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 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.
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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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