June 20, 2013
The purpose of this letter is to provide the Securities and Exchange Commission with comments on the above referenced proposed rule change which was filed by the Financial Industry Regulatory Authority, Inc. (FINRA) on June 3, 2013.
I am an attorney whose practice is exclusively devoted to the representation of individual and institutional investors in their disputes with the securities industry. Moreover, I am a former President and current Director Emeritus of the Public Investors Arbitration Bar Association (PIABA) am the former Chairman of FINRAs National Arbitration and Mediation Committee (NAMC) and am the current Chairman of FINRAs Discovery Task Force Committee (DTFC).
It is my personal opinion that, subject to the comments set forth below, the proposed revisions to the FINRA Discovery Guide, would be beneficial for public investors, the integrity of the arbitration forum and should be immediately approved by the staff of the Commission.
E-Discovery: I am in favor of the proposed revisions to this portion of the Discovery Guide – especially the portions of the proposed revisions which would emphasize and require that the production of electronic documents be effectuated in a reasonably usable format. I am also in favor of the proposed intention to provide arbitrators with guidance on the terms that are most often associated with electronic discovery.
Product Cases: I am in favor of the proposed revisions to this portion of the Discovery Guide which would emphasize, as the SEC has so stated itself, the definition of a product case as one in which one or more of the asserted claims centers around allegations regarding the widespread mis-marketing or defective development of a specific security or specific group of securities. I am also in favor of the proposed revisions which would clearly recognize that, with respect to product cases, there are, more often than not, other types of documents that are relevant to such cases which arbitrators may not have previously been aware of through their involvement in more traditional types of arbitration proceedings and that those documents may concern and/or relate to other individuals who are associated with a brokerage firm other than the registered representative who sold the product at issue to the investor. Most importantly, however, is the guidance which recognizes that, with respect to product cases, the documents that are associated with the same are documents which may have previously been produced to regulators, class counsel and/or other counsel as this should eliminate the frequent objections as to the burden of production and/or the confidentiality of such documents.
Cost or Burden of Production: While I am in favor of the proposed revisions to this portion of the Discovery Guide, I am concerned that the lack of definitional guidance and/or clarity as to the cost or burden that a party may have to demonstrate – specifically, the manner and/or method of such demonstration – will lead to disparate interpretations by different arbitration panels. I am similarly concerned that the current language will permit demonstration of the purported cost or burden by outside third parties (i.e., counsel) who do not have personal knowledge of and/or experience with the same. To alleviate these concerns, I would recommend that the required demonstration include an affirmation by a customer or the appropriate person at the brokerage firm who has personal knowledge of the purported cost or burden.
Affirmations: While I am in favor of the proposed revisions which would require that an affirmation include a specific description of the sources that were searched for responsive documents, I am concerned that the heading for this portion of the Discovery Guide, which states that it applies to Documents Specified in the Document Production Lists, may create the misimpression (or lead to potential objections, misinterpretation and/or confusion) that it does not apply to other requests for documents as well. This concern is further highlighted by the fact that the language in the last sentence of the indicated section, which states that the requirement for an affirmation may also be ordered for such supplemental document requests, seems to suggest that an affirmation is not mandatory upon the request of the party who has sought the indicated documents. There is no reason to differentiate between documents on the Document Production Lists and documents that are the subject of a supplemental request – they should both be subject to the mandatory affirmation requirement.
Thank you for providing me with the opportunity to submit my comments on this rule filing.