Puerto Rico Bond Fund Cases to Move Forward, as Arbitrators Found

The Financial Industry Regulatory Authority (FINRA) has lifted a temporary hold that has been in place for the past month involving arbitration claims filed over Puerto Rico bond fund losses, indicating that it now has enough arbitrators available to handle the caseload.  

FINRA removed the hold on Monday, after placing a stay on all newly filed cases the influx of cases, due to a lack of qualified arbitrators to hear the cases.

This week, FINRA indicated that it has about 700 arbitrators available to hear the investor claims, which likely will require them to travel to Puerto Rico where the cases will most likely be decided.

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According to Puerto Rico bond fund arbitration guidance released by FINRA on April 7, the agency has received at least 209 Puerto Rico bond fund claims from investors who say they lost money because UBS and other brokerage firms allegedly provided false and misleading information about the safety and security of the investments. FINRA expects hundreds more claims for arbitration to be filed.

FINRA notes that almost all of the claimants to date reside in Puerto Rico and the agency indicates that its procedures call for cases to generally be venued where the claimant resides. The organization says it does not intend to change that policy for the Puerto Rico bond fund cases. This has required FINRA to hire more arbitrators who are available to go to Puerto Rico to decide the claims.

FINRA is a non-governmental regulatory agency that 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, which involve claims that the brokerage firm 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 in February. The downgrade came after the island territory failed to address fiscal problems that include $70 billion in debt.


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