FINRA Arbitrators Dismiss Customer Claim Before Hearing For Discovery Abuse

July 12, 2013

This somewhat convoluted dispute apparently manifested itself as a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2010 by public customer Claimant Lynne C. Lieberman versus Financial Northeastern Securities. Inc. For now, let's just dispense with the normally important facts in the case and focus on a blossoming discovery dispute between the parties.

Bad Faith And Document Destruction

In August 2012, Respondent Financial Northeastern moved to compel Claimant Lieberman to respond in good faith to discovery requests. Respondent alleged that Claimant had failed to produce documents set forth in FINRA's Document Production Lists.  Respondent further alleged that Claimant had "acknowledged that she intentionally discarded critically relevant documents just before filing the Statement of Claim." 

In consideration of Claimant's alleged bad faith and document destruction, Respondent sought a FINRA Arbitration Panel Order compelling Claimant to respond to all outstanding discovery requests and an award of $10,000 to cover attorneys' fees, costs, and expenses. Additionally, Respondent sought an Order of Preclusion barring Claimant from presenting evidence of her claims. In the Matter of the FINRA Arbitration Between Lynne C. Lieberman, Claimant, v. Financial Northeastern Securities, Inc., Respondent (Order To Dismiss The Case Without Prejudice, FINRA Arbitration 10-00231, July 1, 2013). 

Just The Resume

Claimant moved to strike the motion and asserted that she had provided the disputed documents and that Respondent had continually delayed the proceedings.  Respondent countered, in part, that Claimant had produced only her resume as part of discovery.  

December 2012 Production Order

In December 2012, the FINRA Arbitration Panel ordered Claimant to "provide full, good faith responses to the First Requests and FINRA's Document Production Lists by January 14, 2013 or state that no such document exists."  In the even of her non-compliance with the Order, the Panel admonished Claimant that they would draw a negative inference against her and preclude her presentation of evidence.

May 2013 Motion To Compel

In May 2013, Respondent filed a Second Motion to Compel asserting Claimant's violation of the Panel's December 2012 discovery Order. Respondent cited Claimant's purportedly ongoing refusal to produce relevant documents and to amend what the firm had characterized as inaccurate discovery responses. 

In her response, Claimant requested that the Panel not dismiss her claim. Among her arguments against the allegations in the Second Motion were her unawareness of the need to respond to two lists submitted by Respondent and her assertion that she could not produce documents not in her possession - she did offer to sign a consent that would enable the Internal Revenue Service to release her records to Respondent.

July 2013 Order

Following a telephonic conference call around June 27, 2013, the FINRA Arbitration Panel ordered that:
  1. Claimant's claims are dismissed without prejudice as a sanction pursuant to Rule 12212 of the Code of Arbitration Procedure.
  2. Respondent's requests for sanctions and attorneys' fees are denied.
  3. All outstanding hearing session fees and discovery-related motion fees are assessed solely to Claimant.
NOTE: Up to his point in this article, all the assertions and allegations are solely derived from a copy of the Panel's July 1, 2013, Order.

The Press Release

According to an undated press release from the law firm of Shustak & Partners: "Shustak & Partners Obtains Pre-Hearing Dismissal of FINRA Arbitration Claims On Behalf of Broker-Dealer Client," that law firm characterizes the underlying dispute in Lieberman as involving an allegation that Claimant had:

[L]ost money in her investment accounts during a calamitous market downturn of 2008 - the worst financial crisis since the Great Depression.  While Claimant alleged her former broker-dealer, Financial Northeastern Securities, Inc. ("FNS") was responsible for her alleged losses and sought more than $600,000 in total damages, her allegations were directly contradicted by hundreds of telephone recordings FNS maintained as part of its fastidious recordkeeping process. The recordings revealed that Claimant's self-directed, sometimes risky investment decisions and substantial withdrawals of principal during a declining market caused her losses - not any wrongdoing on the part of FNS.. ."

The law firm further asserts that although Claimant was initially represented by lawyers, said counsel withdrew after 

[S]hustak & Partners, voluntarily produced just a handful of the telephone recordings to her counsel soon after the case begun and before formal discovery began.  Claimant thereafter appeared pro se and filed a motion to change the venue . . ."

Respondent was represented by Erwin J. Shustak, Esq. and George C. Miller, Esq.

SIDE BAR With Bill Singer (Thomson Reuters)
For iPhone/Mobile view visit:

David Sobel, Esq., FINRA's Small Firm Advisory Board Chair, discusses with Bill Singer, Esq. the struggle of small broker dealers. Can the partnership of regulator and regulated be restored?.