April 3, 2009
I appreciate the opportunity to contribute this brief comment regarding FINRAs proposed changes to the Discovery Guide. I am a California attorney who has been involved in the representation of investors in FINRA arbitrations since 1997.
It is my opinion that the SEC should not approve the changes FINRA has suggested. This opinion is based upon my belief that the proposed changes would place a more onerous discovery production burden on investors, lead to increased discovery disputes between the parties, and distract from the primary purpose of the arbitration process. Essentially, the proposed changes increase the member firms ability to use the discovery process as a sword against the investor and as a shield against the investors claims.
Increasing the already burdensome task that investors must undertake in producing documents in FINRA arbitrations is a slap to the face considering the rights the investor waives at the time the new account documents are signed and the arbitration clause sealed. Increasing the breadth and scope of documents and information that the Claimant must produce, particularly in regards to tax returns, prior investment accounts and loan information, will only serve to chill the investors desire to bring a valid claim. I believe this will be the case especially in regards to elderly customers who may be less inclined to bring a claim in the first place.
Thus, valid claims that should be brought will go by the wayside in many cases if the proposed rules are allowed to go into effect. This ultimately turns the arbitration process on its head when it does not serve the purpose for which it was created, the fair resolution of valid claims.
Having sat through and argued many discovery related motions, both prosecuting and opposing, any changes to the Discovery Guide that are made should only serve to reduce the number of disputes, not increase them. This will not be the case as long as such great inequities exist as to what must be produced by the investor versus what must be produced by the member firms and associated persons.
While the current Discovery Guide is not perfect, the proposed revisions serve to increase the discovery production inequities among the parties, and will only serve to increase discovery disputes, resulting in a greater waste of time and increased expense to Claimant investors. For example, how can the Guide require investors to produce recordings of telephone records and not require the same from firms? How is it that the Guide can require an investor to provide such detailed information regarding prior investment history when customers are generally not allowed detailed information about the brokers own investment history and the investments that the broker is recommending to his or her other clients?
The purpose of the FINRA arbitration process is to equitably resolve disputes between customers and member firms and associated persons. For this to happen, arbitrators must be focused on the issues at hand and not be distracted by irrelevant issues. Increasing the scope and breadth of the documents that investors must produce, particularly in regard to tax returns, prior brokerage accounts and loan information, will increase the ability of Respondent firms to muddy the waters of an arbitration by increasing their ability to attack the investor on a personal level. Irrelevant information and documents relating to a customers assets, net worth, income, prior trading activity, and financial history will serve as a distraction to arbitrators and the arbitration process, resulting in greater prejudice to the investor.
In conclusion, I fully support and second the comments made by Scott Shewan, on behalf of PIABA. FINRA needs to go back to the drawing board on these discovery issues, and provide proposed revisions that serve to support and improve, not distract, from the purposes and goals of the arbitration process.
I appreciate the opportunity to comment on these proposed revisions.