Crucial Update for UBS Bond Fund Clients: FINRA Makes Decision on Venue and Arbitrators

Today FINRA issued its procedural ruling on cases for people who have filed or are planning to file FINRA arbitration claims for bond fund losses recommended by Merrill Lynch and UBS.  The entire decision is cut and pasted below.  FINRA decided the cases must be adjudicated in Puerto Rico for burned investors from Puerto Rico who dont have residences in other areas of the U.S. FINRA also decided to exapnd the arbitrator pool to include arbitrators from the South East U.S. FINRA region.  Unfortunately, FINRA did not allow Puerto Rican residents to have their cases decided in the U.S.  This will likely lead to delays as many FINRA arbitrators will NOT be willing to travel to Puerto Rico more than one time a year.  As part of the release, FINRA also disclosed UBS and Merrill Lynch agreed to pay the costs of translation services at the actual arbitration hearing. Please contact us for a detailed description as to how this will impact FINRA arbitration hearing for burned clients.

Guidance in Cases Involving Puerto Rico Bonds


Over the past several months, FINRA has received an influx of arbitration case filings relating to Puerto Rico bonds from Claimants, almost all of whom reside in Puerto Rico. As of April 7, 2014, FINRA has received approximately 209 cases involving Puerto Rican municipal securities. FINRA staff has had numerous conversations and communications with counsel for Claimants and Respondents, including an in-person meeting, concerning administration of these cases. In particular, the conversations focused on venue and expansion of the available pool of arbitrators in Puerto Rico. After considerable deliberation, FINRA has determined to issue the following guidance for the administration of these cases.

Guidance for Puerto Rico Bond Cases

Venue: FINRA will determine venue in the Puerto Rico bond cases in accordance with Rule 12213 of the Customer Code of Arbitration Procedure (the “Code”) which states in relevant part that “the Director will select the hearing location closest to the customer’s residence at the time of the events giving rise to the dispute . . . .” FINRA cases generally are venued where the customer resides, the transactions took place, and the witnesses are located. These criteria all point to Puerto Rico as the appropriate venue. Accordingly, FINRA will not modify its existing venue rule and procedures absent the agreement of the parties. Specifically, FINRA will follow Rule 12213 in assigning venue for the following reasons:

  • FINRA’s longstanding rule and policies, which were codified in 2007, were designed for the convenience and protection of customers;
  • The solicitations and transactions in these cases took place in Puerto Rico;
  • Many Claimants in these cases are elderly and travel to the continental United States would be difficult, burdensome and expensive;
  • Many Claimants’ attorneys are located in Puerto Rico and requested venue in Puerto Rico. As of April 7, 2014, approximately 62 out of 209 Claimants are represented by Puerto Rican counsel;
  • As of April 7, 2014, Claimants named individual associated person Respondents in approximately 50 of the 209 cases. Most individual associated person Respondents are located in Puerto Rico;
  • Almost all potential witnesses are located in Puerto Rico, including non-party witnesses;
  • Compelling non-party witnesses located in Puerto Rico to testify at arbitrations in the continental United States may be difficult;
  • The total expenses, including Claimant and witness travel, of requiring individuals from Puerto Rico to travel to the United States would be substantial.

FINRA will continue to allow customers with more than one residence to choose venue based on the location of any of their residences. Further, if all parties in an arbitration case agree in writing to a hearing location other than one based on the customer’s residence, FINRA will select that hearing venue.

Arbitrator Pools: FINRA will initially provide arbitrators for the cases venued in Puerto Rico from Puerto Rico and from other hearing locations within the Southeast Region and Texas. Counsel for Claimants and Respondents were in agreement that this was the area from which to seek arbitrators to expand the available roster in Puerto Rico. FINRA has expanded the available pool of arbitrators to serve in Puerto Rico from these states and FINRA will pay their travel expenses. To date, over 600 currently eligible arbitrators on the FINRA roster have agreed to serve in Puerto Rico. FINRA continues to expand the available pool of Puerto Rico arbitrators willing to serve. Additionally, FINRA is actively recruiting and training arbitrators who reside in Puerto Rico on an expedited basis. As a reminder, parties retain the option to agree to modify the provisions of Rule 12401 to have a sole public arbitrator decide their case, as opposed to a three arbitrator panel, even in cases in which the amount in controversy exceeds $100,000.00.

Interpreter Services: FINRA arbitration hearings generally are conducted in English. However, FINRA recognizes that Spanish is the primary language in Puerto Rico and that many Claimants are not conversant in English. Therefore, at FINRA’s request, UBS and Merrill Lynch have agreed to bear the costs of consecutive translation services in the Puerto Rico bond cases venued in Puerto Rico in which either is a named Respondent. FINRA is in discussions with other named Respondents to obtain their agreement to bear the cost of translation services. Customer-Claimants should make arrangements directly with UBS and Merrill Lynch’s counsel regarding translation services. FINRA is in the process of translating the Customer Code of Arbitration and the Code for Mediation into Spanish. The Codes will be available on FINRA’s website at the beginning of May 2014.

Service of Arbitrators: Counsel for Claimants and Respondents have agreed that FINRA should not limit the service of arbitrators who have previously served on a case involving Puerto Rico bonds through Award. Parties, of course, have available to them the FINRA rules on causal challenges and the Director’s authority to remove an arbitrator as set forth in Rule 12407.

Costs of Witnesses: Witness costs will be minimized by setting venue in Puerto Rico, where almost all of the likely witnesses are located. Therefore, FINRA will follow its existing rules concerning witness costs.

Disclosures: The arbitrators will be asked to answer an agreed upon set of disclosure questions submitted by the parties as part of the list selection process in order to alert the parties to possible conflicts. Please also note that any party may request additional information from an arbitrator whose name appears on the arbitrator ranking form. If a party requests additional information about an arbitrator, FINRA will request the additional information from the arbitrator, and will send any response to all of the parties at the same time.

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