The NASD says its core mission is “ensuring market integrity and investor confidence” — goals few in the industry have trouble supporting.
Trouble is, in its pursuit of its consumer-protection mission, the NASD often gives short shrift to the equally legitimate needs of its member firms and their reps. As I can tell you from personal experience, attempts to file harassment or misconduct complaints about NASD staff members can quickly lead to a frustrating maze of dead-ends and bureaucratic doubletalk. What follows is one example of such a scenario.
Our Story Begins
Like many legal sagas, this one begins with another case — one that set a precedent.
In the late 1990s, a broker named Roger Harry Chlowitz was named in 140 concurrent complaints with the NASD. There was good reason that the number was so high: An attorney had obtained a copy of Chlowitz's client list and trolled the list for clients of his own. Eventually the attorney filed the huge raft of cookie-cutter complaints, but all of them were eventually dismissed — good news for Chlowitz.
But then the NASD regulators came calling. They asked Chlowitz for documentation on three of the arbitration cases. By this time, Chlowitz says, he was so broke that he verged on losing his home and he had no plans to return to the securities industry. So, he ignored the NASD's repeated requests for the documents.
But the NASD did not go away. In 1998 it filed a disciplinary complaint, to which Chlowitz offered one defense: The NASD already had the materials it was requesting (its arbitration department maintained full files of the cases) and further requests for that information constituted harassment. The NASD rejected this defense and imposed a censure, a $25,000 fine and a bar in all capacities. As part of the ruling, NASD stated that “[a]lleged staff harassment does not provide an adequate excuse for Respondent failing to abide by his obligations. If Respondent believed there was harassment, there were other avenues to address those concerns. Respondent could have contacted the NASD Office of Internal Review to report allegations of NASD staff misconduct or harassment.”
The logic of that ruling is hard to fault — until you factor in my experience representing a client before the NASD.
A Pregnant Pause?
My client gave two full days of on-the-record testimony at the NASD, with a third day still pending. During the first day, held on a Friday in the summer, the witness asked for a modest early adjournment because his wife was due any day with their second child. It seemed a reasonable courtesy to seek, especially given that there was no chance of concluding the interrogation that day. Nonetheless, the NASD staff attorney refused the request. At the conclusion of the day's testimony — a contentious day, at that — I asked, on the record, for a copy of the transcript to be sent to the NASD Office of Internal Review and to the District Director.
A few weeks later, we repeated the scene at the second day of testimony, with a few twists. This time the NASD had seven staffers present, several of whom interrogated my client, who at this time was a sleep-deprived father of a newborn. Given his physical state, I again requested an early Friday adjournment (4:30 would have been acceptable), but the NASD attorney denied the request. I again asked on the record that a copy of the transcript be sent to the Office of Internal Review and to the District Director.
Though the early adjournment issues may seem small, even petty, there was a larger issue at stake: My client's right to be treated fairly. I believe that the absence of common courtesy and the loss of a professional demeanor (when combined with heavy-handed investigative tactics) result in an oppressive environment where witnesses are easily confused and their testimony compromised.
Concerned that the Office of Internal Review was not following up on my requests, I decided to contact them more directly.
I went on the NASD's Web site and searched for the Office of Internal Review, to no avail. I found the Chlowitz case, but no phone number or contact information for the people who were supposed to field complaints of this nature.
So I tried another route, sending an e-mail to the NASD's ombudsman. In the subject line, I wrote, “Request for contact information: Office of Internal Review.” In the text of the e-mail I requested contact information for the Office of Internal Review. This message netted me a phone call from the ombudsman, who briefly discussed my client's complaint but could give me no information on the Office of Internal Review.
Next, I tried an e-mail to three of the NASD's heavy hitters: Director of Enforcement Barry Goldsmith, Vice Chairman Mary Schapiro and General Counsel Grant Callery. This went unanswered, so I followed it with another, addressed to all of the above-mentioned NASD executives: “At your earliest convenience, would you arrange to have someone provide me with a written response to my query?”
A few weeks later, I finally received my reply, which informed me that the office of Internal Review has been reorganized and renamed the Office of Internal Audit.
Around and Around
Undaunted, I called the Office of Internal Audit and asked to file a complaint against NASD staff, but they sent me to the Office of the Ombudsman. When I spoke to the ombudsman's staff, they pointed me back to the Office of Internal Audit.
Adding to my consternation, the NASD's Web site currently lists two corporate officers with “Internal Review,” and the Ombudsman's Web site clearly states that the “Office was not created to replace the already existing NASD programs of adjudication, Dispute Resolution, Internal Review…” And still, I have no written communication from NASD providing me with the name, phone number and mailing address of the person/department to whom I should address my client's complaint. Moreover, no one has confirmed that an investigation is underway.
In the end, my conclusion is that the NASD cares little about basic fairness as it relates to its member firms and reps. Investors can easily file a complaint against any broker. They are provided with 800 numbers, email addresses, easy-to-find dedicated pages on the NASD's Web site.
But for brokers looking to complain about NASD staff misconduct, there is precious little guidance — so little, in fact, as to suggest that the NASD would just as soon make the process an impossible one.
Writer's BIO:
Bill Singer is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com