If you are wondering what the discovery process is for an arbitration action before the Financial Industry Regulatory Authority (“FINRA”) chances are that you are considering the hiring of a FINRA arbitration attorney. While the discovery process is relatively simple and streamlined, an experienced FINRA arbitration attorney knows exactly what documents to seek that will help you to prove your case. Discovery in FINRA is limited to a document exchange and, absent in some very limited situations, there are no depositions or pretrial testimony allowed. Therefore, it is very important to know what documents to ask for and how to get these documents through the FINRA discovery process.

Overview of the FINRA Discovery Process

The FINRA discovery process is designed to allow the parties to get the necessary facts and information from the opposing party in order to prove their case as well as to prepare for the final arbitration hearing.  Importantly, the FINRA Customer Code of Arbitration Procedure (“Code”) requires that the parties cooperate fully in a voluntary exchange of documents and information in order to expedite the arbitration process. The Code contains special prehearing and discovery rules, which address making discovery requests,  responding to the request, objecting to the discovery requests, and the arbitrator’s authority to impose sanctions against parties for not cooperating in discovery. 

The FINRA Discovery Guide

FINRA has issued a Discovery Guide for investor disputes containing guidelines to assist parties and arbitrators. In the most recent update to the Guide in 2013, FINRA set forth a detailed introduction section providing guidance with respect to producing electronic documents. It also explains how “product cases,” wherein a specific product or investment is the cause of the loss,  differs from other types of customer cases and sets forth the types of documents that are typically sought in such cases. Finally, the introduction clarifies the specific circumstances where a party might request an “affirmation” as to the efforts made to locate documents when an opposing party does not produce certain documents which are deemed discoverable under the  Guide.

Responding and Objecting to Discovery 

There is a FINRA rule regarding how a party may respond to Discovery Requests (including those specified in the Guide) if such requests are overly burdensome, seek irrelevant documents, or involve confidential or privileged information.  Until an objection is overruled by an arbitrator, the objecting party does not have to provide the documents or information requested.  The objecting party must state clearly in writing which the party is objecting to and the grounds for that objection.

Motions to Compel 

The FINRA rule on motions to compel requires that the parties first make an attempt to resolve their discovery issues with the opposing party and to describe these efforts in the motion. If, however,  the parties cannot agree as to how to resolve their discovery disputes, then the party seeing the documents can file a motion to compel seeking an order requiring the production of the requested documents. A motion to compel is simply a request for the arbitrators to issue an order requiring the production of documents and information.  

 In the motion to compel, the requesting party should set forth their position to the arbitrator(s) as to why the discovery is both relevant and necessary to prove (or to defend)  the case. The motion to compel should ask for an order compelling production within a specified time. The parties are permitted to ask the chairperson or the entire arbitration panel to schedule a hearing to decide the issues raised in the motion.

Subpoenas

A subpoena is a legal document that requires a person or entity to appear at a specified date, time, and place to give testimony under oath.  A subpoena duces tecum is used to compel a person or an entity to produce required documents at a particular time and place.

Under the FINRA subpoena rule,  only arbitrators –and not the attorneys for the parties – may issue a subpoena to non-parties to the arbitration.  In order to obtain information from third parties through a subpoena, the party must submit a motion for the arbitrators to issue a subpoena. The motion must include a draft of the subpoena and must be filed with the Director.  The requesting party must serve the motion and draft subpoena on each other party. The requesting party may not serve the motion or draft subpoena on a non-party. The arbitrators will decide whether the third party subpoena should be issued and may modify the proposed subpoena to include documents that they deem relevant to the arbitration. If a non-party receiving a subpoena objects to it, that non-party may, within 15 calendar days of receipt, file its own written objections to it which will be heard by the arbitrators and ruled upon. 

Orders of Production or Orders of Appearance 

Many times, trading in outside accounts may become an issue in a customer case. If a firm is a FINRA member (but not a party to the arbitration) has information that one of the parties believes is relevant, the arbitrators have the power under the FINRA Rules to order the production of documents as well as the appearance of a witness without a subpoena. FINRA arbitrators have the jurisdiction to order the appearance of any FINRA registered broker or broker-dealer as well as to order the production of any documents in their control.

The Sanctions Power

To ensure that the discovery process is enforced, FINRA arbitrators have the power to order sanctions where a party fails to produce documents or information required by a previous discovery order. Sanctions include assessing costs, attorney’s fees, or fines; barring a party from admitting evidence; making an adverse inference against the offending party; and dismissing a claim or defense, and sometimes, in egregious situations, dismissing the entire case. The panel also has the power to make a  disciplinary referral against a broker or the member firm that is involved in the conduct.

Why Hire a FINRA Arbitration Attorney?

Although there are ways for parties to represent themselves pro se (without the use of an attorney in an action), this can be difficult to do without the knowledge and expertise of a seasoned FINRA arbitration attorney. Using an experienced and seasoned FINRA attorney can help you uncover the relevant documents in discovery to prove your case in arbitration. 

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If you or a loved one have suffered investment losses as a result of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States and the Americas. Contact us by filling out our online contact form, or calling 844-635-1609.