FINRA's New Discovery Guide


FINRA's New Discovery Guide

The purpose of this article is to analyze the new Financial Industry Regulatory Authority (FINRA) Discovery Guide and to highlight the most significant changes.

Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.

I. Background.

While discovery in a FINRA arbitration is generally more limited than in a civil court action, i.e., there are typically no depositions in a FINRA arbitration (see FINRA Rule 12510), and standard interrogatories are not permitted (see FINRA Rule 12507), there are two main avenues of discovery used by parties to a FINRA arbitration: (1) responses to the items listed in FINRA’s Discovery Guide (“Discovery Guide”) (see FINRA Rule 12506); and (2) case-specific additional discovery requests (see FINRA Rule 12507).

The Discovery Guide lists items that are “presumptively discoverable,” and both customer claimants and broker-dealer firms and/or associated persons have obligations to disclose documents responsive to the items listed in the Discovery Guide.

FINRA recently enacted a new Discovery Guide, applicable to arbitration claims filed by customer claimants on or after May 16, 2011, after it was approved by the Securities and Exchange Commission (“SEC”) on April 1, 2011. See Seth E. Lipner, Joseph C. Long and William A. Jacobson, Securities Arbitration Desk Reference 180 (2011-12 ed.).

II. General Changes.

The biggest change is in the format of the new Discovery Guide. Whereas the 2007 Discovery Guide contained 14 different lists – 7 lists to which customer claimants needed to respond and 7 lists to which broker-dealer firms/associated persons, needed to respond with only 1 list for each side (Lists 1 and 2) applicable in all cases and the other 12 lists applicable depending on the substantive claims asserted by a customer claimant in a Statement of Claim – the 2011 Discovery Guide contains only 2 lists – one for customer claimants and one for broker-dealer firms/associated persons.

There is also additional clarification/guidance that the 2011 Discovery Guide gives that the 2007 Discovery Guide does not:
  • Arbitrators can “order that parties do not have to produce certain documents on the Lists in a particular case”
  • Parties can seek additional relevant documents “in accordance with the time frames provided in the 12500 series of rules”
  • Parties can object to production of a document “because of the cost or burden of production”
  • Arbitrators cannot “deny document requests on the grounds that the documents are not expressly listed in the Discovery Guide”
  • It should be acknowledged that not all broker-dealer firms have the same “business model,” and not all types of documents listed may be available
  • Similarly, some items on the Customer List may not be available/applicable depending on the nature of the claims in the Statement of Claim
  • "Electronic files are ‘documents’ within the meaning of the Discovery Guide. The arbitrators shall decide any dispute that arises concerning the form in which a document will be produced"
  • With regards to confidentiality, arbitrators must “consider the competing interests of the parties,” as well as factors related to personal privacy, threat of harm, proprietary information or trade secrets, existence of information in public domain, interests of the public and of justice, and legal/ethical issues
  • "The party asserting confidentiality has the burden of establishing that the documents in question require confidential treatment"
  • A party need only produce documents in their “possession, custody, or control” and is not obligated to “create” documents that do not otherwise exist.

III. Direct Comparisons. 

Below are two sets of direct comparisons comparing the specific categories of discoverable documents present in the 2007 Discovery Guide and the 2011 Discovery Guide. Categories that have the most notable changes are in bold.

DOCUMENTS TO BE PRODUCTED BY FIRMS AND/OR ASSOCIATED PERSONS 

Account Information

In the 2007 Discovery Guide, List 1, Item 1 required production of “[a]ll agreements with the customer, including, but not limited to, account opening documents, cash, margin and option agreements, trading authorizations, powers of attorney, or discretionary authorization agreements, and new account forms.”

In the 2011 Discovery Guide, List 1, Item 1 requires production of: “(a) The account record information for the customer parties, including the customer parties’ name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth, and the account’s investment objectives. (b) All documents concerning the customer parties’ risk tolerance. (c) All agreements with the customer parties, including, but not limited to, account opening documents and/or forms; cash margin, option, and discretionary authorization agreements; trading authorizations; and powers of attorney.”

