WealthManagement Magazine

NASD Standing Firm on Punitive Damage Cap

Contrary to published reports, the NASD is denying that its hotly contested proposal to cap punitive damages was "sent back" by the SEC for revision. The self-regulator further dismisses speculation that it intended to withdraw the plan in the wake of opposition by plaintiffs' attorneys."Absolutely not," says the NASDR's Linda Fienberg, executive vice president of adjudication. "I was misquoted" in

Contrary to published reports, the NASD is denying that its hotly contested proposal to cap punitive damages was "sent back" by the SEC for revision. The self-regulator further dismisses speculation that it intended to withdraw the plan in the wake of opposition by plaintiffs' attorneys.

"Absolutely not," says the NASDR's Linda Fienberg, executive vice president of adjudication. "I was misquoted" in a Wall Street Journal article on Feb. 13. "The SEC didn't send it back to us, [and] we have made no decision to withdraw the proposal."

The proposal would only apply to investor claims.

Fienberg says her staff currently is reviewing more than 60 comment letters sent to the NASD by the SEC. She says the 30 or so letters in support of theproposal were received after the comment period deadline Dec. 31, 1997. Of the 3 6 comment letters received before the deadline, 34 were in opposition to capping punitive damages.

Did the industry mount a letter-writing campaign? Fienberg says only, "It's rare that commentors get their comments in on time."

After reviewing all the comments, the NASD will have the option of withdrawing the proposal, amending it or going forward without changes, Fienberg says. She excepts to file a response to the comment letters by mid-May.

Some members of the NASD's National Arbitration and Mediation Committee (NAMC)--a committee that had input on the punitive damage proposal--believe the proposal should be withdrawn in light of substantive issues raised in comment letters.

"I personally think we ought to pull it back," says NAMC member Mark Maddox, a plaintiffs' attorney in Indianapolis who has opposed the proposal. "The comment letters made some persuasive arguments. We ought to re-evaluate it in light of these."

NAMC member Tom Stipanowich, a law professor at the University of Kentucky, doubts the SEC will act on the proposal until the NASD comes up with a new predispute arbitration agreement that notifies customers of the cap. Currently, the NAMC is drafting such an agreement. Either way, however, Stipanowich says he does not believe punitive damages can be taken away by contract, and he expects a lawsuit to be filed by the plaintiffs' bar, if and when the SEC approves the measure.

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