WealthManagement Magazine

NASD's Zarb Expresses Concern for Firms' U-5 Liability

Industry executives made it clear at their November annual convention in Boca Raton, Fla., that they are not satisfied with the NASD's recent proposal to offer qualified immunity on U-4 and U-5 statements."Our position would be that we'd want total immunity," said outgoing Securities Industry Association (SIA) Chairman Jim Higgins at a press conference at the event, held Nov. 5-8.The SIA expressed

Industry executives made it clear at their November annual convention in Boca Raton, Fla., that they are not satisfied with the NASD's recent proposal to offer qualified immunity on U-4 and U-5 statements.

"Our position would be that we'd want total immunity," said outgoing Securities Industry Association (SIA) Chairman Jim Higgins at a press conference at the event, held Nov. 5-8.

The SIA expressed its opposition to the NASD proposal the day it came out, Nov. 3. The NASDR asked for comments to the proposed rule by Dec. 31.

NASD head Frank Zarb sympathized with industry executives that firms needed more protection. "I remember in the old days [when Zarb was at Smith Barney] it was tough to say anything because the next thing you know, you're in court," Zarb told reporters in Florida. Because of the legal threat, "It's fairly clear that the flow of information is not as complete as it should be."

The NASD chief also expressed some concern about the legal ramifications of the proposal, which could override state defamation laws.

"I don't want it to be thrown out in the first court case," Zarb said. He added that he would review comments before coming out with any final position on the immunity issue.

In response to a reporter's question, Zarb admitted he was aware of no hard data on the amount of U-5 defamation damages firms have suffered, but, "Anecdotally, I can tell you if you run a firm and know the litigious environment we live in, there are things you won't say" due to litigation fears. "Believe me, we need to make a move" toward more immunity.

Asked why regulators apparently haven't taken action against firms for U-5 misstatements, Zarb said it was difficult "proving what was untrue. Normally, in-house lawyers [fill out U-5s] with language that is so general in nature, like 'violated company policy,'" that it's difficult to prove wrongdoing.

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