NASD May Have Disciplined Brokers
Without Authority to Do So, Court Says
By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL
A federal appeals-court decision has raised the possibility that the National
Association of Securities Dealers may for years have disciplined brokers in
certain cases without the authority to do so.
The decision last week by a three-judge federal appeals-court panel in
New York overturned an NASD disciplinary action against
brokerage-firm owner John Fiero. In 1996, Mr. Fiero was censured, fined
$20,000 and threatened with suspension for failing to comply fully with
interview requests in an NASD investigation into his stock-trading
activities, according to a copy of the court decision.
In its ruling, the appeals-court panel found the NASD's
market-surveillance committee didn't have the power to compel Mr. Fiero
to talk and, therefore, couldn't punish him for failing to do so. The
committee was created in 1983. But it wasn't until August 1996 -- several
months after the Fiero dispute began -- that the committee was explicitly
granted powers by the Securities and Exchange Commission to compel
members to cooperate in investigations, the court found.
The SEC oversees NASD activities, and its 1996 decision was part of a
larger agency pronouncement regarding NASD powers. Private securities
attorneys say it was unnoticed until the Fiero case when the issue was
raised by the judges during oral arguments.
Alden Adkins, general counsel for the NASD's regulation unit, said the
impact of the court decision "will be minuscule." He said he believes the
court's ruling would affect only pre-August 1996 cases that are still open
and he doesn't know of any such cases.
But others say the ruling could have important repercussions. Martin
Kaplan, Mr. Fiero's lawyer, predicted it could lead to the reopening of
"numerous cases" and said he plans to review other clients' cases to see if
they might be affected. Anthony W. Djinis, a Washington attorney, said
the court decision "has some far-reaching implications." He added he
already has been called by a former client asking whether his NASD
disciplinary action could be reopened in light of the ruling.
NASD records for the first eight months of 1996 show several dozen
cases where failing to respond to information requests was cited as at least
part of the reason for barring or otherwise punishing a broker. NASD
officials said they couldn't immediately say how many of its past
disciplinary cases involved the market-surveillance committee. Other parts
of the NASD prior to 1996 did have the power to compel members to
cooperate in investigations.
Whatever the repercussions of the case, some attorneys believe the court
decision is a rebuke to the NASD and the SEC, which approved the
penalties against Mr. Fiero and which was the named party in the broker's
appeals-court case. The decision "is important in that it says to the
securities regulators that they must obey the law just like everybody else,"
said Lawrence Iason, former head of the SEC's New York office and
now a private attorney doing securities-defense work.
An SEC spokesman declined to comment on the court ruling.
Last year, the NASD's regulatory unit filed a disciplinary complaint against
Mr. Fiero and his firm, Fiero Brothers Inc., and several others. The
still-pending complaint contends the defendants "acting in collusion,
engaged in a manipulative 'bear raid' to drive down the price" of 10 stocks
traded on the Nasdaq Stock Market. Mr. Fiero and his firm have denied
wrongdoing. |
