B-Ds bullying clients to settle arbitration cases: Regulator

Broker-dealers are browbeating clients to settle arbitration cases by inundating them with requests for discovery information, according to a top state securities regulator. “The complaint we get from investors is that they are being overburdened with discovery requests from the firms,” Tanya Solov, director of securities at the Illinois Securities Department, said yesterday at the annual meeting of the North American Securities Administrators Association Inc. in Baltimore. Ms. Solov pointed out that when investors file a discovery request, the firm often doesn't produce any information. “But now what's happening, too, is that the firms have started asking the investors for discovery information such as tax returns for a number of years, all the checking accounts you've had, all the investments you've ever had. It's becoming more common.” Ms. Solov said the practice makes arbitration with the Financial Industry Regulatory Authority Inc. more expensive and burdensome for investors. “It drives the investors to often settle a case where they otherwise may want to litigate,” she said. There is a pending rule with the Securities and Exchange Commission that deals with discovery, she said. "We have not seen any increase involving unfair discovery practices," said Nancy Condon, a Finra spokeswoman. "Parties can always take their issues directly to the arbitrators and arbitrators can refer cases to enforcement."