Let's say you just read a letter from the NASD, and it seems that they are preparing to charge you with a regulatory violation. You want to fight it but are willing to consider a fair settlement offer. Murray, your office's water-cooler know-it-all, gives you a copy of a decision that he says proves you are right. Case closed. Fight the NASD all the way, he urges. You read the case and it seems to come down on your side of things … sort of.
But beware. The decision that Murray gave you may say one thing but mean something quite different for your case. In the United States we have separate federal and state court systems — and within those systems is a hierarchy of upper and lower courts. As such, a decision in one state or federal court won't necessarily dictate the decisions of another court. Also, you may be relying upon a decision that was subsequently overruled by a higher authority (or the rule/regulation involved may have been amended).
Similarly, if you are the subject of an NASD regulatory investigation, don't seek guidance from NASD arbitration cases. Arbitrations are private civil proceedings for the adjudication of customer claims or intra-industry disputes. Arbitration panels cannot impose regulatory fines or suspensions. If you're not sure what kind of decision you're reading, look at the name of the claimant — the NASD is not the claimant in an NASD arbitration but it is the claimant in an NASD enforcement action.
Settled NASD cases often include the so-called “settlement premium,” which is the discount that regulators accept for avoiding the aggravation of a contested hearing. If you decide to fight the NASD to the bitter end, don't use decisions involving settled cases as guideposts. In NASD proceedings, settled cases are usually described as Acceptance, Waivers and Consent (AWC) or Offers of Settlement (OS).
If you are reading a decision that sets forth a lousy settlement, see whether the respondent retained a lawyer or acted pro se (it's often noted in the decision right after the respondent's name). Pro se respondents frequently agree to worse deals than a savvy attorney would. Similarly, pro se respondents tend to muddle through a hearing and get hit with more severe fines/suspensions.
Furthermore, all lawyers are not equal; check out the background of any legal counsel noted in the decision. A divorce lawyer representing a friend or family member as a favor may not be familiar with NASD rules or proceedings, and the results may not be as favorable as more skilled counsel could have achieved. Settlements obtained by veteran industry counsel may include some sanction reductions in consideration of that lawyer's reputation for toughness.
Some respondents are guilty as sin and their goal is not an acquittal but to earn as much in commissions as they can before being barred. Delaying for three years a decision in which the outcome was a bar and $100,000 fine may be worth it for some respondents, because the trade off is three years of additional production. Similarly, consider the wisdom of spending $100,000 in legal fees to fight a $10,000 settlement offer.
Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com