Two of three attorneys picked by the NASDR to serve on its U-5 immunity task force are objecting to the regulator's proposal to create a uniform clear-and-convincing standard of evidence in proving defamation via U-4s and U-5s (see "NASD Issues U-5 Immunity Rule," December '97, RR, Page 42).
The two New York City-based lawyers, Jeff Liddle at Liddle & Robinson, and Leslie Corwin of Morrison Cohen Singer & Weinstein, expressed their disagreements in comment letters to the NASDR.
The third attorney on the task force, Pearl Zuchlewski of Goodman & Zuchlewski, also in New York City, did not return phone calls.
Liddle, in a draft of a letter to the NASDR commenting on the proposal, writes that he's "opposed to the Proposed Rule and to each and every part of it."
The proposal would take away "rights and protections that [brokers] already enjoy under the law," and would be "a substantive legislative enactment" regarding defamation and burdens of proof, Liddle says. The proposal's clear-and-convincing evidence standard would change the standard of proof in New York; California; Virginia; Washington, D.C.; Ohio; Illinois; Michigan; Pennsylvania; and other states, Liddle claims. He blasts the NASDR for doing faulty legal research. The NASD "appears to have purposefully misinterpreted and ignored the applicable law ... so as to protect member firms," Liddle says. By setting law, the NASDR is inappropriately acting as a "superlegislature," he concludes.
Corwin, in his comment letter on the proposal, terms it a "vast improvement on the present nature and quality of disclosure," but says a "preponderance of the evidence" standard should be used rather than a clear-and-convincing hurdle. The proposed higher standard "too severely limits the ability of an associated person to recover for false statements," Corwin says.
The plaintiffs' attorneys were two of the "representatives" of employees cited by the NASDR in releasing its proposed rule Nov. 3.
Although the NASDR has refused to release the names of its task force members, no other broker representatives are believed to have been on the committee.
Representatives of the Financial Women's Association, the National Association of Investment Professionals (NAIP) and the Security Traders Association confirm that they were not involved. The Association of Securities Professionals, a group for African-American employees, and the New York Society of Securities Analysts did not return phone calls.
The one idea floated in the NASDR's proposal that Liddle, Corwin and the NAIP do support is a requirement to have only registered people sign off on disclosure forms.
Any problem then could be addressed by regulators, with license suspension a possibility, Liddle notes. That would make people filing disclosure forms mindful "of the potential implications of lying."
T. Sheridan O'Keefe, president of the NAIP says in the NAIP's comment letter that any compliance officer or principal found guilty of malicious use of the U-5 "should immediately be barred from working in the industry."
