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FINRA Set to Resume Processing Securities Arbitration Cases Involving Puerto Rico Municipal Bonds

According to InvestmentNews, last month the Financial Industry Regulatory Authority (“FINRA”) announced that it had essentially stopped processing securities arbitration cases involving Puerto Rico municipal bonds. FINRA claimed it needed to address a number of challenges with the cases such as the fact that the primary language in Puerto Rico is Spanish and FINRA arbitrations are generally conducted in English; and the fact that there were less than a dozen FINRA approved arbitrators in Puerto Rico.

A posting on FINRA’s website states that as of April 7, 2014, 209 cases involving the sales of Puerto Rico municipal bonds, almost all of which involve investors residing in Puerto Rico, had been filed with the regulator. Of those, FINRA says 62 investors are represented by counsel located in Puerto Rico, and 50 cases individually name brokers located in Puerto Rico.

FINRA rules provide that, absent the agreement of all parties to a single arbitrator, a panel of three arbitrators hear cases involving damages over $100,000. The parties in a three-panel case are given a list of 30 potential arbitrators to choose from pursuant to FINRA Rule 12403. This placed a significant burden on FINRA to find more arbitrators willing to serve on the Puerto Rico cases, either residing in Puerto Rico or willing to travel there.

According to FINRA, it will initially supplement the pool of Puerto Rico arbitrators with approved FINRA arbitrators from other hearing locations within the southeastern United States and Texas. FINRA announced it will pay the travel expenses of the approximately 700 currently eligible arbitrators on the FINRA roster who have agreed to serve in Puerto Rico.

UBS and Merrill Lynch, two of the largest firms named in many of the Puerto Rico municipal bond cases, have agreed to pay the costs of consecutive translation services in the Puerto Rico FINRA arbitration hearings in which either is a named Respondent.

The influx of FINRA arbitration cases involving losses in Puerto Rico municipal bonds follows a February downgrade of Puerto Rico’s credit rating to junk status by Moody’s, Fitch, and Standard & Poor’s. Puerto Rico has a 14.7% unemployment rate, and an estimated $70 billion in debt.

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