Expert Witnesses Are Permitted to Interpret FINRA Rules, Court Says


FINRA ExpertCourt: United States District Court for the Southern District of Florida
Jurisdiction: Federal
Case Name: UBS Fin. Servs. v. Bounty Gain Enters., Inc.
Citation: 2017 U.S. Dist. LEXIS 57502

Because FINRA regulations are not law, but rather the rules of a private organization, an expert’s interpretation of the rules does not encroach upon the court’s domain.

Facts

The plaintiff filed a complaint for declaratory judgment and injunctive relief against the defendant. The plaintiff claimed that it was not required to submit to FINRA arbitration with the defendant, as the defendant was never its customer. The defendant hired a FINRA expert witness to support its case by offering his opinion on the FINRA Rule 12200. The plaintiff filed the current motion challenging the FINRA expert witness’s testimony.

The FINRA Expert

The defendant’s FINRA expert had 35+ years of experience as a securities attorney. He served as senior regional counsel in the enforcement department at FINRA. During his time with FINRA, he successfully prosecuted 400+ cases against registered persons and FINRA members. At the time of the matter, the FINRA expert witness owned GC Litigation Support, LLC, a company that provides services related to securities litigation. The expert had served as an expert in multiple Federal and State court securities litigations as well as arbitrations related to FINRA. He also had experience providing evidence and document review along with evidence evaluation and litigation strategy support services.

The expert had also served as an assistant director in the division of market regulation at the SEC and had 8 years of experience working at a Washington-based registered broker-dealer. The expert witness served on the board of arbitrators for FINRA and the NYSE and also served as vice chairman of the Philadelphia Stock Exchange Business Conduct Committee. The FINRA expert witness obtained his law degree from Northwestern University School of Law.

Discussion

The court found that the expert witness was sufficiently qualified in matters pertaining to securities regulation to proffer his opinion on FINRA Rule 12200. The court also found that the expert’s experience was a reasonable basis to form his concluding opinions, noting that “an expert can testify regarding narrow subtopics within his broader area of expertise,” citing Remington v. Newbridge Securities Corp. 2014 U.S. Dist. LEXIS 15867, [WL] at *4.

Moreover, the court said that there was no risk of confusing or improperly influencing the jury with the use of the expert’s testimony. Because this was a bench trial, it was within the court’s power to determine the relevance, importance, and weight of admitted evidence and witnesses. The court noted “the witness had sufficient expertise in the area to opine on the issue of associated person under the FINRA rules despite the fact that the expert witness did not have experience testifying on the specific narrow area of expertise in that case,” citing another bench trial in Pictet Overseas, Inc. v. Helvetia Trust, 13-81088-CIV-KAM (S.D. Fla. Jan. 4, 2017). In the present case, the court allowed the defendant to question the FINRA expert on his qualification and render him as an expert witness during trial, after which the defendant would be allowed voir dire examination of the expert witness, if needed.

Furthermore, the court was of the opinion that the FINRA expert’s opinion on the legal interpretation of FINRA Rule 12200 would assist the court in understanding the interpretation of the rule and determining the facts at issue in the case, pointing out that “FINRA’s rules…are not law, but rather the rules of a private organization, an expert’s interpretation of the rules does not encroach upon the court’s domain,” again citing Remington, 2014 U.S. Dist. LEXIS 15867, 2014 WL 505153 at *5. The court thus rejected the plaintiff’s argument that the FINRA expert’s testimony related to FINRA Rule 12200 amounted to impermissible legal conclusion which should not be allowed as the court.

Held

The court held that the FINRA expert witness’s testimony was admissible according to the standards laid down by Daubert, noting that a FINRA expert witness is allowed to offer an opinion on the interpretation of FINRA rules if it helps the court understand the interpretation and determine the facts in issue.

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