Wednesday’s Word: Discovery

By Majda Muhic, Spring 2017 Student Intern

Rather than a single moment of learning something new, “discovery” in litigation and FINRA arbitration is a longer process during which opposing parties exchange information relevant to their case. While a eureka moment rarely follows the legal process of “discovery” and “smoking gun” evidence isn’t nearly as common as courtroom dramas on television made us all think, the information gathered during this process allows the parties to establish facts necessary to support their claims and defenses in a case.  Information discovered during the process guides any settlement negotiations, frames the arbitration hearing, and often shapes the outcome of a case.

Before the process of discovery begins, a formal claim and an answer to the claim must be filed with FINRA.  Once the answer is filed, the process of discovery begins. Under FINRA Rule 12506, the parties generally have sixty days to engage in the process.

The primary discovery tools at the parties’ disposal in a FINRA arbitration are document and information requests. FINRA provides two separate lists of documents to be produced by the opposing parties in regular, non-simplified cases – one specific to the broker-dealer and one to the investor. In a typical FINRA arbitration, both the broker-dealer and the investor automatically provide each other with the listed documents as soon as discovery begins.  Under FINRA Rule 12507, the parties can also ask for additional information through written requests. A party may object to revealing some of the requested documents if they provide a valid reason for their objection in writing under FINRA Rule 12508.

Through discovery, an investor typically receives documents related to an alleged wrongdoing by his broker that she otherwise would have no way to access – including documents marked “for internal use only,” documents showing the broker-dealer’s research on a specific investment product, or documents showing a broker-dealer’s supervisory activities.

Whether discovery is automatic or not, cooperation between the parties is key. For more information on FINRA-specific discovery guidelines and the lists of documents to be produced, see FINRA’s Discovery Guide for more information.