Spotlight

The Cornell Securities Law Clinic has filed an comment letter with the Securities and Exchange Commission objecting to changes proposed by the Financial Insdustry Regulatory Authority (FINRA) as to discovery in securities arbitration.

In its comment letter, the Clinic argued that the changes tipped the discovery balance unfairly in favor of FINRA member firms in cases brought by public customers. The Clinic argued that the Proposal creates a chilling effect on customers who wish to pursue claims by dramatically increasing the financial and personal information customers must produce in every case, regardless of the nature of the claims in the case. By contrast, the categories of documents member firms must produce in every case were narrowed, and the only substantial expansion of the firms’ production requirements was limited to certain types of cases.

The Clinic's objection focused on documents required to be produced by customers in every case.

First, the Clinic voiced its serious objections to the Proposal’s significant change to the time frame for which certain information must be produced from three years prior to the first transaction to five-years prior to the first transaction.

Second, the Clinic objected to the required disclosure of sensitive personal financial information of the customer (and possibly non-parties) in every case. Among other things, the Proposal adds provisions that require the customer to provide the member firm with an authorization to obtain account statements and loan applications directly from firms or lenders the customer has accounts with or from whom the customer has applied for loans. The Proposal also requires that the customer produce a full tax return, instead of the first two pages and the schedules that specifically address investments, which is required under the current Discovery Guide.

The Clinic argued that these additions compromise customers' privacy and the security of their personal information. The Clinic urged the SEC not to accept the proposal in its current form.

Clinic students Ginger McCall ('09) and Sharice Davids ('10) participated in drafting the Comment Letter.