Securities dispute resolution: Experts

Experts can offer their opinions on a variety of issues such as the management of the account and calculation of profits.

Experts can provide necessary information to support claims made by either the claimant or the respondent.  The decision to hire an expert depends on a number of factors including the following:

  1. The type of claim or defense being made
  2. Cost of the expert as compared to the amount claimed as damages
  3. The need to explain complex transactions
  4. The need for expert testimony as compared to background information.

The Financial Industry Regulatory Authority (FINRA) provides the following rules related to experts:

  • Rule 9263 authorizes the Hearing Officer to “exclude all evidence that is irrelevant, immaterial, unduly repetitious, or unduly prejudicial.”  Expert’s testimony may be excluded under this rule.
  • Rule 9242(a) authorizes the Hearing Officer to order a party to provide expert’s qualification statements, publications, and involvement in other proceedings.
  • Rule 9242(b) prohibits a former officer of FINRA from testifying within a year of leaving FINRA.
  • Rule 12602 (for customer disputes) and Rule 13602 (for industry disputes) permit expert witnesses to “attend all hearings” “absent persuasive reasons to the contrary.”

The arbitration panel determines whether to allow an expert witness to testify.  The standards used in litigation provide a helpful guide.  Federal courts may allow expert witnesses to testify if (1) the expert’s knowledge “help the trier of fact to understand the evidence or to determine a fact in issue”; (2) “the testimony is based on sufficient facts or data”; (3) “the testimony is the product of reliable principles and methods”; and (4) the witness “has reliably applied the principles and methods to the facts of the case.”  Federal Rules of Evidence 702, Testimony by Expert Witnesses, 28 U.S.C. §702.  State courts may impose different rules.  Arbitrators are not bound by either federal or state standards in evaluating the expert.

Once an expert witness is permitted to testify in arbitration, the party that called the expert asks questions to the expert through a direct examination.  The opposing party may question the expert through a cross-examination.  The arbitrators may also question the expert.

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