Account Statements

 In the 2007 Discovery Guide, List 1, Item 2 required production of “[a]ll account statements for the customer’s account(s) during the time period and/or relating to the transaction(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 2 requires production of “[a]ll correspondence sent to the customer parties or received by the firm/associated persons relating to the claims, accounts, transactions, or products or types of products at issue including, but not limited to, documents relating to asset allocation, diversification, trading strategies, and market conditions; and all advertising materials sent to customers of the firm that refer to the products and/or account types that are at issue or that were used by the firm/associated persons to solicit or provide services to the customer parties. (In addition, if requested, the firm/associated persons shall produce confirmation slips and monthly statements. Even if not requested, the firm/associated persons must produce confirmation slips and monthly statements that have handwritten notations or that are not identical to those the firm sent to the customer parties.)”

Confirmations

In the 2007 Discovery Guide, List 1, Item 3 required production of “[a]ll confirmations for the customer’s transaction(s) at issue. As an alternative, the firm/Associated Person(s) should ascertain from the claimant and produce those confirmations that are at issue and are not within claimant’s possession, custody or, control.”

In the 2011 Discovery Guide, List 1, Item 2 requires production of “[a]ll correspondence sent to the customer parties or received by the firm/associated persons relating to the claims, accounts, transactions, or products or types of products at issue including, but not limited to, documents relating to asset allocation, diversification, trading strategies, and market conditions; and all advertising materials sent to customers of the firm that refer to the products and/or account types that are at issue or that were used by the firm/associated persons to solicit or provide services to the customer parties. (In addition, if requested, the firm/associated persons shall produce confirmation slips and monthly statements. Even if not requested, the firm/associated persons must produce confirmation slips and monthly statements that have handwritten notations or that are not identical to those the firm sent to the customer parties.)”

Holding (Posting) Pages

In the 2007 Discovery Guide, List 1, Item 4 required production of “[a]ll ‘holding (posting) pages’ for the customer’s account(s) at issue or, if not available, any electronic equivalent.”

In the 2011 Discovery Guide, there is no specific coordinating item relating to holding pages.

Correspondence

In the 2007 Discovery Guide, List 1, Item 5 required production of “[a]ll correspondence between the customer and the firm/Associated Person(s) relating to the transaction(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 2 requires production of “[a]ll correspondence sent to the customer parties or received by the firm/associated persons relating to the claims, accounts, transactions, or products or types of products at issue including, but not limited to, documents relating to asset allocation, diversification, trading strategies, and market conditions; and all advertising materials sent to customers of the firm that refer to the products and/or account types that are at issue or that were used by the firm/associated persons to solicit or provide services to the customer parties. (In addition, if requested, the firm/associated persons shall produce confirmation slips and monthly statements. Even if not requested, the firm/associated persons must produce confirmation slips and monthly statements that have handwritten notations or that are not identical to those the firm sent to the customer parties.)”

Notes

In the 2007 Discovery Guide, List 1, Item 6 required production of “[a]ll notes by the firm/Associated Person(s) or on his/her behalf, including entries in any diary or calendar, relating to the customer’s account(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 6 requires production of “[a]ll notes the firm/associated persons made relating to the customer parties and/or the customer parties’ claims, accounts, transactions, or products or types of products at issue, including, but not limited to, entries in any diary or calendar, relating to the claims or products at issue.

Telephone Calls

In the 2007 Discovery Guide, List 1, Item 7 required production of “[a]ll recordings and notes of telephone calls or conversations about the customer’s account(s) at issue that occurred between the Associated Person(s) and the customer (and any person purporting to act on behalf of the customer), and/or between the firm and the Associated Person(s).” Further, List 11, Item 2 required production of “[c]opies of all telephone records, including telephone logs, evidencing telephone contact between the customer and the firm/Associated Person(s).”

In the 2011 Discovery Guide, List 1, Item 8 requires production of “[a]ll recordings, telephone logs, and notes of telephone calls or conversations about the transactions at issue that occurred between the associated persons and the customer parties (and any person purporting to act on behalf of the customer parties), and/or between the firm and the associated persons.”

Associated Person Records and Customer Complaints

In the 2007 Discovery Guide, List 1, Item 8 required production of “[a]ll Forms RE-3, U-4, and U-5, including all amendments, all customer complaints identified in such forms, and all customer complaints of a similar nature against the Associated Person(s) handling the account(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 10 requires production of “[a]ll Forms RE-3, U-4, and U-5 and Disclosure Reporting Pages, including all amendments, for the associated persons assigned to the customer parties’ accounts at issue during the time period at issue, redacted to delete associated persons’ Social Security numbers, all customer complaints identified in such forms, and all customer complaints filed against the associated persons that were generated not earlier that three years prior to the first transactions at issue through the filing of the Statement of Claim, redacted to prevent the disclosure of non-public personal information of the complaining customers.”

