Puerto Rico Bond Arbitration Claims Overwhelming FINRA

The Financial Industry Regulatory Authority (FINRA) has seen so many investor arbitration claims filed over Puerto Rico bond fund losses, that the non-governmental agency indicates that it does not currently have enough arbitrators to handle the caseload.

At least 165 Puerto Rico bond fund cases have been filed by investors against UBS and other brokerage firms, claiming that false and misleading information was provided about the safety and security of the investments. However, some estimates suggest that more than 500 arbitration claims are likely to be filed in the coming months.

As a result of the large number of claims coming in, FINRA has placed a stay on cases that have not already been assigned to an arbitration panel, indicating that there are not currently enough arbitrators available to hear the cases. The stay is expected to last about two weeks, as the organization searches for more arbitrators to resolve the investor claims.

FINRA handles all disputes between investors and stockbrokers or other financial firms. It was created in July 2007, as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

UBS faces a growing number of investor lawsuits and arbitration claims over the Puerto Rico bond funds. Investors allege the company misrepresented the risk involved with Puerto Rico Municipal Bonds.

According to allegations raised in many of the complaints, UBS pitched Puerto Rico bond funds as safe and secure, targeting the investments toward elderly people and others who rely on municipal bond funds for retirement.

Puerto Rico municipal bonds funds have spiraled down into junk ratings as the country undergoes an economic crisis. UBS sold many bond funds that were allegedly over-invested in Puerto Rico muni bonds. Although the funds previously provided high yields and involved special tax benefits, UBS has been targeted for how it has handled the problem.

UBS Puerto Rico municipal bond investors suffered losses of at least $1.66 billion during the first three quarters of 2013, and that was before they were downgraded to “junk” status last month. The downgrade came after the island territory failed to address fiscal problems that include $70 billion in debt.