ARBITRATION 2.0Real Estate Investment Securities Association

November 30, 2011

ARBITRATION 2.0Panelists:

• Barbara Halper, Principal, FactRight, LLC

• Rick Murphy, President, Berthel Fisher & Company Financial Services, Inc.

• Brandon Reif, Partner, Winget, Spadafora, & Schwartzberg, LLP

Moderator:

• Cameron Hellewell, General Counsel, Orchard Securities, LLC

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ARBITRATION 2.0Update on Arbitrations

• The number of arbitrations are increasing

• The types of Respondents are increasing

• The variety of investments at issue have broadened

• Many Broker Dealers are settling their cases because of the cost to go to arbitration and the risk of losing.

• At the sole discretion of the Claimants, the panel of arbitrators may not contain anyone with industry knowledge or experience.

ARBITRATION 2.0Procedural Considerations

What Happens After an Arbitration is Filed

• Contact your E&O carrier for Notice of Claim

• Contact the Rep of Record

• Coverage, if available is defined

• Attorneys are contacted

• Attorneys work with the BD and/or rep(s) to determine the next steps

• Gather all information on the Client’s investment and a copy of the Client file

• Documentation and witnesses are collected

• Case is reviewed for arbitration or settlement negotiations

ARBITRATION 2.0Procedural Issues Continued

Arbitration Timeline

Step 1: Pleadings

• Statement of Answer is the Chance to Tell Your Side of the Story

• Expect Extensive Fact Investigation

• Assert What you can Reasonably Prove – Avoid the Oversell

• Don’t Play Your Entire Hand

Step 2: Discovery Is Fact-Finding

• Uncover All Sources of Documents and Information

• Reach out to Custodians, Sponsors and Issuers

Step 3: Arbitration Preparation and Hearing

• Prepare for the Hearing

• Attend the Hearing

ARBITRATION 2.0Testifying at the Hearing

What to Expect

• Presentation is a Matter of Style

• Process has its Formalities and Informalities

• Be Cognizant of Non-Verbal Cues

ARBITRATION 2.0Testifying at the Hearing

• Remember that the Arbitration Panel is judgingyour credibility during your entire testimony

• Take what time you need to answer any questions. It is more important to be clear and sure of your answer than to answer quickly.

• Listen for your attorney’s objections. Often witnesses answer questions before the attorney has a chance to object.

• Do not be afraid to ask for a clarification of the question

ARBITRATION 2.0Testifying at the Hearing

What it is Like?

• Fun? NOT!

• Be Prepared, and Answer Slowly, (think about the question).

• Need to recall events and statements in detail from years before.

• Potentially subjected to not only hours, but days of testifying.

• Asked questions that can be very confusing and designed to distort the truth.

• Expected to keep your “cool” during your testimony despite the accusations and attitude of claimant’s attorney

What to be Ready for?

• Your Firm’s Written Supervisory Procedures.

• NTMs 03-71, 05-18

• Due Diligence Process, (who, what, when).

• Training and Education

ARBITRATION 2.0Testifying at the Hearing

Specific Considerations for Reps

•Suitability

•Recommendations

•Your Due Diligence, (DO NOT say, “I relied on my B/D”)

•Be Ready for Prior Disciplinary Issues in Your Past

•Engage the Panel

ARBITRATION 2.0Reporting Issues

Arbitrations Can Impact Reps’ Records

•Very real issue that many reps are facing

•True even if rep is not a named Respondent

•Expungement is not easy, and can be expensive

ARBITRATION 2.0

Four Tools Broker-Dealers and Reps Should Use to During the Sales Process and

Leverage During an Arbitration to Effectively Protect Themselves

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