Compliance Manuals

In the 2007 Discovery Guide, List 1, Item 9 required production of “[a]ll sections of the firm’s Compliance Manual(s) related to the claims alleged in the statement of claim, including any separate or supplemental manuals governing the duties and responsibilities of the Associated Person(s) and supervisors, any bulletins (or similar notices) issued by the compliance department, and the entire table of contents and index to each such Manual.

In the 2011 Discovery Guide, List 1, Item 11 requires production of “[a]ll sections for all of the firm’s manuals and all updates thereto relating to the claims alleged in the Statement of Claim for all years in which the Statement of Claim alleges that the conduct occurred, including separate or supplemental manuals governing the duties and responsibilities of the associated persons and supervisors, all bulletins (or similar notices) the firm issued for all years in which the Statement of Claim alleges that the conduct occurred, and the entire table of contents and index to each such manual or bulletin. In responding to this request, the firm must provide a list of all its manuals and bulletins which may contain directives related to the conduct, claims, or product or types of products at issue in the claim.”

Analyses and Reconciliations

In the 2007 Discovery Guide, List 1, Item 10 required production of “[a]ll analyses and reconciliations of the customer’s account(s) during the time period and/or relating to the transaction(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 12 requires production of “[a]ll analyses and reconciliations of the customer parties’ accounts prepared during the time period at issue, including, without limitation, those relating to reviews of the customer parties’ claims, accounts, transactions, or the product or types of products at issue.”

Records and Reports

In the 2007 Discovery Guide, List 1, Item 11 required production of “[a]ll records of the firm/Associated Person(s) relating to the customer’s account(s) at issue, such as, but not limited to, internal reviews and exception and activity reports which reference the customer’s account(s) at issue.” Further, List 5 (Failure to Supervise), Item 2 required production of “[a]ll exception reports and supervisory activity reviews relating to the Associated Person(s) and/or the customer’s account(s) that were generated not earlier than one year before or not later than one year after the transaction(s) at issue, and all other documents reflecting supervision of the Associated Person(s) and the customer’s account(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 13 requires production of: “(a) All exception reports, supervisory activity reviews, concentration reports, active account runs and similar documents produced to review for activity in the customer parties’ accounts related to the allegations in the Statement of Claim or in which the claims, transactions, products or types of products at issue are referenced or listed. (b) For claims alleging failure to supervise, all exception reports, supervisory activity reviews, concentration reports, active account runs, and similar documents produced to review for activity in customer accounts handled by associated persons and related to allegations in the Statement of Claim that were generated not earlier than one year before or not later than one year after the transactions at issue.”

Disciplinary Action

In the 2007 Discovery Guide, List 1, Item 12 required production of “[r]ecords of disciplinary action taken against the Associated Person(s) by any regulator or employer for all sales practices or conduct similar to the conduct alleged to be at issue.”

In the 2011 Discovery Guide, List 1, Item 15, requires production of “[r]ecords of disciplinary action taken against associated persons by any regulator (state, federal or self-regulatory organization) or employer for all sales practice violations or conduct similar to the conduct alleged in the Statement of Claim.”

Compensation Related to Claimant

In the 2007 Discovery Guide, List 3 (Churning), Item 1 required production of “[a]ll commission runs relating to the customer’s account(s) at issue or, in the alternative, a consolidated commission report relating to the customer’s account(s) at issue.” Further, List 5 (Failure to Supervise), Item 1 required “[a]ll commission runs relating to the customer’s account(s) at issue or, in the alternative, a consolidated commission report relating to the customer’s account(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 19 requires that “[f]or all transactions at issue in the Statement of Claim, documentation showing the compensation, gross and net, to the associated persons for such transactions. In the event accounts at issue are the subject of fee arrangements that are not based on remuneration per trade, a record showing compensation earned by period on the accounts.”

