Oppenheimer & Co. and Other Firms Cited for Discovery Violations in FINRA Arbitration

Discovery violations can severely impede the chance of a fair arbitration proceeding

Between 2010 and 2013, investment management firm Oppenheimer & Co. is reported to have repeatedly failed to produce documents during the discovery process for a group of claimants who alleged that the firm had not properly supervised a broker who managed their investments.

Why the discovery process is so important in securities arbitration

Much like a regular legal case in a traditional courtroom, the FINRA arbitration process relies on hard evidence, including legal documents, financial statements, internal and external emails, personal notes, and other data in order to assess a compliant. And, just like a traditional court, the process in which the defendant and plaintiff obtain this type of evidence from each other is called discovery. When a firm fails to present requested documents, presents incomplete documents, or presents documents much later than requested, it can seriously affect the claimant’s chance of receiving a fair judgement. FINRA’s Code of Procedure includes rules of discovery for certain materials.

Oppenheimer & Co. failed to produce documents involving a broker who excessively traded client accounts

Mark Hotton, a former broker with Oppenheimer & Co., was accused of excessively trading client accounts. This activity, commonly referred to as “churning” allows a broker to rack up a large amount of client fees without providing any additional value to the customer. It often results in clients losing large sums of money from unnecessary fees or simply ineffective, losing trades.

In a recent action, FINRA ordered the firm to provide seven claimants who filed arbitration claims with the requested documents that it had previously withheld, as well as make payments totaling $700,000.

Ameriprise and other firms have also been charged with discovery violations in the last few years

Oppenheimer & Co. isn’t the only firm FINRA has charged with major arbitration discovery violations. In October 2014, Ameriprise Financial Services and one of its brokers was sanctioned by FINRA for withholding documents until right before an arbitration hearing, as well as for altering documents essential to the discovery process. FINRA arbitrators discovered that, after receiving a letter of complaint from a customer, Ameriprise broker David Tysk had gone into the firm’s computer system to alter a series of notes he had made in order to bolster his defense’s argument.

After becoming suspicious because the notes were allegedly ‘too perfect,’ the plaintiff’s lawyers repeatedly requested more information from Ameriprise – a request the firm denied at several points during the discovery process. After finding that the notes had indeed been altered, FINRA regulators suspended David Tysk for three months and fined him $50,000, plus fined Ameriprise $100,000.

What discovery violations in FINRA arbitration mean for the investor

Discovery violations don’t always conclusively demonstrate that brokerage firms are attempting to deceive or defraud their customers or to provide false information to FINRA. However, they do significantly slow down the arbitration process and make it much more difficult for victims of broker fraud to gain justice.

In many cases, firms that have a history of withholding information from regulatory groups like FINRA and the SEC may be trying to hide something. At the very least, it can be said that firms like Oppenheimer & Co. and Ameriprise Financial Services are not being as transparent as they could be in these circumstances.

If you’ve lost money due to fraud at a firm that failed to report information to FINRA in a timely manner or has been found guilty of other violations, you may be able to recover some or all of your losses. To see if a firm you’ve invested in has been charged by the SEC, visit the SEC Newsroom today, and to check up on a broker or brokerage firm, use FINRA’s free BrokerCheck service.

The attorneys at Silver Law Group are leaders in the field of securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor. Scott Silver is currently the chairman of the American Trial Lawyers Association, Securities and Financial Fraud Group and routinely represents investors in securities arbitration claims.

Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. Contact us for a complimentary consultation about your situation.