WASHINGTON – Two Puerto Rico residents are firing back at UBS, saying the firm's challenge in federal court of an $18 million Financial Industry Regulatory Authority arbitration award over losses in Puerto Rico bonds is "a hopeless and baseless attempt at an unwarranted do over."
The two individuals, husband and wife Rafael Vizcarrondo and Mercedes Imbert De Jesus, filed their response to UBS' challenge in the U.S. District Court for Puerto Rico. The FINRA panel found UBS had to pay the $18 million because of losses Vizcarrondo and De Jesus experienced after investing in closed-end mutual funds that were concentrated in Puerto Rico bonds.
UBS has faced many similar challenges from investors who saw their savings crumble as Puerto Rico's economic situation declined over the last few years.
UBS, in its federal court challenge, argued the award should be vacated because two of the three individuals who sat on the FINRA arbitration panel had engaged in misconduct before hearing the matter. One panel member, Susan Meek, had not disclosed that a jury had found her guilty of fraud while the other, Frances Wright, did not disclose that she had been a lead plaintiff in a securities fraud class action, according to UBS.
The firm argued that the disclosure failures prevented it from selecting a neutral and qualified panel to which it was entitled and from receiving a fundamentally fair hearing.
Vizcarrondo and De Jesus contested that claim, arguing among other things, that UBS had ample time to research the arbitrators' pasts and raise concerns before the panel announced its award.
"UBS presented all the evidence it wished to offer, called and examined all the witnesses whose testimony it sought, and made all of its arguments before an experienced and impartial panel," the two said. "Now, only after receiving an adverse decision, petitioners concoct [an after-the-case] accusation that two of the arbitrators failed to disclose or misstated decades old information, and, therefore were not 'impartial.'"
The two are asking the court to deny UBS' petition to vacate the award. They are asking it to confirm the arbitration award with attorneys' fees, and interest on the award from the date it was ordered until full payment.
Vizcarrondo and De Jesus cited a number of cases to bolster their claim that UBS should be found to have waived its right to complain about the arbitrators' lack of disclosure by waiting until after the award was announced. The cases, taken together, indicate that a party challenging an award should be able to show that it did as much diligence researching potential conflicts before the award as it did after. Otherwise, the party, like UBS in this case, is engaged in "sore loser post-award behavior," the two said in their response.
The alleged nondisclosures or misstatements pertaining to Meek and Wright were in publicly available information that could be easily found, the two wrote. UBS has also selected Wright to serve as an arbitrator in nine pending UBS arbitration claims involving public customers and one arbitration claim involving non-public customers and selected Meek to sit on at least six arbitrations, they added. They also cite to UBS' counsel's statements at the end of the arbitration hearing where he said that UBS got "all it could ask for" from the panel's handling of the proceeding.
Vizcarrondo and De Jesus' response additionally notes that Meek's fraud verdict was successfully challenged in appellate court and that Wright's participation in the class action was unrelated to the recent case in part because the class action did not involve any broker-dealer or FINRA member.
"UBS improperly argues that FINRA rules required the disclosure of these extremely remote, unrelated and attenuated proceedings and then speculatively conclude (after losing) that UBS would have struck these arbitrators and thus UBS has been prejudiced and denied a fundamentally fair trial," the two wrote.
They also cite to a case in Puerto Rico federal court, Association De Empleados Del Estado Libre Asociado De Puerto Rico (AEELA) v. UBS Financial Services, Inc. and UBS Financial Services Inc. of Puerto Rico, where they quote UBS arguments that undermine those being made in the current case. UBS' arguments in the AEELA case include that: courts generally refuse to vacate because of arbitrators' failures that could have been learned before the arbitration; arbitrators' alleged failures to disclose information are not grounds for vacating an award; and that a party cannot conduct a background investigation on an arbitrator with the sole motivation to seek a vacated decision.
Vizcarrondo and De Jesus are asking that the court stop UBS from taking a stance it already rejected in a separate case.
