Aclient of mine recently received the securities industry's equivalent of the “black spot” — that pirate death summons made famous in Robert Louis Stevenson's Treasure Island.
The client reacted to the arrival of the NASD's Rule 8210 letter the same way that Billy Bones did to the black spot: She immediately started losing sleep and was convinced that life as she knew it was about to come to an end.
Her response, frankly, was understandable. The 8210 letter demanded her appearance a month hence at an on-the-record (OTR) interview with the NASD. These high-stakes meetings are rarely anything but contentious and adversarial.
Still, an OTR interview is much less fearsome (and dangerous) when handled correctly. Given that they are becoming more common, it's worth taking a few minutes to understand a rep's rights and obligations.
Make Like a Clam
Rule 8210 allows the NASD staff to require a rep to give oral testimony at a location of their choice. But that doesn't mean the rep has no say in the timing of the interview, in the way he answers questions or about whom he can bring to the interview.
It's certainly possible, even likely, that the regulators will try to bully a rep into doing some stupid things, like meeting with them before the rep is ready or answering questions before securing legal representation. But, regardless of his guilt or innocence, it's best for the rep to behave like a suspect on a TV cop show: insist on a lawyer and stay mum until he arrives.
Entreaties from regulators to discuss any aspect of the OTR interview should be met with silence. Many reps want to keep the lines of communication open because they believe that keeping the proceedings cordial will work in their favor. Trust me when I say that the negatives of such an approach far outweigh the positives. Once a rep starts talking, everything he says can be used against him.
Regarding the interview's timing, the rep has the right to reschedule a date and time that is reasonably convenient for him. If the arbitrary date the regulators have chosen is not convenient, the rep should request a change.
The Truth Is Not Enough
It goes without saying that the most important thing about the interview is telling the truth. But even a rep who has nothing to hide can make missteps that lead to a formal complaint. The first step in avoiding such mistakes is having a lawyer present during all questioning. As I often tell my clients, the truth has three faces: What you think it is, what the regulatory staff thinks it is and what a hearing panel rules it is. An experienced lawyer can help a rep speak the truth in a language that all will understand.
Two non-options: “white lies” and pleading the Fifth. The former can lead to a perjury conviction (a felony), and the latter is a one-way ticket to being barred and fined (the Fifth Amendment protection against self-incrimination does not apply here).
A related bad strategy is not accepting the 8210 letter. Since all the regulators are required to do is send the OTR interview notice to a rep's CRD address, ignoring the letter is likely to result in a desultory default judgment against the rep.
One last bit on the truth issue: Another good reason not to tell lies is that it is not easy for a rep to review his OTR statements. A rep can make a written request for a copy of the interview transcript, but the regulatory staff can deny that request for so-called “good cause.” Typically, the rep will not be permitted to obtain a copy until after the investigation is concluded, so it's best to take copious notes during the OTR interview and to avoid telling stories that will be hard to keep straight later on.
The OTR interview process is not simple, but the measures a rep should take to give himself the best chances are: hire a lawyer and tell the truth.
Writer's BIO: Bill Singer is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com