Consider this: Two years ago you worked for XYZ broker/dealer's Westchester County, N.Y., branch. After a short stint, you moved to another firm, with an unblemished record.
So why is the NASD demanding your presence at an on-the-record interview in Atlanta to discuss your conduct at XYZ in New York?
Well, they won't actually tell you because they claim the investigation is confidential. However, because your former firm's principal place of business was in Florida, XYZ is subject to oversight by the NASD's Atlanta District office. Seems convoluted? I agree, but you're still required to make the trip.
Unfortunately, you don't know any attorneys in Atlanta. In fact, you don't know anyone in Atlanta, so you ask the regulator to reschedule the interview closer to home, which it used to do as a matter of course, or at least reimburse you for your travel expenses. Sounds reasonable?
But it's no longer routine. Increasingly, in this struggling economy, the organization is using its prerogative to contain costs by limiting staff travel and making reps cross the country with their attorneys. Recently, the Atlanta District director denied requests to move interviews to closer NASD offices and also denied reasonable reimbursement. The decision is final and the reps were threatened with a disciplinary proceeding if they didn't show up in Atlanta.
The NASD says it will consider reimbursement for hardship cases, but that's hard to prove. Often it either assumes all reps are made out of money or are hiding assets. So, the NASD's response to rep's reimbursement requests these days is nearly always that it's too expensive — too expensive for its corporate members, that is.
As such, this issue pits the financial interests of hundreds of thousands of registered reps against some 5,000 NASD member firms. And since it's only reasonable to assume that the members of a membership organization will always tip the balance in their own favor, the NASD's policy is biased. No one speaks for the rep, whose only recourse is a costly appeal to the SEC and the federal courts. The only way to change the rules would be to make a lot of noise and pressure the regulator, and that seems unlikely.
In virtually any civil or criminal proceeding, a witness required to travel such a distance would be reimbursed for certain expenses. In the case of the SEC, subpoenas requiring a witness to travel more than 100 miles generally must include an offer of payment at the same fee and mileage rates paid to witnesses in other civil matters. In fact, the SEC routinely prepays such expenses or provides witnesses with reimbursement forms. Even in criminal investigations, subpoenaed witnesses are frequently provided with coach airline tickets (if long-distance travel is necessary).
The burden of paying for flights — not to mention the cost of nonproductive travel time and a possible overnight hotel stay — is especially onerous when the witness has not been employed at the member firm for an extended period of time and is presently situated in another remote jurisdiction. And with the growing globalization of our stock markets, this issue may take on even more dramatic proportions.
If the honored maxim of innocent until proven guilty has any meaning, then the NASD simply cannot force reps to travel at their own expense beyond the NASD office closest to their present home or residence.
Writer's BIO:
Bill Singer is a partner in the broker/dealer practice group at Duane Morris LLP. [email protected]