Compensation Generally

In the 2007 Discovery Guide, List 3 (Churning), Item 2 required production of “[a]ll documents reflecting compensation of any kind, including commissions, from all sources generated by the Associated Person(s) assigned to the customer’s account(s) for the two months following the transaction(s) at issue, or up to 12 months, whichever is longer. The firm may redact all information identifying customers who are not parties to the action, except that the firm/Associated Person(s) shall provide at least the last four digits of the non-party customer account number for each transaction.” Further, List 13 (Unsuitability), Item 2 required production of “[d]ocuments sufficient to describe or set forth the basis upon which the Associated Person(s) was compensated in any manner during the years in which the transaction(s) or occurrence(s) in question occurred, including, but not limited to: a) any bonus or incentive program; and b) all compensation and commission schedules showing compensation received or to be received based upon volume, type of product sold, nature of trade (e.g., agency v. principal), etc.”

In the 2011 Discovery Guide, List 1, Item 20 requires production of: “(a) For claims related to solicited trading activity, a record of all compensation, monetary and non-monetary, including, but not limited to, monthly commission runs for the associated persons, listing the securities traded, dates traded, whether the trades were solicited or unsolicited, and the gross and net commission for each trade. The firm shall provide this information for a period of time beginning three months before and ending three months after the trades at issue in the customer parties’ accounts. (b) The firm may redact names and other non-public personal information concerning customers who are not parties to the claim, but should provide sufficient information to identify: (1) the non-party customers’ accounts, including the last four digits of the non-party customers’ account numbers; (2) the associated persons’ own and related accounts, including the last four digits of the associated persons’ account numbers; and (3) the type of account (IRA, 401(k), etc.).”

Bonus or Incentive Commissions

In the 2007 Discovery Guide, List 3 (Churning), Item 3 required production of “[d]ocuments sufficient to describe or set forth the basis upon which the Associated Person(s) was compensated during the years in which the transaction(s) or occurrence(s) in question occurred, including: a) any bonus or incentive program; and b) all compensation and commission schedules showing compensation received or to be received based upon volume, type of product sold, nature of trade (e.g., agency v. principal), etc.” Further, List 13 (Unsuitability), Item 2 required production of: “[d]ocuments sufficient to describe or set forth the basis upon which the Associated Person(s) was compensated in any manner during the years in which the transaction(s) or occurrence(s) in question occurred, including, but not limited to: a) any bonus or incentive program; and b) all compensation and commission schedules showing compensation received or to be received based upon volume, type of product sold, nature of trade (e.g., agency v. principal), etc.”

In the 2011 Discovery Guide, List 1, Item 21 requires production of: “(a) A record of all agreements pertaining to the relationship between the associated persons and the firm, summarizing the associated persons’ compensation arrangement or plan with the firm, including: i. Commission and concession schedules; ii. Bonus or incentive plans including those relating to deferred compensation; and iii. Schedules showing compensation received based upon volume, type of product, nature of trade (agency v. principal), etc. (b) To the extent that compensation is based on factors other than remuneration per trade, the method by which the compensation was determined.”

Internal Audits

In the 2007 Discovery Guide, List 5 (Failure to Supervise), Item 3 required production of “[t]hose portions of internal audit reports at the branch in which the customer maintained his/her account(s) that: (a) focused on the Associated Person(s) or the transaction(s) at issue; and (b) were generated not earlier than one year before or not later than one year after the transaction(s) at issue and discussed alleged improper behavior in the branch against other individuals similar to the improper conduct alleged in the statement of claim.”

In the 2011 Discovery Guide, List 1, Item 14 requires production of “[t]hose portions of internal audit reports for the branch in which the customer parties maintained accounts that: (a) concern associated persons or the accounts or transactions at issue; and (b) were generated not earlier than one year before or not later than one year after the transactions at issue, and discussed alleged improper behavior in the branch against other individuals similar to the improper conduct alleged in the Statement of Claim.”

Third-Party Investigations

In the 2007 Discovery Guide, List 5 (Failure to Supervise), Item 4 required production of “[t]hose portions of examination reports or similar reports following an examination or an inspection conducted by a state or federal agency or a self-regulatory organization that focused on the Associated Person(s) or the transaction(s) at issue or that discussed alleged improper behavior in the branch against other individuals similar to the improper conduct alleged in the statement of claim.”

