On the Record Interviews

Most experienced securities regulatory attorneys would agree that since the Bernie Madoff fiasco FINRA Enforcement now investigates matters that they previously ignored. Also, the matters they do investigate receive more extensive reviews than investigations conducted prior to the exposure of Mr. Madoff’s escapades.

Part of those investigations often include on the record interviews (“OTRs”). An OTR is similar to a deposition taken in a civil law suit. A court reporter is present and makes a stenographic record of the testimony. Prior to any questioning, the court reporter swears in the witness. At the very least, the lead FINRA investigator and a staff attorney will be present; frequently one or more additional attorneys/supervisors attend.

The attendance of multiple FINRA staffers should signal to any witness summoned to an on the record interview the need for representation by experienced securities regulatory counsel. That representation should begin the moment the person receives notice that FINRA intends to take their testimony.

If the witness has already received a letter advising that she is the subject of the investigation, she presumably has already retained counsel. If the witness is not a target of the investigation she should still have representation so that she is properly prepared to give accurate, succinct and truthful answers.

At this point, it should be noted that large broker-dealers have in-house legal staff who frequently represent the firm’s employees in regulatory investigations where there is no clear conflict of interest. However, the employee must always remember the in-house lawyer represents the company also. Even in situations where there is no conflict, the employee should never forget the existence of the dual representation. If the employee, for any reason, is uncomfortable with representation by the company’s lawyer, she should seek separate counsel.

There are numerous reasons why a broker-dealer’s employee is summoned to an on the record interview. They typically are conducted after FINRA has obtained and reviewed whatever documents they deem relevant. FINRA may want to question a witness to further explore factual issues raised in document production. They may want to question a “live” person to test the factual and legal theories that have arisen in the course of their inquiry.

If the witness is the subject of the investigation, that witness is most likely one of the last, if not the last witness, to be called. In that instance, an experienced securities regulatory attorney can review with the witness the status of the investigation, what documents (of which they are aware) have been produced to FINRA and prepare the witness for the questioning she is to undergo. Remember, FINRA is not obligated to, nor will it, share with the witness and her attorney before the on the record interview the results of their investigation to date, the documents they intend to the show the witness, etc. This highlights the need for a knowledgeable securities regulatory attorney’s participation in the OTR process.

Prior to the on the record interview, FINRA may send the witness a questionnaire to complete outlining the witness’s background information. At the outset of the OTR, the FINRA questioner may provide the witness with a printout of her CRD registration and employment histories for the witness to review and confirm. Those can be reviewed with the witness’s attorney beforehand.

Also, the securities regulatory attorney can prepare the witness for the fairly ominous, but routine, speech the FINRA questioner will give the witness at the beginning of the OTR. The questioner will describe FINRA’s authority to investigate matters and the negative consequences the witness can suffer if she fails to cooperate in the FINRA investigation.

As for the on the record interview itself, a witness’s attorney is generally not permitted to object to questions. But an experienced securities regulatory attorney will certainly ask the FINRA questioner to clarify questions if the attorney or the witness do not understand the question. An experienced securities regulatory attorney can keep the FINRA questioner “honest” to help the witness make the best presentation possible.

As noted previously, there will most likely be at least two staffers present at the OTR. The lead investigator begins the questioning but the staff attorney, and any other FINRA attorneys who may be in the room, can jump in to ask questions. That can be disconcerting to a layperson who may have never formally testified before. A securities regulatory attorney by the side of the witness can help her maintain her composure in the face of repeated questions from multiple persons in the room.

At the conclusion of the on the record interview, the witness is given the opportunity to make a statement. Other than possibly correcting mistaken earlier testimony, experienced securities regulatory attorneys do not have their clients make an additional statement. That could possibly lead to follow up questioning by the FINRA staff. Any information the attorney believes FINRA should be aware of that did not come out in the OTR they can identify to FINRA in a letter or a conversation with the staff attorney at a later time. FINRA will make the transcript of the OTR available for review at a FINRA office. The witness or her attorney can also request in writing that a copy of the transcript be provided (in most cases).

Previously, it was noted that on the record interviews are similar to depositions. However, there are some differences. For instance, FINRA can and does make the transcript available to the SEC or other regulatory agencies that might be conducting parallel investigations.

A witness in an OTR is not permitted to assert her Fifth Amendment right to not incriminate herself. Refusal to testify would be deemed a failure to cooperate and subject the witness to a fine, suspension or bar. If a witness is also facing criminal liability, the witness and her attorney have to decide if FINRA penalties are preferable to possible criminal sanctions.

Whether an employee is a fact witness or the subject of a FINRA inquiry, representation of that employee at an OTR by an experienced securities regulatory attorney is essential.

If you are involved in a regulatory investigation, and need counseling and/or legal representation, call the securities regulatory attorneys at Lubiner, Schmidt & Palumbo now.