UBS, Merrill push to keep bond fund hearings in Puerto Rico

In confidential meeting, firms' attorneys oppose allowing arbitration cases to be heard in Southeast venues

Apr 4, 2014 @ 1:23 pm

By Mason Braswell

Attorneys for UBS AG and Bank of America Merrill Lynch are opposing an effort that seeks to stem the overflow of hundreds of complaints related to battered Puerto Rico bond funds by diverting cases to arbitration venues in the Southeastern United States.

In a confidential meeting Thursday between Finra officials and attorneys for claimants and respondents, attorneys for the two firms said that the cases should be heard in Puerto Rico, where most of the claimants reside, instead of locations such as Florida and Texas, according to sources present for the discussion.

The parties disagreed, however, as claimants argued that such a decision could cause delays for investors, most of whom are on the island.

How to expand the pool of arbitrators available to hear cases related to declines in the Puerto Rico municipal-bond market remains a point of contention, even as claimants' attorneys prepare to file hundreds of more cases.

Last month, Linda Feinberg, president of dispute resolution at the Financial Industry Regulatory Authority Inc., said that the regulator had temporarily stopped processing new claims as it sorted out how to handle some 200 cases that had already been filed.

There are just nine arbitrators in Puerto Rico, and panels for claims of at least $20,000 comprise three arbitrators.

Finra has sent a staff member to Puerto Rico to try and hire more arbitrators locally, spokeswoman Michelle Ong confirmed.

The self-regulator's guidelines state that the director of arbitration will “generally” select a hearing location closest to the investor's residence at the time of the dispute.

The location may be changed, however, at the discretion of the director or arbitration if the investor has requested a change.

Attorneys for the claimants have asked that investors be able to file complaints outside of Puerto Rico, in the Southeastern U.S. and Texas, on the grounds that more arbitrators would be available to hear the cases and would not require Finra to find arbitrators willing to travel to Puerto Rico.

“I don't think they'll appreciate how often they'll be expected to go to Puerto Rico, and I think it's going to cause a problem,” said one claimant's attorney, Jeffrey Kaplan of Diamond Kaplan & Rothstein PA. “Venue expansion is the most obvious way to address the problem and address the problem in a way that doesn't cause prejudice to either side.”

Mr. Kaplan declined to comment on the meeting specifically because of the confidential nature of what was discussed.

Even if the cases are moved, however, most of the claims would still be filed in San Juan, according to Jeffrey Sonn of Sonn & Erez PLC. He said many of the claimants whom he was representing were elderly and would not want to travel.

“I do not believe that most people will file outside of San Juan,” he said. “I know one of our local Puerto Rico lawyers is only going to have his cases there.”

In addition, because most of the cases settle, it was not likely that the parties would have to travel to attend an in-person hearing session regardless of the location.

Around a sixth of Finra's pool of about 6,300 arbitrators are concentrated in the Southeast, according to Andrew Stoltmann, an attorney representing claimants.

Enlisting them to handle the cases could allow the complaints to be heard in a more timely fashion, even if it meant that claimants had to bear the cost of traveling to the location for hearings, he said.

“For a client to make a two-hour trip to Florida or Texas, that's very easy or do-able,” Mr. Stoltmann said. “It would be $1,000 or $2,000 [for a trip], which is a small price to pay to have the cases decided in one year.”

(See also: Finra examining trading in new Puerto Rico Bonds)

UBS spokesman Gregg Rosenberg declined to discuss details of the meeting because the proceedings were supposed to be confidential.

In an e-mail he wrote that UBS's argument is that “Finra's existing rules on venue should be followed.”

Merrill Lynch spokesman Bill Halldin declined to comment.

Other firms, including Santander Bank and Oriental Financial Services Corp., have also been named in complaints over the bond funds, but the majority of the complaints have been filed against UBS.

Witnesses, including branch managers and advisers for the firms, would also have to travel for the hearings, however. Attorneys representing investors said that firms may want to keep the cases in Puerto Rico because it would provide them a central location where they could work with employees and attend hearings.

Participants in the meeting, which included about 10 to 15 attorneys on each side, Ms. Fienberg and Finra's Southeast regional director, Manly Ray, also spent time discussing how to resolve issues with the language barrier.

Most of the arbitrators who could hear the cases don't speak Spanish and will need a translator, claimants' attorneys said.

The question is who will pay for them.

Finra has said that it will split the costs among the parties, but Mr. Stoltmann said that he disagrees with the decision.

Ms. Feinberg said she hoped to have a resolution regarding how to provide more arbitrators within a week.

Bruce Kelly contributed to this story.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Mar 13



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print