In the 2011 Discovery Guide, List 1, Item 16 requires production of “[a]ll investigations, charges, or findings by any regulator (state, federal or self-regulatory organization) and the firm/associated persons’ responses to such investigations, charges, or findings for the associated persons’ alleged improper behavior similar to that alleged in the Statement of Claim. Further, List 1, Item 17 requires production of “[t]hose portions of examination reports or similar reports following an examination or an inspection conducted by any regulator (state, federal or self-regulatory organization) that focused on the associated persons or the customer parties’ claims, accounts or transactions, or the product or types of products at issue or that discussed alleged improper behavior in the branch against other individuals similar to the conduct alleged in the Statement of Claim, for the period one year before the transactions at issue through the filing of the Statement of Claim.”

Research/Background Materials

In the 2007 Discovery Guide, List 7 (Misrepresentations/Omissions) and List 9 (Negligence/Breach of Fiduciary Duty) required production of “[c]opies of all materials prepared or used by the firm/Associated Person(s) relating to the transactions or products at issue, including research reports, prospectuses, and other offering documents intended or identified as being “for internal use only,” and worksheets or notes indicating the Associated Person(s) reviewed or read such documents. As an alternative, the firm/Associated Person(s) may produce a list of such documents that contains sufficient detail for the claimant to identify each document listed. Upon further request by a party, the firm/ Associated Person(s) must provide any documents identified on the list.” Further, List 13, (Unsuitability), Item 1 required production of “[c]opies of all materials prepared, used or reviewed by the firm/Associated Person(s) relating to the transactions or products at issue, including but not limited to research reports, prospectuses, other offering documents, including documents intended or identified as being “for internal use only,” and worksheets or notes indicating the Associated Person(s) reviewed or read such documents. As an alternative, the firm/Associated Person(s) may produce a list of such documents. Upon further request by a party, the firm/ Associated Person(s) must provide any documents identified on the list.”

In the 2011 Discovery Guide, List 1, Item 5 requires production of “(a) All materials the firm and/or associated persons prepared or used and/or provided to the customer parties relating to the transactions or products at issue, including research reports, sales materials, performance or risk data, prospectuses, other offering documents, and copies of news articles or outside research, including documents intended or identified as being “for internal use only.” (b) All worksheets or notes indicating that the associated persons reviewed or read such documents.”

Order Tickets

In the 2007 Discovery Guide, List 11 (Unauthorized Trading), Item 1 required production of “[o]rder tickets for the customer’s transaction(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 4 requires that “[f]or claims alleging unauthorized trading, all documents the firm/associated persons relied upon to establish that the customer parties authorized the transactions at issue, all documents relating to the customer parties’ authorization of the transactions at issue, and all order tickets for the customer parties’ transactions at issue.”

Customer Authorization

In the 2007 Discovery Guide, List 11 (Unauthorized Trading), Item 3 required production of “[a]ll documents relied upon by the firm/Associated Person(s) to establish that the customer authorized the transaction(s) at issue.”

In the 2011 Discovery Guide, List 1, Item 4 requires that “[f]or claims alleging unauthorized trading, all documents the firm associated persons relied upon to establish that the customer parties authorized the transactions at issue, all documents relating to the customer parties’ authorization of the transactions at issue, and all order tickets for the customer parties’ transactions at issue.”

*Investment/Trading Strategies*

In the 2007 Discovery Guide, there was no item requiring production of documents regarding strategies.

In the 2011 Discovery Guide, List 1, Item 3 requires production of “[a]ll documents evidencing any investment or trading strategies utilized or recommended in the customer parties’ accounts, including, but not limited to, options programs, and any supervisory review of such strategies.”

*Supervisory, Compliance or Managerial Review*

In the 2007 Discovery Guide, there was no item requiring production of documents regarding supervisory, compliance or managerial review.

In the 2011 Discovery Guide, List 1, Item 7 requires the production of: “(a) All notes or memoranda evidencing supervisory, compliance, or managerial review of the customer parties’ accounts or transactions therein or of the associated persons assigned to the customer parties’ accounts for the period at issue. (b) All correspondence between the customer parties and firm/associated persons relating to the customer parties’ claims, accounts, transactions, or products or types of products at issue bearing indications of managerial, compliance, or supervisory review of such correspondence.”

*Communications Between Associated Person and Compliance Department*

In the 2007 Discovery Guide, there was no item requiring production of documents evidencing communications between an associated person and a broker/dealer’s compliance department.

In the 2011 Discovery Guide, List 1, Item 9 requires production of “[a]ll writings reflecting communications between the associated persons assigned to the customer parties’ accounts at issue during the time period at issue and members of the firm’s compliance department relating to the securities/products at issue and/or the customer parties’ claims, accounts or transactions.

