A senior member of the House Financial Services Committee is calling for a congressional hearing, following a CNBC investigation that found UBS was not forthcoming about the risks associated with its proprietary bond funds sold to residents on the island. Rep. Nydia Velázquez (D-N.Y.) wrote a letter on Thursday to Rep. Jeb Hensarling (R-Texas), the chairman of the committee, urging him to convene a hearing to investigate the marketing and sales practices of investment companies operating in Puerto Rico. "The reported claims of deception, mismanagement, and coercion highlighted in the CNBC article, if true, are egregious, unethical, and potentially illegal," said Velázquez in the letter. "All Americans deserve honesty, integrity, and trust when it comes to investing in our capital markets -- they are the fundamental truths that our free-enterprise system is based upon." "A culture of deception and deceit erodes that trust and could lead investors to lose faith in our institutions and markets," she wrote. Read Velázquez's full letter below:

CNBC obtained 2,000 pages of documents, which detailed the dialogue among executives at UBS related to the firm's proprietary bond funds, which were majority comprised of Puerto Rico debt. The funds, which were not traded on a public exchange, collapsed four years ago, causing thousands of residents on the island to lose their savings. CNBC's investigation, "Broken Bonds," was published Monday. Due to a loophole in a 77-year-old piece of U.S. legislation, none of the funds was regulated by the Securities and Exchange Commission. The Investment Company Act of 1940 allowed funds offered outside of the mainland — in this case, the U.S. territory of Puerto Rico — to avoid restrictions, such as leverage standards and certain affiliated party transactions. Velázquez sponsored a bill that is seeking to close that loophole: The "U.S. Territories Investor Protection Act of 2017" was passed in the House earlier this year and is still awaiting a vote in the Senate. She has said that if Puerto Rico had the same regulatory oversight as the mainland had, much of the residents' losses from the bond funds may have been prevented. The legislation would amend the Investment Company Act of 1940 to repeal the exemption to ensure that financial institutions that operate in Puerto Rico, the U.S. Virgin Islands and elsewhere operate under the same rules as their stateside counterparts. When Congress first enacted the Investment Company Act of 1940, it was deemed too expensive for regulators with the SEC to travel to U.S. territories — which then also included Alaska and Hawaii, in addition to Puerto Rico and the U.S. Virgin Islands. Since then, both Alaska and Hawaii have become states, air travel to and from Puerto Rico has become less expensive, and a large portion of financial activity takes place electronically. Therefore, it would be far easier to patrol financial activities in U.S. territories than it was 77 years ago, Velázquez has argued. This is Velázquez's third attempt at proposing a bill that would close this loophole. Her first effort was in 2015, after she first heard about the substantial losses residents had on the island. That version would have closed the loophole immediately. She tried again in 2016 with an updated version of the bill that included a three-year safe harbor period, with the option for the SEC to grant an additional three-years if warranted. The bill was later approved with bipartisan backing in the House, sending it to the Senate where the bill stalled, unable to get approval before the end of the 114th Congress. "Lobbyists retained by UBS Puerto Rico have tried relentlessly to gut the bill or block it," a Velázquez spokesman said. "What they call modifications would actually prevent the bill from safeguarding Puerto Rico's most vulnerable investors. One need only follow the money and they can draw their own conclusions."

Rep. Nydia Velázquez, D-N.Y. Manuel Balce Ceneta | AP