A few months ago I got a new client who transferred over from another firm. Apparently he is suing his former broker and I just received a subpoena from that broker's attorney to appear and testify in the arbitration hearing. I don't want to say anything that would either hurt my client's case or get me in trouble and I don't know what to do. Should I get an attorney?

— W.S., New York

Presently there is nothing in the FINRA rules that says a non-party witness can or can't have an attorney present at the hearing when he testifies. However, a pending FINRA rule change would specifically permit a non-party witness to have an attorney present. (See SR-FINRA-2010-006, Feb. 16, 2010). Even without the rule being in effect, it's unlikely that an arbitration panel would prohibit you from having counsel present. However, unless and until the new rule goes into effect, the final decision is still up to the arbitrators and therefore they have the discretion to do what they think is right. You may want to ask your client if his attorney wants to speak with you at some point prior to your testimony but the bottom line, of course, is to honestly answer the questions asked. You should also be aware that as a registered representative, you are obligated to comply with the Orders of a FINRA arbitration panel and, assuming the subpoena is issued, you will have to appear at the hearing regardless of whether or not the panel allows you to have counsel present.

I was involved in an arbitration hearing a few weeks ago and an issue arose concerning what I'd told the customer regarding the risks of a particular bond. I'd told the customer about the bond's ratings from the various rating agencies but his attorney implied that I should have gone into more detail about the risks. Is giving the client a bond's rating enough when it comes to disclosing risks?

— R.G., California

According to the Securities and Exchange Commission, "the recent turmoil in the credit markets has raised serious concerns that investors may not have fully understood what credit ratings mean, or the limits inherent in them." In October last year, the SEC proposed certain amendments to Regulation S-K to enhance credit rating disclosure so that "investors will better understand credit ratings and their limitations." The SEC said that "investors may not have access to sufficient information about credit ratings" and has listed four principal areas of concern. First, is whether investors are "provided with sufficient information to understand the scope or meaning of ratings being used to market various securities." The second concern is whether investors have "access to information allowing them to appreciate fully the potential conflicts of interest faced by credit rating agencies and how these conflicts may impact ratings." Third, there has been "significant discussion of the possibility that 'ratings shopping' may lead to inflated ratings. Ratings shopping occurs when a registrant, or someone acting on its behalf, seeks the highest credit rating available from multiple credit rating agencies." Finally, according to the SEC, "even though credit ratings appear to be a key part of investment decisions and are used to market securities, disclosure about ratings is not required in prospectuses currently." As a result, the Commission is concerned that "investors may not be receiving even basic information about a potentially key element of their investment decisions." While the proposed amendments are still pending, it would seem prudent to consider providing more detailed disclosures to clients. Remember, no one was ever sued for giving too much information.

Alan J. Foxman, ESQ., is an attorney with Fred Chikovsky & Assoc. in Boca Raton, Fla. His comments are not intended to be legal advice.