UBS Lawyers Battle “Bad Actor” Evidence in Puerto Rico Claims
Arbitration awards have no precedential value, but that isn’t stopping lawyers for holders of Puerto Rico bonds from citing former awards and settlements as evidence that firms that sold the bonds were habitual bad actors.
The attempt proved partially successful in at least one case, according to an arbitration award published Thursday on the Financial Industry Regulatory Authority’s dispute resolution website.
Investor Eduardo Molinari, his wife and businesses filed a complaint last year for at least $16 million in compensatory and punitive damages from UBS Financial Services and its Puerto Rican affiliate for losses from investments in closed-end mutual funds concentrated in Puerto Rico municipal bonds.
Prior to the start of final hearings in June, 2017, UBS’s lawyers asked to preclude the claimants from referring to, or introducing evidence of, earlier FINRA arbitration awards and other complaints, decrees and/or settlement agreements with any regulatory body. Barring such evidence is significant to UBS, which has paid hundreds of millions of dollars in awards and settlements with investors in connection with Puerto Rico’s $74 billion debt .
The Molinaris’ lawyers told the arbitration panel that “awards from similar cases show repeated, habitual misconduct of UBS” while settlements “indicate UBS’ disregard for federal securities laws and can be used by arbitrators to infer culpability,” according to a summary in the award decision. They also told the three-person all-public arbitration panel that its decision could be vacated on appeal for denying claimants the “opportunity to present these relevant documents.”
In what may be a Solomonic decision, the arbitrators granted UBS’s motion to exclude settlement agreements with regulatory bodies from their consideration but allowed previously entered evidence of Finra arbitration awards that were relevant into evidence, according to the decision.
The allowance was restricted to consideration, without further argument, of four or five previous awards against UBS that the Molinaris had submitted as attachments to the initial complaint filed in June 2016, said Wes Holston, a lawyer at Bressler Amery Ross in Ft. Lauderdale, Florida, who represented UBS.
“Claimants’ counsel are just trying to pollute the water [in submitting prior decisions] and for the most part are losing” those attempts, he said.
Lloyd Schwed, a lawyer in Palm Beach Gardens, Florida, who represented the Molinaris, did not immediately respond to a request for comment.
The arbitrators in the case did not have to make a decision since the UBS broker-dealers and the Molinaris reached a settlement on July 24, after two days of evidentiary hearing before the arbitrators, according to the award document. Holston said he could not disclose the settlement amount but said it was less than 5% of the $16 million-plus award sought by the complainants.
The arbitrators did agree to UBS’s request to expunge the relevant Molinari complaints from the regulatory record of its San Juan-based registered representatives Ramon J. Almonte and Ricardo Eboli.
Neither were named as parties in the arbitration litigation, but in a sign of the wave of litigation spurred by the plunge in value of bonds issued by the now-bankrupt territory of Puerto Rico, Almonte has 147 customer complaints on , while Eboli has of customer disputes. Most were made in both cases in the past two years.
“Almonte was staff support, with no direct involvement with Claimants,” the arbitrators explained in their decision. “The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds.”
Eboli, for his part, “gave expert advice to Claimants and repeatedly recommended that Claimants diversify their portfolio, which Claimants chose not to do, contributing to the portfolio’s weakness as the bonds declined,” the arbitrators wrote in their award summary. “Additionally, Claimants’ portfolio and its positive performance reflected that the securities were suitable.”