokerage firms down there, and is that a reason why we're in the situation we're in. >> i know you'll be following it for us, great work, thank you, leslie. leslie picker. giving a gift card this year? well, here's something you probably didn't know. these cards are sometimes at the center of fraudulent schemes, with estimated losses in the billions. and stores across the country are being targeted. contes. >> reporter: inside some of the country's biggest retailers, there's a shadowy world of commerce, crime, and drugs. and at the center, gift cards. are gift cards currency you can use to pay for drugs? >> yes. most >> reporter: by all appearances, these four women could be tidying up what looks like a college dorm room. but this is no university. it. >> that worthlessness, i mean, that guilt and shame that i feel

every day that i chose drugs over my son. every day. no way. >> reporter: and these women aren't students. they are patients. struggling with crippling addiction. >> i definitely have stolen. i have took advantage of people. >> reporter: they sat down with us at a drug treatment facility in jacksonville, florida. 23-year-old chn boot's drug of choice? oxycodone and heroin. she's been arrested twice for gift card fraud. >> i would go and take things off the shelf, make sure i left the store so on camera it would look like i purchased the items, then come back and go to customer service. >> reporter: some of the biggest national retailers are some of the biggest targets because of relaxed return policies. >> i would go to home depot, lowe's, walmart, stuff like that, take stuff, leave, go to another home depot, take it back and get a gift card. >> reporter: sometimes drug

dealers directly accept the cards as payment. >> your dealer will only want to do like 25, and nine times out of ten they won't give you cash, they'll just give you product. >> just what we all need. >> right. ultimately what our goal is anyways. >> right. >> reporter: but more often, the cards get sold to third parties. corn stories, pawn shops and specialty retailers make it easy to get cash. >> there's a ton of people who are going to want $50 worth of victoria's secret stuff for $25. >> reporter: joshua lopez is in recovery and now works at a treatment center in tampa. he and his co-workers say the gift card for cash scheme is common knowledge among users. >> as an addict doing this, you start -- like you learn this stuff. like, i don't rem exactly how i learned it. i just learned it. >> reporter: the national retail federation found 57% of companies reported fraudulent gift cards or store credit in at least one location. that's down from two-thirds in

previous years. home depot has been a preferred target for addicts. the company told us, of course it impacts our bottom line, but it's also about the safety of the community. drug trafficking, even >> it's our experience that they're going to commit these crimes when they're desperate and needing their next fix. >> reporter: we ride along with lieutenant david ballard, on a task force devoted to retail theft in the memphis area. >> they'll go to one store, then they'll go right next door to the next store. >> reporter: the cdc ranks tennessee the third highest in per capita opioid prescriptions. shoplifting, return fraud, and gift card abuse have skyrocketed in the state. and nationally, every law enforcemt agency we reached out to, and every drug addict we talked to, confirms the connection b.

deputies arrive at jcpenney to arrest an employee for embezzlement regar gift cards. suddenly -- [ sirens ] -- they spot a theft in progress at this store and give chase through the mall parking lot. the suspect is cornered and arrested for shoplifting. investigators fin a slew of gift cards. >> this is a vanilla card. . >> would you mind just explaining to me about the gift cards? >> reporter: neith suspect wanted to talk. and investigators have not linked their alleged crimes to drugs. >> within an hour, we had two incidents at the same story, one arrest, and anotherg the arrest takes place. >> reporter: just a normal tuesday? >> normal tuesday. >> reporter: no national database tracks the sale and purchase of gift cards. but a few states are aggressively trying to change that, because of the opioid

crisis. a national retail report shows tennessee loses more than $14 million a year in state sales tax that gets refunded to thieves who never paid it in the first place. tennessee state senator richard briggs is also a medical doctor. he points out an astonishing connection to that fraud. in one tennessee county alone, in one month, police linked 16 of 19 overdoses to the sale of gift cards. in the city of knoxville, it was 83 of 98 overdoses with ties to give the cards. what was your reaction when you saw ? >> absolute shock. it would be no different than if there was a rock lying there and you lifted it up and this horrible smell came out and this monster came out. we had no idea the organized retail theft was related so intimately with the opiate and drug trade in general in

appalachia. >> reporter: briggs got legislation passe that sets up a database to record gift card sales. but it's not enforced. so he's going back next year to try to stren i don't think this is the sole problem to financing the opioid problem in tennessee. but it's one part of the problem. and right now it's a very big part of the problem. >> reporter: part solution may be software that tracks the gift cards. retail theft analysis ceo matt ryan says his company's technology is already in use in tennessee and florida. >> these are actual cards. and this person is an actual individual. he is actually sold $349,000 worth of cards. this data tells me this is somebody they should look at pretty closely. the other thing i would look at is what store he's selling it to. because this type of store is obviously not really examining who they're buying cards from. >> reporter: nationa retail chains are also grappling with the problem of return fraud and gift card abuse. target tells us part of our goal is to reduce the number of

fr ret so we limit the value of returns without a receipt. walmart explains it has procedures to closely monitor merchandise returns where no re is provided. lowe's says it takes retail return fraud very seriously and will hold perpetrators accountable for their illegal conduct. and home depot is recently cracking down with a change in return policy. the company tells us it only accepts store credits for its instore purchases and "we require proof of i.d. when store credits are redeemed at checkout because of the increase in return fraud." as far as gift cards, home depot says it won't allow customers to buy them with store credit. again, due to potential fraud. in the end, making it more difficult for addicts to turn cards into cash may be only a temporary obstacle to the next fix. >> when you're suffering from addiction, any length means any

length. y charges you have. one is never enough and a thousand too many. >> reporter: no matter the cost, homes, jobs, friends, and family. >> i've always told myself i woul a wonderful mom. i would do anything for my little girl. it's crazy to look back and see all the times that i just didn't care. >> repor thank you for watching this special edition of "nightly busi" have great evening, everyone, .nd merry christmas.

>> this is "bbc world news america." funding of this presentation is made possible by the freeman foundation, and kovler foundation, pursuing solutions for america's neglected needs. and now, "bbc world news." >> this is "bbc world news." i am gavin gray. our top stories -- the pope in his christmas blessing has called for negotiation to end the conflict between israel and the palestinians. pope francis: on this festive da