*Subpoenas*

In the 2007 Discovery Guide, there was no item requiring production of documents obtained as a result of a subpoena.

In the 2011 Discovery Guide, List 1, Item 18 requires production of “[a]ll documents related to the case at issue that the firm/associated persons received by subpoena under Rule 12512 or by document request directed to third parties at any time during the case.”

*Insurance*

In the 2007 Discovery Guide, there was no item requiring production of documents relating to insurance.

In the 2011 Discovery Guide, List 1, Item 22 requires production “[i]f the Statement of Claim includes allegations regarding an insurance product that includes a death benefit, the firm and/or associated persons must provide all information concerning the customer parties’ insurance holdings and the recommendations, if any, to the customer parties regarding insurance products.”

DOCUMENTS TO BE PRODUCED BY CUSTOMER CLAIMANTS

*Tax Returns*

In the 2007 Discovery Guide, List 2, Item 1 required production of “[a]ll customer and customer-owned business (including partnership or corporate) federal income tax returns, limited to pages 1 and 2 of Form 1040, Schedules B, D, and E, or the equivalent for any other type of return, for the three years prior to the first transaction at issue in the statement of claim through the date the statement of claim was filed.”

In the 2011 Discovery Guide, List 2, Item 1 requires production of “[a]ll customer party and customer party owned business (including partnership, corporate) federal income tax returns the customer parties filed, limited to pages 1 and 2 of Form 1040, Schedules A, B, D, and E and the IRS worksheets related to these schedules, or the equivalent for any other type of return, redacted to delete the customer parties’ Social Security numbers, for the three years prior to the first transactions at issue in the Statement of Claim through the date the Statement of Claim was filed. The income tax returns must be identical to those that were filed with the Internal Revenue Service. The customer parties may redact information relating to medical and dental expenses and the names of charities on Schedule A unless the information is related to the allegations in the Statement of Claim.”

Financial Statements

In the 2007 Discovery Guide, List 2, Item 2 required production of “[f]inancial statements or similar statements of the customer’s assets, liabilities and/or net worth for the period(s) covering the three years prior to the first transaction at issue in the statement of claim through the date the statement of claim was filed.”

In the 2011 Discovery Guide, List 2, Item 2 requires production of “[f]inancial statements, including statements within a loan application, or similar statements of the customer parties’ assets, liabilities, and/or net worth for the period covering the three years prior to the first transactions at issue in the Statement of Claim through the date the Statement of Claim was filed. Customer parties are not required to create financial statements in order to comply with this item.”

Documents Received from Firm, Associated Persons and/or Other Entities

In the 2007 Discovery Guide, List 2, Item 3 required production of “[c]opies of all documents the customer received from the firm/Associated Person(s) and from any entities in which the customer invested through the firm/Associated Person(s), including monthly statements, opening account forms, confirmations, prospectuses, annual and periodic reports, and correspondence.”

In the 2011 Discovery Guide, List 2, Item 3 requires production of “[a]ll documents the customer parties received from the firm/associated persons and from any entities in which the customer parties invested through the firm/associated persons, including account opening documents and/or forms, prospectuses, research reports, annual and periodic reports, and correspondence. Unless contending non receipt of periodic account statements and confirmations sent in the ordinary course of business, the customer parties may satisfy the production requirements for these items by stipulating to receipt of all such periodic account statements and confirmations, but must produce those periodic account statements and confirmations that have handwritten notations or that are not identical to those the firm sent.”

*Account Statements Related to Other Investments*

In the 2007 Discovery Guide, List 2, Item 4 required the production of “[a]ccount statements and confirmations for accounts maintained at securities firms other than the respondent firm for the three years prior to the first transaction at issue in the statement of claim through the date the statement of claim was filed.”

In the 2011 Discovery Guide, List 2, Item 4 requires production of “[a]ll account statements for each non-party securities firm where the customer parties have maintained an account for the three years prior to the first transactions at issue in the Statement of Claim through the date the Statement of Claim was filed. In the alternative, the customer parties shall provide a written authorization allowing the firm/associated persons to obtain the account statements directly from each non-party securities firm. If the customer parties elect to provide written authorization to the firm/associated persons to obtain the account statements, the customer parties must also provide all account statements in the customer parties’ possession, custody, or control containing handwritten notes or that are not identical to those the firm sent.”

