They're coming to get you.
As the number of arbitrations filings increases, so too do the odds that you will be called to appear in a regulatory hearing. The complaint may not even be against you; registered reps are often summoned to testify about a co-worker or about someone they supervised. Even receptionists, office assistants and home-office staff are fair game.
The experience is rarely pleasant, but it need not be nightmarish either. By following a few simple guidelines, reps can exit the cross-examination process with heads held high, careers undamaged and integrity intact.
Tell the truth. This should go without saying, because arbitration is a legally binding procedure that requires truthful responses to questions, but it bears emphasizing anyway. Reps who lie are subject to perjury charges.
Answer the question asked. Again, this sounds simple, but many people read into the questions asked of them in an attempt to arrive at the questioner's intentions. For example, if an opposing counsel asks, “Was it a long conversation?” the appropriate answer is, “Yes, the conversation lasted over an hour.” A poor response would attempt to deliver unsolicited detail: “They talked about their families, vacation plans, the NASDAQ market, the account's performance, put options and about XYZ stock.”
Responding succinctly is important for two reasons: (1) answers that stray can inadvertently give opposing counsel valuable information; and (2) a lawyer whose question goes unanswered is likely to simply repeat the query until it gets a direct response.
Admit when you don't know or can't remember. In response to “I don't remember” answers, lawyers often will produce a document to refresh a witness's memory. For example, an opposing counsel might ask, “Did you take a telephone purchase order for 100 shares of XYZ on July 15, 2000?” A natural response could be, “Probably. I usually take all the telephone orders unless I'm at lunch.” However, this is only a good answer if the respondent remembers specifically taking the particular order in question.
If the respondent answers, “I don't know,” the opposing counsel is then free to produce the original order ticket and ask for verification that it is in the witness's handwriting — something easily answered with a yes or no. Imagine the damage to a witness's credibility if he had answered “Probably” to the order-ticket question, only to be confronted with physical evidence to the contrary.
If there is no question, don't supply an answer. Let's say a branch manager gets called to testify at the arbitration of one of the brokers he supervises. The opposing counsel might say to the manager, “You had several complaints filed against you according to your CRD.” Since counsel is not permitted to testify, the correct response to this nonquestion for the branch manager is to sit silently and wait for an objection from his attorney.
Ask for clarification if you don't understand a question. Opposing counsel might ask, “Was Mrs. Jones a savvy investor?” Since the word “savvy” can be interpreted differently by different people, it's reasonable to ask opposing counsel to clarify his question: “Can you clarify what you mean by ‘savvy?’”
Don't get upset if opposing counsel cuts you off. If a witness has answered opposing counsel's question, the opposing is within his rights to cut off the rest of a response. Though such behavior would be considered rude in an everyday conversation, in court, it's common and accepted. Avoid getting miffed by this, because it's counterproductive. You will have a chance to explain yourself if your attorney asks a follow-up question.
If you think a question is inappropriate or irrelevant, it's likely that your attorney also will. In this case, your attorney will object to the question, and the arbitration panel will confer to decide whether to allow the question or not. If the panel decides to allow it, keep your answer short and to the point.
The above suggestions are not intended to create “difficult” witnesses for the opposition. They are merely guidelines to help advisors get through the very stressful experience of being cross-examined. Short and focused answers reduce the advisor's burden and place more pressure on the opposing counsel to do his job.
Of course, be sure to consult with your attorney to determine if these suggestions are suitable for your particular case.
Alison Jimenez is president of Dynamic Securities Analytics, a Florida corporation specializing in securities transaction analysis. Alison_Jimenez@yahoo.com