Random stories from experts about this surprising practice arise from time to time, but the frequency with which “phantom retention” has occurred remained a matter of conjecture. Now, a March 12, 2015 recommendation from the Securities Experts Roundtable (SER) to the FINRA Dispute Resolution Task Force catalogues numerous instances of phantom retention and suggests ways that FINRA-DR can help put a halt to the practice.

What Is “Phantom Retention?”

The recommendation, which consists of a cover letter from SER’s current President, Richard Leisner, and a Report by past SER President Stuart Ober, describes the device employed by some attorneys of listing a securities expert, as part of the “20-day exchange,” on the Rule 12514(b) or 13514(b) witness lists without having actually retained the expert. SER calls the practice “phantom retention” and Mr. Ober’s Report demonstrates for the first time, by pulling together accounts from a body of experts around the country, that “phantom retention” is not a one-off or seldom occurrence.

Mr. Leisner’s letter endorses the Ober Report on behalf of SER’s Board of Directors and urges the Task Force to consider the Report’s recommendations, which, if implemented, could discourage the practice or, indeed, eliminate it. Mr. Ober had submitted a similar letter to the Task Force in late 2014, but this latest letter Report, dated March 10, 2015, contains some amendments to the original and, most importantly, has the backing now of the SER organization. The Ober Report runs four pages and has been posted by SER on its Website, in tandem with a News Release on the subject.

Survey of Experts

In the March 10 missive, addressed to Task Force Chair Barbara Black, Mr. Ober describes the results of his “Survey of Experts,” adding as a caveat that sometimes the expert, who is the target of a “phantom retention,” may never hear about it. His Survey cites some instances when SER members did learn of an occurrence; there was even one instance where the expert was inappropriately listed by one side when s/he had already been formally retained by the other. Another expert reported: “This has happened between 6 to 10 times. In one instance, I later learned that I was one of ten experts [listed] to testify to bludgeon the other party to settle. I was never notified or retained.”

Mr. Ober explains the ways in which “phantom retention” not only disadvantages and can injure an expert’s reputation, but also argues that contra-parties can be deceived and make bad tactical judgments in reliance upon the retention. “[T]his deceptive and dishonest tactic,” he writes, “may create lost revenues to the expert … and it may unethically enhance the value of the attorney’s case who listed the expert.” Mr. Ober argues that “this is an important issue for … the arbitration process” as well and suggests seven steps that FINRA-DR can take, such as treating the issue in the IPHC script, notifying the expert any time s/he is listed in a 20-day exchange, and other possible treatments.

(ed: *By way of disclosure, SAC’s president, Rick Ryder, is a member of the SER Board and voted for the Ober Report endorsement. **We called this practice “surprising” at the top of this article. Had not Mr. Ober supplied multiple instances of its occurrence – had not so many experts attested to it happening, and happening to them more than once -- one would not think such slippery tactics likely at all. No attorney worth her salt would pull a stunt like that in court. It’s arbitration and some practitioners still see that as the “Wild West.” FINRA has a stake, in our view, in seeing to it that that mindset does not prevail. ***The News Release quotes SER’s Leisner as writing in the endorsement letter: “SER is grateful to Stuart Ober for an excellent report that so effectively spotlights the unethical practice of phantom retentions and also suggests several solutions that SER hopes FINRA will consider.”)

(SAC Ref. No. 2015-11-01)

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