UBS cries foul over $18.5M FINRA arbitration ruling

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A month after losing an $18.5 million arbitration case to two former clients, UBS is now crying foul and seeking to vacate the clients' legal victory. Two of three arbitrators were not impartial judges of the merits of the case, UBS claims in court documents filed last month in federal court.

Ex-clients — husband and wife Rafael Vizcarrondo and Mercedes Imbert de Jesus — had won damages last year related to UBS' sale of closed-end funds of Puerto Rican bonds. The couple claimed breach of fiduciary duty and unsuitability, among other misconduct.

Hundreds of other UBS clients have also sought damages for similar reasons. But the couple's arbitration award was the largest, and it's also the first one that UBS says it has tried to overturn.

UBS is basing its argument for reversing the client's award on what it calls the arbitrators' failure to disclose key material facts prior to start of the case. Participants in arbitration have an opportunity to select the arbitrators who will decide the case in a manner similar to jury selection. Potential arbitrators are required to disclose certain information about their professional and personal histories.

The wirehouse alleges that arbitrator Frances Wright failed to disclose her personal involvement as a plaintiff in a securities fraud class action case, in which she sought to recover $133,000 in personal investment losses.

UBS further alleges that arbitrator Susan Meek not only failed to disclose that she committed fraud, but also falsely denied in her disclosure report that she had previously filed for personal bankruptcy.

"FINRA rules, and basic notions of fairness, bar securities arbitrations before arbitrators who have committed fraud, or failed to disclose that they themselves have acted as plaintiffs in securities fraud claims, or who have made material misrepresentations on important disclosure documents," the wirehouse said in court documents.

A UBS spokeswoman could not be immediately reached for additional comment. Wright didn’t reply to a request for comment. Meek could not be reached.

“I do think UBS will win,” says Ron Colombo, a Hofstra University law professor and a FINRA arbitrator, who adds that UBS has a potentially strong argument in favor of reversing the award.


After the Puerto Rican bond market collapsed in 2013, Vizcarrondo and de Jesus initiated the arbitration the following year. The couple claimed that UBS artificially increased the local demand for Puerto Rican bonds and misled them as to the potential volatility of their investments, according to arbitration documents.

In its drive to overturn their award, UBS claims that Vizcarrondo was a savvy investor who made his own investment decisions against UBS financial advisors’ recommendation to sell his Puerto Rican bond positions.

“Vizcarrondo is a Harvard-educated attorney with more than forty years of investment experience,” UBS said.

UBS also claims that Vizcarrondo maintained investments in Puerto Rican bonds with rival firms Santander and Jeffries.

“He rejected the diversification recommendation [made by UBS financial advisors] and opted instead to hold the PR Bonds and PR-CEFs,” according to UBS.

During arbitration hearings, Vizcarrondo said he did reject such a recommendation.

“They did make recommendation, and I rejected them,” he said according to a transcript of the arbitration proceedings. However, the couple maintained UBS had profited from clients like them, who bought the artificially inflated Puerto Rican bonds under UBS’s advice.

After 50 hearing sessions, the arbitrators sided with the couple and awarded damages plus attorney's fees to them.

Timothy Dennin, an attorney who represents the couple, says they are defending the award.

“No citation or record suggests any misconduct or bias by any of the arbitrators. The records overwhelmingly support that this panel is fair and impartial,” Dennin says. “This motion is a desperate attempt for UBS to overturn a sound award based on the evidence presented on trial.”

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Wirehouses Bonds Compliance Law and regulation UBS Puerto Rico