August 20, 2010
The 99-90 NTM has limited the kinds of relevant, highly probative documents that should be available to investors in arbitrations, as they are available in court.
The following documents should be presumptively discoverable in all cases:
1. order tickets. These documents are the only contemporaneous documents that reflect the extra commissions and the time of the order being made and executed. They reflect whether the trade was solicited or not. These are part of the "audit trail" and investors should get these, just as a regulatory agency does, when he or she is trying to recover losses.
2. all other customers of the broker who has complained about the broker or about this investment. These are potential witnesses, and the information is available to regulators so should also be presumptively available to people who have lost money to "serial" miscreants.
3.The broker's personnel and compliance file. See above. By logical extension, these are also highly material, easy to produce, and always available to regulators. Why should investors get less favored treatment when trying to recover their losses?
On the other hand, the 99-90 works a great disservice generally on investors. For example, the tax returns of a Claimant, his or her financial statements, etc. should not be presumptively discoverable. They are not relevant to most cases.
If they are relevant in a suitability case, why didn't the broker require the investor to provide them when they opened the account? Making these presumptively discoverable, but only from the claimant, creates a disincentive to file claims, and is considered an affront by many investors.
Either the broker's returns should also be presumptively discoverable, or neither should be. These should only be ordered produced if the arbitrators believe the case is such that they are material.
In any case, it is absurd to include an investor's business tax returns in the 99-90 lists. An investor's business tax returns have nothing to do with most cases. Simply because a claimant is not an employee, and owns a business, should not make their business tax returns presumptively discoverable.
I hope that the SEC will begin to review much closer the FINRA arbitration process, FINRA's training, its arbitrator selection process, and begin to ensure that a neutral, fair, and professional forum is provided to investors who CHOOSE to take their claims to arbitration. In all cases, they should also have the right to take their claims to court, just as whistleblowers now do.