NFA Tells Its Arbitrators to Be Wary Of Parties Secretly Trying to Record Forums

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By Richard Hill

The National Futures Association told its arbitrators Aug. 6 to be aware of parties trying to surreptitiously record their sessions.

In the section of its website devoted to arbitration news, NFA observed that secret recording of arbitration hearings “seems to be a hot topic in some circles these days.”

In some non-NFA forums, it said, parties have been accused of using laptop computers or smart phones to record sessions without the consent of the opposing party or the arbitration panel. In one instance, NFA said, a session may have been live-streamed to people outside the hearing room.

It added, however, that “to the best of our knowledge, this has not occurred in our forum.”

According to the self-regulatory organization, NFA staff attends and records all arbitration sessions in order to create an official record of the event. A free copy of the recording is made available to all parties at their request. At the same time, with advance permission of the arbitration panel, parties may use stenographers to transcribe their session. “Therefore, there is no need for a party to separately record” a session, NFA said.

Nevertheless, NFA asked its arbitrators to “keep your eyes open for parties who may be using technology inappropriately.” For now, it is asking arbitrators simply to advise parties that appear to be secretly recording a session to refrain. It also has amended the “hearing script” read at the beginning of sessions to remind parties not to record without permission.

NFA spokesman Alex Vorro, reiterated to BNA Aug. 7 that NFA was not aware of a secret recording “ever happening” at an arbitration it hosted.

Meanwhile, the Financial Industry Regulatory Authority did not return a call seeking comment on its experience with parties secretly recording arbitration sessions.

New Tools for Old Practice
Attorney Bill Singer, Herskovits PLLC, New York, told BNA Aug. 7 that the practice of parties recording arbitration sessions--typically, the claimants, often proceeding pro se--goes back to the 1980s. New technology, however, which can mask recording devices in everyday objects, such as a computer or cellphone, makes the practice easier to get away with, Singer observed.

He has served as chairman of arbitration panels in the securities industry, including for FINRA, and has represented both industry and customer parties in arbitration proceedings.

Although the arbitration panel is required to record arbitration sessions and make a transcript available, Singer said there are several reasons claimants might want to record for themselves. Primarily, he said, the official recording device could deliver poor quality audio or fail altogether. It also is possible that the panel will stop recording for an off-the-record conversation that the claimant feels is pertinent.

For those reasons, Singer said, a stenographer is the preferred method of recording a transcript of an arbitration session. “It's not that unusual,” Singer said, “that you'll see an [appeals] court note that a tape is unclear, or the arbitrator says there's a portion of the transcript that's missing, or there's a tape that was lost. It happens.”

Vorro told BNA that requests for a stenographer are considered on a case-by-case basis by NFA arbitrators. “In our experience, parties' requests for a stenographer are usually allowed and the other side rarely objects,” he said. At the same time, he said the request is “not common.” Vorro added that SRO officials “do not recall any problems” with NFA-produced recordings.

Singer noted that in 2012, FINRA's newsletter for arbitrators included an article on the proper official recording of a session. The article states that an arbitrator has “an obligation to operate the digital recorder competently, and you should ensure that you understand how and when to record the hearing.” The article begins with a hypothetical anecdote describing the “significant consequences” caused by an arbitrator who “innocently forgot” to turn on the official recorder after lunch.

Singer said that while a particular forum such as NFA may bar private recordings, a court that takes up an appeal from an arbitration is not necessarily bound by the rules of the arbitration forum and could listen to an unauthorized recording. Nevertheless, there is a high bar for admissibility, he said. For instance, a tape might not be admissible for purposes of reviewing testimony but might be admissible to demonstrate egregious conduct.

“You can see an increasing activism on the federal bench, where they're unhappy about the way arbitrations are being conducted,” Singer said.

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