Documents Related to Accounts/Transactions at Issue

In the 2007 Discovery Guide, List 2, Item 5 required production of “[a]ll agreements, forms, information, or documents relating to the account(s) at issue signed by or provided by the customer to the firm/Associated Person(s).”

In the 2011 Discovery Guide, List 2, Item 5 requires production of “[a]ll documents, including agreements and forms, relating to accounts at the firm or transactions with the firm.”

Analyses and Reconciliations

In the 2007 Discovery Guide, List 2, Item 6 required production of “[a]ll account analyses and reconciliations prepared by or for the customer relating to the account(s) at issue.”

In the 2011 Discovery Guide, List 2, Item 6 requires production of “[a]ll account analyses and reconciliations prepared by or for the customer parties relating to the customer parties’ accounts at the firm or transactions with the firm during the time period at issue.”

Notes

In the 2007 Discovery Guide, List 2, Item 7 required production of “[a]ll notes, including entries in diaries or calendars, relating to the account(s) at issue.”

In the 2011 Discovery Guide, List 2, Item 7 required production of “[a]ll notes, including entries in diaries or calendars, related to accounts at the firm or transactions at issue with the firm.”

Telephone Calls

In the 2007 Discovery Guide, List 2, Item 8 required production of “[a]ll recordings and notes of telephone calls or conversations about the customer’s account(s) at issue that occurred between the Associated Person(s) and the customer (and any person purporting to act on behalf of the customer).” Further, List 12 (Unauthorized Trading), Item 1 required “[c]opies of all telephone records, including telephone logs, evidencing telephone contact between the customer and the firm/Associated Person(s).”

In the 2011 Discovery Guide, List 2, Item 8 requires production of “(a) All recordings and notes or logs of telephone calls or conversations about the customer parties’ accounts or transactions at issue that occurred between the associated persons and the customer parties (and any person purporting to act on behalf of the customer parties). (b) All telephone records evidencing telephone contact between the customer parties and the firm/associated persons.”

Correspondence

In the 2007 Discovery Guide, List 2, Item 9 required production of “[a]ll correspondence between the customer (and any person acting on behalf of the customer) and firm/Associated Person(s) relating to the account(s) at issue.”

In the 2011 Discovery Guide, List 2, Item 9 requires production of “[a]ll correspondence the customer parties (or any person acting on behalf of the customer parties) sent or received relating to the accounts or transactions at issue.”

Written Statements

In the 2007 Discovery Guide, List 2, Item 10 required production of “[p]reviously prepared written statements by persons with knowledge of the facts and circumstances related to the account(s) at issue, including those by accountants, tax advisors, financial planners, other Associated Person(s), and any other third party.”

In the 2011 Discovery Guide, List 2, Item 10 requires production of “[p]reviously prepared written statements by persons with knowledge of the facts and circumstances related to the accounts or transactions at issue, including those by accountants, tax advisors, financial planners, associated persons, and any other third party.”

*Prior Informal Complaints Involving Securities Matters*

In the 2007 Discovery Guide, List 2, Item 11 required production of “[a]ll prior complaints by or on behalf of the customer involving securities matters and the firm’s/Associated Person(s’) response(s).”

In the 2011 Discovery Guide, there is no item specifically requiring production of prior informal complaints regarding discovery matters.

*Prior Civil Actions Involving Securities Matters*

In the 2007 Discovery Guide, List 2, Item 12 required production of “[c]omplaints/Statements of Claim and Answers filed in all civil actions involving securities matters and securities arbitration proceedings in which the customer has been a party, and all final decisions and awards entered in these matters.”

In the 2011 Discovery Guide, List 2, Item 11 requires production of “(a) All complaints/Statement of Claim and answers filed in all civil actions involving securities matters and securities arbitration proceedings in which the customer parties have been a party, and all final decisions or awards or non-confidential settlements entered in these matters through the date the Statement of Claim was filed. (b) If a person is a party to a confidential settlement agreement that by its terms does not preclude identification of the existence of the settlement agreement, the party shall identify the documents comprising the confidential settlement agreement. Although not presumptively discoverable, a confidential settlement agreement may be obtained with an order from the panel.”

*Actions to Limit Losses*

In the 2007 Discovery Guide, List 2, Item 13 required production of “[a]ll documents showing action taken by the customer to limit losses in the transaction(s) at issue.”

