Brokerage firms are trying to “browbeat” aggrieved customers who have filed arbitration claims against them into settling their claims by flooding them with overbroad and burdensome requests for documents and information, according an InvestmentNews article by Bruce Kelly. Firms engage in such intimidation with the express approval of the Financial Industry Regulatory Authority (FINRA), whose rules govern a system of mandatory arbitration of customer claims against brokerage firms and allow such practices. The industry knows it, and so do state regulators.
“The complaint we get from investors is that they are being overburdened with discovery requests from the firms,” Tanya Solov, director of securities at the Illinois Securities Department, was quoted as saying at the annual meeting of the North American Securities Administrators Association Inc. (“NASAA”) in Baltimore. The North American Securities Administrators Association, Inc. is the association of the 50 state securities regulators.
Discovery is the process by which opposing parties obtain documents and information that are related to the dispute and in the possession or control of the other party. Brokerage firms routinely try to stonewall investors’ requests for documents and information, while at the same time demanding production of a vast array of personal documents that are unrelated or only marginally related to the dispute. Says Ms. Solov: “But now what’s happening, too, is that the firms have started asking the investors for discovery information such as tax returns for a number of years, all the checking accounts you’ve had, all the investments you’ve ever had. It’s becoming more common.”
Brokerage firms’ discovery practices are abusive and harassing and make FINRA arbitration more expensive and burdensome for investors than it should be.
“It drives the investors to often settle a case where they otherwise may want to litigate,” Ms. Solov stated.
“Brokerage firms routinely employ this kind of overly intrusive and burdensome discovery practice aimed at intimidating public customers is just one more reason why Congress needs to make FINRA arbitration voluntary rather than mandatory as it is today,” commented J. Boyd Page, senior partner of Page Perry in Atlanta.
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