The $15 million SEC fine against Morgan Stanley & Co. for repeated and flagrant e-mail production failures in hundreds of securities arbitration cases points to a larger problem that mere penalties by the regulators cannot remedy. How do we know that sanctions, however drastic they may seem, will not serve to prevent future violations in securities arbitration: because experience has shown that the industry goes back to business as usual until the next time it is caught. A glaring case in point is Refco, the giant trading firm that spectacularly collapsed in a blaze of fraud and corruption at the end of 2005 after over a decade of slaps on the wrist by the regulators.

Requests for production of information and documentation have become an exercise in who can draft the most intricate interrogatories (euphemistically referred to as “information requests”), and ask for the most personal of records. The aim seems more to burden and harass investors in securities arbitration than to obtain evidence.

Equally abusive is the manner in which objections are raised to legitimate discovery requests, which compromises the ability of investors to uncover evidence and potential sources of documents and information favorable to their case. As a consequence, more and more arbitration panels are being faced with motions to compel, further exacerbating delay in the securities arbitration process.

When broker dealers are required to cough up information and documents damaging to their position, the retrieval process becomes painstakingly slow and sometimes their existence comes to light only when a witness slips at the hearings.

Unethical discovery tactics compromise the securities arbitration process and prejudice the ability of investors to recover for injury caused by broker dealer misconduct. We support just compensation for the victims of such practices, the public investors who are forced to wade into the arbitration process. It also wouldn’t hurt to step up regulatory and arbitration forum oversight before, and not after, these violations are committed.