March 23, 2009
Ladies and Gentlemen:
I have had an opportunity to review the proposed changes to the FINRA Discovery Guide. As an attorney who has focused his law practice on the representation of investors for most of the past 17 years, and having had the experience of handling several hundred securities arbitration cases during that time, I make the following observations:
(1) To the extent arbitration is intended to be a less expensive, faster means of dispute resolution, the proposed rules are not necessarily consistent with that objective. On the positive side of this issue, it is laudable that FINRA has recommended that List 1 be amended to eliminate the production of account statements and confirms in those situations where the customer already has them, and it likewise does not require the customer to produce account statements unless those statements contain handwritten notes. However, on the negative side of this issue, it is alarming to see that customers under the proposed rule will now be subjected to even more intrusive “fishing expeditions” into their financial backgrounds (eg. loan applications and tax returns dating back up to five years before the transactions in question). The vast majority of claimants, in my experience, have been “regular” people who went to a financial institution expecting to get competent financial advice. Instead, they either dealt with an incompetent or, at times, crooked advisor. The proposed discovery rule changes appear to be calculated to shift the focus away from what the advisor may have done wrong to what the investor should have known. That’s the wrong emphasis in these cases, and counsel’s argument over the relevance of these items will result in additional pre-hearing disputes, evidentiary battles at final hearings, and an ever-widening perception that arbitration is slanted against the customer.
(2) At the same time FINRA is proposed to expand the scope of the discovery it seeks from customers, it also seeks to limit the customers’ access to information. For example, New List 12 relates to evidence in support of claims involving similar products. The proposed rule arbitrarily limits the customer’s inquiry to five such items. Why? In my experience, brokerage firms maintain (and are required to maintain) cross-reference records, which enable them to show similar trading in customer accounts. The proposed rule unfairly limits customers’ access to potentially critical evidence and that limitation cannot be justified by cost considerations as the broker-dealer is required to have that information available in any event.
(3) Given the presently distressed state of our economy and the public’s utter disdain for misdeeds in the financial community, I respectfully suggest that the SEC accept only those rule changes that will have the intended effect of restoring the public’s confidence in our country’s weakened financial system. There can be no restoration of confidence unless and until the ordinary investor starts to believe again that he has a fair chance when he invests in the public markets and/or that he will get a fair hearing if something goes wrong with his investments.
Thank you for your attention to this comment.
Drew Clayton