Guide to FINRA’s Discovery Process

7 February, 2024

Your brokerage agreement requires you to go through the arbitration process to get compensation from your broker for misconduct. Although arbitration is more streamlined than litigation, you can still get the other side to produce evidence that you need in their possession.

FINRA rules still provide for a robust discovery process. To develop the most effective case, you should hire an experienced FINRA arbitration attorney to represent you. The lawyers at Rikard & Protopapas know how to hold your broker or adviser accountable.

You Must Get Evidence that Is in the Broker’s Hands

When you have any litigation case, you do not necessarily have all the evidence you need at first to prove what you believe happened. You might have the beginning of the case, but much of the evidence is in the hands of the broker.

There is a legal way that you can obtain that evidence. FINRA rules provide for a voluntary exchange of evidence between the parties. However, the broker may be uncooperative and not produce everything that you request. In any case, there may be discovery disputes that you need to navigate.

What Documents You May Need in FINRA Discovery

You could seek some of the following in the FINRA discovery process:

  • Emails
  • Documents
  • Recordings
  • Trading records

FINRA rules are somewhat vague about what documents you can seek during discovery. However, the FINRA Discovery Guide gives a standard list of what the broker must produce in every single case. The list of documents is different, depending on the value of the case at issue.

Your Requests During Discovery Must Be Reasonable

When you are requesting documentation, FINRA rules require that your requests must be reasonable and not overly burdensome. While you have the right to make these requests, the rules also try to be respectful of the broker and the time and effort that they must spend to prepare for discovery. The entire purpose of arbitration (as opposed to litigation) is for the parties to engage in a process that is less expensive and quicker than litigation.

According to FINRA Rule 12505:

“The parties must cooperate to the fullest extent practicable in the exchange of documents and information to expedite the arbitration.”

Within 60 days after the broker is obligated to file their answer, they must produce the documents that are on Document Production Lists 1 and 2 (the documents that are presumed to be discoverable in their case). A party must use its best efforts to produce all documents required or agreed to be produced. If they take issue with what they must produce, they can file an objection with the arbitrators.

You Can Make Additional Document Requests

Under FINRA Rule 12507, you have the right to request additional information and documents that are not on the presumed list. While you cannot send standard interrogatories, you can seek information related to the identification of individuals, entities, and periods.

According to FINRA rules, any request for documents or information not described in applicable Document Production Lists should be specific, and relate to the matter in controversy. The other party also has 60 days to respond to these discovery requests.

The Broker May Object to Producing Certain Documentation

The other party has the right to object to discovery requests, they must specifically identify the reason for objecting and why. Some of the reasons why a party may object to a discovery request include:

  • It is overbroad
  • The document request is burdensome
  • Relevancy
  • The document contains privileged information

There Are Consequences for Failing to Comply with FINRA Discovery Rules

Parties must comply with FINRA discovery rules. If they refuse to do so, you can file a Motion to Compel with the arbitrator. You can file this request in writing, or you can do it verbally during a hearing session.

Under FINRA Rule 12503, you can file your motion in any form, and it can even be a letter. The other party would need to respond to your Motion to Compel. The arbitrator would consider the motion and response before ruling on whether the documentation would need to be produced in discovery.

Sanctions for Violations of FINRA Discovery Rules

Even though FINRA arbitration discovery is still a more informal process, there are still consequences for failing to cooperate or abusing the process. For example, the defendant may even be sanctioned for frivolously objecting to the discovery process. The type of sanctions may vary based on the severity of the violation. The arbitrator can even dismiss a claim or a defense for discovery violations.

Depositions Are Rare in FINRA Cases

The one form of information gathering that you would usually not get in FINRA discovery is depositions.

In litigation, you can call witnesses from the other side and question them under oath in advance of a hearing. There are very limited circumstances in which an arbitrator will allow for a deposition including:

  • Preserving the testimony of a witness who is ill or dying
  • When a witness will not testify to travel at a hearing
  • When there is a very large or complex case
  • When the arbitrator determines that there are other extraordinary conditions

The FINRA discovery process still has its complexities, and you need to make your efforts as effective as possible. For that reason, you need an attorney who has enough time to be prepared for the process. The success of your case may hinge on what you can obtain from the broker because you need more than just your word.

Contact an Attorney for Help with FINRA Discovery Today

If you believe that a broker’s rule violations caused you to lose money, you can take legal action. The attorneys at Rikard & Protopapas have a track record of pursuing brokers for financial compensation when they have wronged their customers. You can schedule a free consultation by sending us a message online or by calling us today at (803)-805-7546. You owe our FINRA arbitration lawyers nothing unless you win your case.



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