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COMPLY-Do Wall Street arbitrators go easy on discovery violations?
2014年10月17日 / 中午12点06分 / 3 年前

COMPLY-Do Wall Street arbitrators go easy on discovery violations?

Oct 17 (Reuters) - A former UBS AG branch manager’s pay discrimination case in Puerto Rico highlights behavior some lawyers say can give brokerages an edge in arbitration: breaking discovery rules.

In May, a Financial Industry Regulatory Authority (FINRA) arbitration panel dismissed Carlos Capacete’s claim that UBS paid him less than branch managers on the U.S. mainland. At the same time, the FINRA panel sanctioned UBS $5,000 for violating rules of “discovery” - the pre-hearing process by which parties exchange information.

The ruling is among a spate of cases in which parties have wrangled over alleged discovery violations. Investor attorneys have complained that FINRA’s arbitration process lets brokerage firms get off easy when they have to pay small fines for violations that would have much more serious repercussions in courts.

Capacete’s lawyer, Judith Berkan in San Juan, has asked a Puerto Rico court to throw out the arbitration ruling because of the violation.

The $5000 fine falls short of serious punishment for a firm the size of UBS, Berkan wrote in legal papers filed in June at the San Juan Superior Court, the city’s highest trial court. Other sanctions, such as striking certain testimony on UBS’ behalf, would have more of an impact, she wrote.

“FINRA found all of the issues raised in Mr. Capacete’s case to be without merit and dismissed it in its entirety,” said a UBS spokesman, adding the firm is confident the court will uphold the ruling.

While arbitration rulings are typically binding, courts can overturn them in rare circumstances. A hearing is set for December.

SLAP ON THE WRIST?

So-called “discovery abuse” by firms in arbitration is unusual, and Capacete faces a tough task in overturning the dismissal, lawyers say.

While federal judges are generally more inclined to strike testimony or stop a hearing so a party can review documents that surface at the last minute, FINRA arbitrators generally impose lighter sanctions, said Stefan Apotheker, a lawyer in Miami who represents investors.

For example, arbitrators, also in May, ordered UBS to pay $1,000 for discovery abuse in another case. A UBS spokeswoman declined to comment immediately on that case.

One investor attorney said she handled three cases over the last year in which brokerage firms were fined from $1,000 to $5,100 for discovery violations.

Fines can be significantly higher. On Monday, a FINRA disciplinary officer fined a unit of Ameriprise Financial Inc $100,000 for not disclosing that a broker altered a document the firm gave an investor during discovery. An Ameriprise spokesman said the firm strongly disagrees with the decision, which focused on alleged technical violations during a 2009 arbitration

FINRA investigates all complaints about discovery abuse, and the regulator initiates enforcement actions whenever possible, a spokeswoman said.

Capacete’s court case alleges that UBS produced documents near the end of the arbitration that it should have produced sooner. The documents, which supported UBS’ view that it had not discriminated against Capacete, were crucial, Capacete’s lawyer wrote.

There can be genuine reasons why documents surface late, said Richard Roth, a securities lawyer in New York. Parties must continue to look for documents, such as emails, while a case is pending, he added.

Sanctions are not limited to firms. In one case in September, arbitrators ruled three investors violated discovery rules and ordered them to pay the firm’s share of the hearing fees.

In 2010, comedian Will Ferrell and a group of investors had to pay $22,500 for not complying with discovery procedures in an $18 million FINRA arbitration case they lost against JP Morgan Chase. (Reporting by Suzanne Barlyn. Additional reporting by Mica Rosenberg; Editing by Linda Stern and Andre Grenon)

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