In the 2011 Discovery Guide, there is no item specifically requiring production of documents evidencing actions taken to limit losses.

Ownership of Business

In the 2007 Discovery Guide, List 8 (Misrepresentations/Omissions), Item 1/List 10 (Negligence, Breach of Fiduciary Duty), Item 1/List 14 (Unsuitability), Item 1 required production of “[d]ocuments sufficient to show the customer’s ownership in or control over any business entity, including general and limited partnerships and closely held corporations.”

In the 2011 Discovery Guide, List 2, Item 12 requires production of “[d]ocuments showing the customer parties’ ownership in or control over any business entity, including general and limited partnerships and closely help corporations. If the customer parties are Trustees, provide documents showing the accounts over which the customer parties have trading authority.”

Resumes

In the 2007 Discovery Guide, List 8 (Misrepresentations/Omissions), Item 2/List 10 (Negligence), Item 2/List 14 (Unsuitability), Item 3 required production of a “[c]opy of the customer’s resume.”

In the 2011 Discovery Guide, List 2, Item 16 requires production of “[t]he customer parties’ resumes.”

Customer Claimant Background

In the 2007 Discovery Guide, List 8 (Misrepresentations/Omissions), Item 3/List 10 (Negligence), Item 3/List 14 (Unsuitability), Item 4 required production of “[d]ocuments sufficient to show the customer’s complete educational and employment background or, in alternative, a description of the customer’s educational and employment background if not set forth in a resume produced under item.”

In the 2011 Discovery Guide, List 2, Item 17 requires production of “[a]ny existing description of the customer parties’ educational and employment background if not set forth in resumes produced under item 16.”

Lack of Consent

In the 2007 Discovery Guide, List 12 (Unauthorized Trading), Item 2 requires production of “[a]ll documents relied upon by the customer to show that the transaction(s) at issue was made without his/her knowledge or consent.”

In the 2011 Discovery Guide, List 2, Item 14 requires “[f]or claims alleging unauthorized trading, all documents the customer parties relied upon to show that the customer parties did not know about or consent to the transactions at issue.”

*Documents Relied Upon*

In the 2007 Discovery Guide, List 14 (Unsuitability), Item 2 required production of “[w]ritten documents relied upon by the customer in making the investment decision(s) at issue.”

In the 2011 Discovery Guide, there is no specific item requiring production of written documents relied upon by the customer.

*Independent Efforts*

In the 2007 Discovery Guide, there was no specific item requiring production of documents procured by the customer through independent efforts.

In the 2011 Discovery Guide, List 2, Item 13 requires production of “[a]ll documents the customer parties received, including documents found through the customer parties’ own efforts, relating to the investments at issue in the Statement of Claim.”

*Documents Received from Any Source*

In the 2007 Discovery Guide, there was no specific item requiring production of documents received from additional sources.

In the 2011 Discovery Guide, List 2, Item 15 requires production of “[a]ll materials the customer parties received or obtained from any source relating to the claims, transactions or products at issue, and all materials the customer parties received from any source relating to other investment opportunities, including research reports, sales literature, performance or risk data, prospectuses, and other offering documents, including documents intended or identified as being “for internal use only,” and worksheets or notes.”

*Subpoenas*

In the 2007 Discovery Guide, there was no specific item requiring production of documents procured by subpoena.

In the 2011 Discovery Guide, List 2, Item 18 requires production of “[a]ll documents related to the case at issue that the customer parties received by subpoena under Rule 12512 or by document request directed to third parties at any time during the case.”

*Insurance Products*

In the 2007 Discovery Guide, there was no specific item requiring production of documents relating to insurance products.

In the 2011 Discovery Guide, List 2, Item 19 requires that “[t]o the extent that an insurance product that provides a death benefit is included in the Statement of Claim, the customer parties shall provide all information received from an insurance sales agent or securities broker relating to such insurance.”

IV. Conclusion.

Not every matter is best solved by a regulatory complaint. Care should be given to determine whether potential claims should be pursued in a civil suit in court or in arbitration, and whether a regulatory complaint will hinder a private legal proceeding. In other situations, a regulatory complaint alone may be the only cost effective approach available.
If you have questions regarding a possible securities law matter, or to arrange for a consultation concerning your legal matter, please contact Robert Mitchell at rdm@tblaw.com or at (602) 452-2730.
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