August 23, 2010
I am an attorney who practices in the area of securities arbitration in San Antonio, Texas. I believe that the Discovery Guide is generally good for the mandatory production of basic documents at the beginning of a case. However, the new Discovery Guide is deficient in several areas, as follows:
DEFICIENCIES IN THE REVISED DISCOVERY GUIDE REGARDING RESPONDENT PRODUCTION:
(List 5, Item 2) Respondents not required to produce all documents reflecting supervision of the associated person and the customer accounts at issue, when supervision is an issue.
(List 1, Item 11) Respondents not required to produce all records of the firm relating to the claimants' accounts at issue.
(List 1, Item 20) Respondents should be required to produce commission runs for a longer period of time.
(List 1, Item 8) The new Guide allows respondents to redact customer complaints to prevent the disclosure of non-public personal information of the complaining customers (List 1, Item 10). Respondents should not be allowed to redact customer names.
(List 1, Item 2) The new Guide does not require respondents to produce monthly statements and confirmations. This is just wrong. Respondents have this information and it is readily available.
(List 1, Item 17) The new Guide limits production of regulatory examinations to the one year before the transactions at issue through the filing of the Statement of Claim. This is much too short a time period.
(List 11, Item 1) The new Guide eliminates the requirement for respondents to produce order tickets however order tickets are essential in unauthorized trading cases.
DEFICIENCIES IN THE REVISED DISCOVERY GUIDE REGARDING CLAIMANT'S PRODUCTION:
(List 2, Item 15) The new Guide requires production of all documents relating to claimant's other investment opportunities, with no time limitation. These "opportunities" could be totally irrelevant and may have not been finalized or acted upon.
(List 2, Item 9), requires claimants to produce all correspondence of any kind about the accounts or transactions at issue. This requirement could seriously invade the claimant's privacy and could involve privileges.
(List 2, Item 1), the requires production of Schedule A to federal tax returns and all IRS worksheets related to Schedules A, B, D, and E. This is a significant and wrong change to the Discovery Guide. The customer is not on trial in FINRA arbitration. A requirment to produce more federal income tax information creates a diversionary tactic for the Respondent to attack the Claimant.
(List 2, Item 5) requires claimants to produce every document that they have relating to any account or transaction with the respondents. The current Guide only requires claimants to produce documents signed by or provided by the claimants to the respondents. The new Guide frequently restricts respondents' production of records to the accounts and transactions at issue (List 1, Items 2, 5, 7, and 9). Requiring claimants to produce all of their records relating to all of their accounts, while requiring respondents to produce only some of their records relating primarily to the accounts at issue, is wrong and creates an atmosphere of mistrust in the FINRA arbitration system on behalf of investors.
(List 2, Item 2) The new Guide requires the customer to produce financial statements in loan applications. This is an invasion of the customer's privacy and is just another example in showing the bias toward Respondents in the FINRA arbitration process.
(List 2, Item 8) The new Guide would require that telephone records and logs are to be produced in every case, not just unauthorized trading cases. This is an invasion of the privacy of the customer and unduly burdensome. The customer is not on trial.
List 2, Item 12) requires claimants to produce documents showing accounts over which they have trading authority if they are also trustees. This can require claimants to disclose private information about trust beneficiaries not involved in the case and who have not consented to this disclosure.
While I understand the concerns of those who totally oppose the changes to the Discovery Guide or oppose the Discovery Guide concept itself, it is my personal opinion that, subject to the deficiencies discussed above, the proposed revisions to the FINRA Discovery Guide would be an improvement over the current 99-90 Discovery Guide.