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The Importance Of Parties Complying With FINRA Arbitration Discovery Obligations

All parties in a FINRA arbitration have certain discovery obligations that must be met.  In customer cases, FINRA provides a Discovery Guide to both parties, which contains a list of presumptively discoverable documents for the firm/associated person to produce and a list of presumptively discoverable documents for the customer to produce.  In non-customer FINRA arbitrations, FINRA does not provide similar guidance to the parties.  Regardless of the type of case and whether the Discovery Guide applies, FINRA expects both sides to “cooperate to the fullest extent practicable in the exchange of documents and information to expedite the arbitration.” (See FINRA Code of Arbitration Rules 12505 and 13505).  If a party fails to cooperate in the exchange of documents and information as required by FINRA’s Code of Arbitration, the Arbitration Panel may issue sanctions against that party or may dismiss a claim, defense or proceeding with prejudice.  (See FINRA Code of Arbitration Rules 12511 and 13511). 

For example, in a recent FINRA arbitration decision issued on February 11, 2014 entitled Jason Elliot Kronick v. Argentis Holdings, LLC, et al., Case No. 12-00460, the Arbitration Panel held that the Claimant had: (i) failed to comply with the Panel’s Order on discovery dated October 1, 2013; (ii) failed to comply with the Panel’s Order on discovery dated January 2, 2014; (iii) failed to allow a telephonic conference to proceed in an orderly and respectful manner; (iv) failed to heed FINRA Rule 13505 requiring cooperation in exchange of documents; (v) failed to comply with the Discovery provisions of the FINRA Arbitration Code.  As a result, the Arbitration Panel granted Respondents’ Motion to Dismiss Claimant’s claim.  Unfortunately, the Arbitration Panel in that matter was not given the opportunity to rule on substantive grounds since the Claimant did not comply with his discovery obligations.  Both parties in a FINRA arbitration should understand the importance of complying with discovery obligations and the ramifications when they do not do so. 

Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses.  Additionally, Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation.  Please contact our team of attorneys for a consultation at (212) 696-1999.