FINRA is freezing more than 900 arbitration cases in Puerto Rico, which has been a hotbed for client-firm disputes in recent years but was devastated by Hurricane Maria.

The Wall Street regulator stayed the cases until October 20, but its leaders are still evaluating a situation best characterized as a humanitarian crisis.

"We made these decisions based on how it affects the parties," Southeast Regional Director Manly Ray tells On Wall Street at the Practising Law Institute's Securities Arbitration 2017 conference in New York. "Can they attend a hearing? And if they can, will they be in the right state of mind?"

The storm ― which was a Category 4 hurricane when it hit Puerto Rico almost a week ago ― flooded towns and cities across the island, leaving millions without power. A mere 11 of 69 hospitals have fuel or power.

The island has seen a surge in arbitration cases in the wake of its financial crisis. Hundreds of client filed complaints against brokerage firms such as UBS, accusing the firms of over concentrating their portfolios in closed-end funds.

UBS, in fact, has faced more than three-quarters of claims related to Puerto Rico municipal bonds, and paid more than $205 million in settlements and awards, according to the Securities Litigation and Consulting Group.

The effects of the hurricane on securities arbitration may extend beyond the island. Hearings held elsewhere may be dependent on individuals or records based in Puerto Rico.

Destroyed homes and vehicles sit in floodwaters after Hurricane Maria in this aerial photograph taken above Hamacao, Puerto Rico, on Monday, Sept. 25, 2017.
Destroyed homes and vehicles sit in floodwaters after Hurricane Maria in this aerial photograph taken above Hamacao, Puerto Rico, on Monday, Sept. 25, 2017. Bloomberg News

UNPRECEDENTED
Based in Boca Raton, Florida, Ray's purview includes that hurricane-hit state as well as Puerto Rico. Ray says his staff has experience responding to natural disasters, pointing to Hurricane Katrina. However, moving an arbitration from New Orleans to Baton Rouge is easier than moving one from Puerto Rico to the mainland U.S.

Ray says that he, Director of Dispute Resolution Rick Berry and other FINRA leaders and staff members will be meeting again on Friday to strategize and explore options. They're also reaching out to those affected, to hear their feedback.

"My heart and prayers go out to all the people in Puerto Rico," Ray says.

Those involved in an arbitration case can proceed, provided both parties agree to it, FINRA says.

The storm is the latest natural disaster to disrupt Americans' lives. A mere week earlier, Hurricane Irma caused brokerage firms such as RBC and Raymond James to shutter Florida-based branches and shift operations out the storm's path.

Hurricane Maria has also turned Puerto Rico's fiscal recovery upside down. Bondholders should expect their interests to be a low priority right now, according to experts.

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access