The Financial Industry Regulatory Authority, Inc. (“FINRA”) announced that it has expanded its pool of arbitrators who can preside over cases in Puerto Rico in order to administer the hundreds of customer cases regarding the sale of Puerto Rican municipal bond funds. More than 200 cases have been filed in Puerto Rico by customers who allegedly incurred a financial loss as a result of their investments in Puerto Rican closed-end municipal bond funds. Claims have been filed against UBS Financial Services Inc. (“UBS”), Merrill Lynch, Pierce, Fenner & Smith, Santander Bank, Oriental Financial Services, Corp., and other firms. Indeed, as we have previously blogged, numerous lawsuits have been filed against UBS for the sale and marketing of highly leveraged, risky closed-end bond funds that were heavily invested in Puerto Rican municipal debt. It has now been reported that investors’ losses in the Puerto Rico closed-end municipal bond fund investments have risen to billions of dollars. According to reported research, nineteen (19) closed-end local municipal bond funds sold by UBS brokers in Puerto Rico lost $1.66 billion in the first nine months of 2013, with the biggest losers being UBS Puerto Rico funds that had large holdings of municipal bonds that were originally brought to market with UBS as the underwriter.
FINRA Rules require that cases are heard in the state or jurisdiction closest to where the claimant lives, unless the claimant and respondent agree to a separate venue. There were only nine (9) arbitrators in Puerto Rico presiding over FINRA cases who could not reasonably handle the hundreds of filed cases. As a result, FINRA stopped assigning arbitrators to new cases regarding the Puerto Rican closed-end municipal bond funds and needed to determine a new method for how to administer this localized high volume of cases. Now, FINRA has agreed to select arbitrators in the southeastern United States and Texas to preside over such cases. Indeed, 700 arbitrators from the southeast region and Texas have agreed to fly to Puerto Rico to preside over these cases. UBS and Merrill Lynch have agreed to pay for translators for the proceedings in which they are named. FINRA is attempting to have other firms named in these cases agree to share some of the administrative costs. Further, FINRA is also allowing arbitrators to hear more than one case related to the Puerto Rican closed-end municipal bond funds even though that is normally prohibited based on the idea that it could lead to possible arbitrator bias.
Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with various firm’s sale and marketing of various highly leveraged closed-end bond funds to customers in Puerto Rico. Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers and investors who have suffered losses, including experience in prosecuting claims involving leveraged funds. Additionally, Lax & Neville LLP has nationally represented small broker-dealers, investment advisers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.