What Can UBS Clients With Losses In The Puerto Rico Bond Funds Expect In The FINRA Arbitration Process?
Most of the victims burned by UBS financial advisors in the Puerto Rico fixed income bond funds have not been involved in a FINRA arbitration claim or lawsuit against a brokerage firm in the past. This is a new experience since only a small fraction of securities fraud victims ever sue their broker or brokerage firm. Most investors don’t know what to expect before partaking in a FINRA arbitration claim against a brokerage firm like UBS.
In order to recover investment losses in UBS Puerto Rico bond funds, clients must sue UBS in FINRA arbitration. The binding arbitration claim that requires arbitration instead of court house litigation through a lawsuit is buried in the new account agreement clients sign when they open up an account with the firm. Clients have no choice but to arbitrate (instead of litigate in court). Most investors are not aware of this fact.
The arbitration claims process usually takes 11-13 months. We expect the FIRNA claims of fraud, lack of due diligence and unsuitable investment recommendations for the Puerto Rico bond losses will take approximately this long.
A claim by the investor’s lawyer is filed with FINRA (the group who administers the arbitration process). UBS answers the claim 60 days later laying out the firm’s defenses. These defenses include arguments like “the client received the prospectus for the Puerto Rico bond fund where the risks were disclosed” and “the client was aware his account was on margin because they had to sign a margin disclosure statement.” UBS may also argue the client’s new account application at the time the account was opened allowed for the utilization of margin when buying closed end, municipal bonds.
The parties then engage in discovery. Discovery in FINRA arbitration is usually more limited than in court. For example, absent extraordinary circumstances, there are no interrogatories or depositions in FINRA arbitration. There are documents required to be produced by both sides in discovery. Clients usually have to provide documents like other account statements for three years prior to the first transaction at issue, tax returns, a CV or resume and other similar documents. UBS will have to produce personnel records of the broker, other complaints against the broker, documents related to supervision, all documents, including marketing material for the UBS Puerto Rico funds, and other similar documents.
Next, there is a pre-hearing conference call held about four months after the claim is filed against UBS with FINRA by the victim’s lawyer and UBS lawyer. The discovery schedule is fully outlined and hearing dates are set. In our law firm’s experience in having handled over 1000 FINRA arbitration claims, approximately 90% of cases settle without an arbitration hearing being necessary. Sometimes the settlement takes places strictly between the lawyers for our law firm and UBS. Other times the cases will mediate (a one day, supercharged negotiation session). If the case settles, it is resolved and the client usually gets paid by UBS approximately 30 days after the settlement is consummated.
If there is no settlement, then there is an arbitration hearing. The hearing usually lasts 3 to 6 days. There are opening and closing statements, and the presentation of witnesses. The investor always testifies about his experience in the funds, what he was told and what he thought the risks of the funds were. The broker who recommended the Puerto Rico bond funds will also testify. The broker’s branch office manager or supervisor will also usually testify as the how the broker was supervised and what was done at the time of the recommendation AND at the time the funds were collapsing. We usually argue there were supervisory red flags that should have alerted the firm to the broker’s conduct. For example, we’ll argue UBS never should have allowed such a massive concentration in a leveraged bond fund and margin or credit purchases were grossly unsuitable for clients given their age, actual investment objectives and financial resources. We’ll also argue the true risks of the Puerto Rico bond funds were not made clear to investors.
Other witnesses can and often do testify like the broker’s sales assistant or secretary, an expert witness (to testify as to how the firm should have supervised the broker and how proper supervision could have prevented the bond fund recommendations from taking place) and other victims (to help build pattern evidence), just to name a few.
Usually within 30 days of the hearing, the client will receive notice from FINRA as to what the arbitrators awarded against UBS, if anything. Arbitrators can give no compensation to the victim or they can award all Puerto Rico bond fund losses, attorney fees, interest costs and punitive damages and literally anything in between. Every case comes down to an assessment of the individual merits of what the brokerage firm and its agent did with respect to recommending the Puerto Rico bond funds, and didn’t do. Usually, there is no description of why the arbitrators ruled the way they did, for or against UBS. This is often frustrating to all parties involved as parties usually want to know why the decision was made for or against UBS.
After the award is rendered, UBS must pay within 30 days. The grounds for appealing (called a motion to vacate) FINRA arbitration awards are highly limited. Though these motions to vacate are more common today than they were six years ago, these motions are still pretty rare and even rarer are they successful.
To learn how purchasers of UBS Puerto Rico Fixed Income Funds can sue the firm to recover investment losses, please contact our law firm for a no obligation consultation at 312.332.4200. More can be learned about arbitration at www.InvestmentFraud.PRO
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