On-The-Record: Survival Tips for Witnesses

Thomas McCabe & Christopher Warren

A securities self-regulatory organization (“SRO”), like the Financial Industry Regulatory Authority (“FINRA”), has invited you to give on-the-record testimony (“OTR”) in connection with a pending inquiry, investigation, or disciplinary proceeding.

You may be a target or one of many targets. You may be viewed by the SRO’s Examiners/Investigators (the “Examiners”) as a potential witness in a disciplinary action based upon your on-the-record testimony or information subsequently developed during the investigation.

You are likely not testifying because you want to, but because you are compelled to do so. You have nothing to gain and much to lose from this exercise in almost all instances. I have represented many respondents in SRO disciplinary proceedings. Often, the most damaging evidence that the SRO enforcement staff possesses is the recorded testimony of the respondent. In many cases, this damaging evidence would not exist if the witness followed the following guidelines, used common sense, and hired experienced regulatory counsel to guide them through the process.

Your overall objective is simple and conservative:

  1. Make no unnecessary admissions against interest.
  2. Make no material misstatements.

This article provides a high-level roadmap to assist in the survival and navigation of the regulatory minefield an SRO on-the-record interview presents. Keep in mind, if you have been asked to provide testimony, you absolutely should engage with an experienced FINRA attorney to help guide you through the process; your career, business, and livelihood in the securities industry is on the line.

What is an OTR?

An OTR is a formal question and answer session conducted by members of the SRO’s regulatory staff and is recorded verbatim by a stenographer while the witness testifies under oath. Usually, OTRs will be conducted at the SRO’s regulatory offices. One or more SRO’s regulatory staff members will attend and run the OTR.

Although the examiners conducting the OTR may tell you that they have summoned you to gather facts, the primary purpose of an OTR is to preserve your testimony for future reference, including use against you or others – not to obtain information.

If the examiners were primarily interested in getting “the facts” from you, they would be better served if they conducted the interview informally, without a stenographer or tape-recorder, in a friendly, casual atmosphere. Relaxed witnesses are usually more open and willing to talk; as the old saying goes, you catch more flies with honey than vinegar.

OTRs conducted by SRO examiners are always formal and often adversarial. Examiners are not impartial or unbiased. By the time you are called to give an OTR, they most likely have developed a theory of the case and have made or are close to making conclusions of guilt or innocence. Once the examiners make such a determination, it is challenging to change their opinions. It should, therefore, never be your objective to win the hearts and minds of the examiners. Moreover, in most cases, the examiners are important players in the investigative/disciplinary process; they generally do not have the authority to make ultimate decisions regarding a case or its subjects. Typically, more senior officials of the SRO or SRO board member review boards decide whether to close an investigation or bring disciplinary action after reviewing investigative reports, documents, and transcripts of OTRs.

When you fully appreciate that an OTR is one of the worst forums for a witness to tell their side of the story, it is easier to accept that your main objective is relatively modest: avoid unnecessary admissions against interest and make no material misstatements.

OTRs can be exhausting. Often, they are excruciatingly tedious, but they can also be terrifying. It is critical to stay alert throughout the proceeding, particularly during the late stage when fatigue can affect your testimony. Anything you say on the record can be used against you; do not think out loud. If you are shown documents, review them in silence. If you need to speak to counsel, do so outside the presence of examiners. No matter how polite they may seem, the examiners are not your confidants.

Resist the temptation to defend yourself. Do not try to persuade the examiners that you or others are innocent. Even if you succeed in doing so, it will not necessarily immunize you from disciplinary action since the examiners are generally not the ones who determine whether to take disciplinary action against a respondent.

The Witnesses’ Obligations

Every securities SRO (like FINRA) requires its members, member firms, and associated persons to cooperate in its investigations and disciplinary proceedings. Failure to cooperate will most certainly result in your expulsion from the US securities industry.

You must answer properly framed and relevant questions truthfully and to the best of your ability. However, you are not obligated to volunteer information or gratuitously enlighten the examiners. The general rule is to answer the questions posed as succinctly as possible. At times, it may be beneficial to give the examiners information, even if not specifically asked, if such information exculpates you. Before doing so, you should first consult with counsel in a privileged discussion outside the room where the OTR is being conducted. Every bit of information or documentation offered during the OTR can backfire and be used against you regardless of how benevolent it may appear at first blush. The OTR is not your one and only opportunity to explain the facts in a light most favorable to you.

Regardless of educational or industry background, many witnesses are not particularly adept at thinking on their feet, particularly in a hostile, formal environment. Consequently, it is usually a better strategy to leave exculpatory or clarifying information/documents later and at a different venue.

Proper Answers: Not Misstatements

SROs consistently impose very severe penalties upon witnesses who are found to have made an intentional, material misstatement or who have otherwise obstructed the SRO’s investigation. Some examiners try to trap witnesses into misstatement to gain leverage against them. The threat of disciplinary action for making a statement can loosen the tongue of an unprepared (or unrepresented) witness who will be useful in disciplinary cases against third parties. Moreover, a material misstatement will be used to impeach your credibility on all issues and is very damaging to your defense if you are named a respondent for unrelated charges of violative conduct.

Once you are notified that an OTR has been scheduled, you should not discuss the case with anyone except your attorney. Casual conversations about the case with colleagues, including other witnesses and targets, are fair game for discovery. Any non-privileged and unprotected conversations with colleagues are fertile ground for unintentional misstatements and incriminating statements. Use your attorney to discover the “who, what, when, where, and why” of the investigations, not your colleagues.

Listen carefully to each question and answer the question asked. Do not be defensive if you do not know the answer or if you cannot recall something; you have nothing to prove. Along the same lines, do not permit yourself to be bullied into admitting something unless you are sure it is true. Do not try to convince the examiners of your honesty by underscoring your testimony with phrases like “honestly” or “truthfully.” Do not remind the examiners of the staleness of their case by pointing out an incident that took place “a long time ago.” An experienced attorney can assist you in prepping for these types of tactics in an on-the-record testimony.

You must distinguish facts known to you and your customary business practice. If the examiners question you regarding a specific transaction and you have no independent recollection, do not answer as if you remember the transaction. You may discuss ordinary business practice; you should also be receptive to having your memory refreshed by the examiners by way of exhibits.  

Generally, at the conclusion of the staff’s Q&A, the witness’ counsel may ask clarifying questions and the witness has an opportunity to make a statement. It is rarely advisable for counsel to ask such clarifying questions or for the witness to make a final statement. This will only provoke the examiners into additional questions and will probably not exculpate you. Less is always more at an OTR.

Remember, if a FINRA OTR were a game, you would have “lost” when you received the notice to testify. Accept that this is a “no-win” situation and that a witness who completes an OTR without making a material misstatement or an unnecessary admission against interest has testified successfully.

If FINRA has contacted you for an OTR interview, it is critical you seek proper legal counsel to avoid any missteps that may damage your business, your license, and your career. Contact the attorneys at Warren Law Group at (866) WLGROUP or email info@warren.law to schedule your complimentary consultation.

Thomas McCabe: tmccabe@warren.law , (917) 597-8221

Christopher Warren: chris@warren.law, (212) 580-9600

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Thomas McCabe

Thomas J. McCabe, Partner