(Adds comment from lawyer, details on FINRA note; updates
number of arbitrators)
By Ashley Lau
NEW YORK, April 14 Wall Street watchdog FINRA
said on Monday it is lifting the hold it had put on some cases
involving investors who lost money in closed-end Puerto Rico
bond funds after expanding its pool of arbitrators available to
hear the cases.
The Financial Industry Regulatory Authority said on Monday
there are currently about 700 eligible arbitrators on its roster
who have agreed to serve in Puerto Rico, where FINRA expects the
majority of the roughly 209 cases it has received as of April 7
to be heard.
"We are really confident that we will have enough
arbitrators to handle all the cases that go to hearing," said
Linda Fienberg, president of FINRA dispute resolution, in an
interview Monday. Fienberg said a letter was sent out on Monday
to all parties involved in the cases informing them the hearings
will move forward.
Last month, FINRA placed a hold on cases with no arbitration
panel after struggling to find sufficient arbitrators to handle
the mounting number of cases it had received. At that time, the
pool of arbitrators was around 60.
Since then, the self regulatory authority has been actively
seeking arbitrators able to serve on the cases and recruiting in
Puerto Rico, where only a small fraction of the roughly 700
arbitrators currently reside.
"We're continuing our campaign to find additional
arbitrators," Fienberg said. "We will have staff in Puerto Rico
this month talking with a series of professional groups who have
expressed an interest" in serving as an arbitrator.
The flood of cases follows a sharp decline in the value of
Puerto Rico municipal bonds last year that resulted in big
losses for investors in closed-end funds with heavy exposure to
those bonds. Lawyers for investors have accused UBS Financial
Services, Merrill Lynch and other brokerages of inappropriately
putting clients' money into such funds.
MOST CASES TO BE HEARD IN PUERTO RICO
FINRA said in a note published on its website on Monday it
would not be modifying its existing venue rule, which states
arbitration hearings will be held at a location closest to where
the investor resides, without the agreement of both parties to
change the hearing venue.
The decision follows a push from some claimants' lawyers
earlier this month to allow the cases to be heard in the
southeast region of the United States, in addition to Puerto
Rico, to work around the issue of having to send U.S.-based
arbitrators to Puerto Rico. UBS had objected to the proposal.
"Most arbitrators have other jobs and other commitments,"
said Andrew Stoltmann, a Chicago-based lawyer who represents
investors, noting that the need to relocate arbitrators could
lead to delays.
Stoltmann, who represents about 25 of the investors involved
in the cases, estimates there will be some 750 cases filed over
the next six months and potentially double that amount over the
next 12 to 18 months.
The vast majority of the arbitrators in FINRA's pool are
currently based outside of Puerto Rico in the southeast region
of the United States, including Georgia, Florida, Alabama,
Mississippi and Louisiana, as well as Texas. FINRA said it plans
to pay for those arbitrators' travel expenses to serve in San
Because Spanish is the primary language in Puerto Rico,
FINRA said UBS and Merrill Lynch have agreed to pay for
translation services in which either is involved.
FINRA, which had requested the services, said it is also
seeking agreement from other brokerages involved in the cases.
(Reporting by Ashley Lau in New York; Editing by Chizu Nomiyama
and Meredith Mazzilli)