Disciplinary Referrals from Arbitration Panels Go Nowhere

When an arbitration case uncovers wrongdoing by a broker or a firm, you might figure the regulators would follow up and investigate the wrongdoers.But that's unlikely. Unofficial policy at some NASD district offices is to not follow up on a two-year or older case that's been referred from an arbitration panel. And since the typical time frame from an alleged wrongdoing to conclusion of a hearing is

When an arbitration case uncovers wrongdoing by a broker or a firm, you might figure the regulators would follow up and investigate the wrongdoers.

But that's unlikely. Unofficial policy at some NASD district offices is to not follow up on a two-year or older case that's been referred from an arbitration panel. And since the typical time frame from an alleged wrongdoing to conclusion of a hearing is more than two years, some feel talk about follow up is just that--all talk.

"Lots of time panels will make a disciplinary referral, but where that has happened, I haven't seen anything come of it," says Diane Nygaard, president of the Public Investors Bar Association in Norman, Okla., a group for plaintiffs' attorneys.

The NASD's national office in Washington, D.C., however, says there is no policy that would prevent the SRO from following up on cases that are more than two years old. Still, a spokesperson says there are statutes of limitation. A claim, for instance, must be filed within six years, "but there are some state statutes that are two years," the spokesperson says.

Whether or not cases are reviewed for disciplinary action after arbitration remains fuzzy. Neither the NASD nor the NYSE could point to a case referred for disciplinary action after two years that had some action taken.

The plaintiffs' bar complains that even though a disciplinary referral is filed, no one is required to do anything. Says Nygaard, "I've gotten a disciplinary referral against one broker who is still a broker with his firm--and he has 40 cases against him for all kinds of improprieties."

Other attorneys say they'll refer cases themselves to NASD district conduct committees. But under new procedures put into place after the NASD's 1996 settlement with the SEC, only NASD staff can decide to pursue cases--not industry members on the conduct committees. One lawyer points out that if U-4 and U-5 forms were consistently complete, the NASD would have all information it needed, and referrals from arbitration panels would be unnecessary.

Even with perfect disclosure, brokers shouldn't expect much help in employment-abuse cases. In a packet sent to claimants, one NASD district says employment cases "usually do not involve matters of regulatory interest. "

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