Caselaw

Judgment on UpFront Loan Set Aside
Ohio Court Rules Finds that Firm Should Have Arbitrated Its Claims, Despite Confession of Judgment (Added April 2002)

Award Vacated As Irrational
Awarding Individuals Damage for Harm Done to A Corporation Results in Vacature of the Award (Added April 2002)

Non-customers in Selling Away Case Can Compel Arbitration by Firm
Vestax Securities Corporation vs. McWood, No. 00-1936 (6th Cir., 2/14/02) (Added March 2002)

Broad Arbitration Agreement Covers All Accounts by Owner
White v. Salomon Smith Barney, Inc., 2001 Cal. App. LEXIS 2844 (Cal. App., 1Dist., 11/30/01) (Added February 2002)

Clearing Firm's Arbitration Agreement Includes Claims Against Introducing Firm and Broker
Customer’s fraud claims against introducing broker, including claims under Florida Securities Act, are subject to arbitration under broad arbitration clause in clearing broker agreement signed by customer (Added February 2002)

Section 20 Liability Discharged in Bankruptcy
Arbitrator Award Against Supervisors is Insufficient to Bar Bankruptcy Discharge for Fraud (Added February 2002)

Court Compels Arbitration Without Direct Account Relationship With Customer
If selling broker is associated person, and claimant is his customer, BD compelled to arbitrate. (Added January 2002)

Refusal to Hear Evidence is Misconduct Only if Prejudice to Fair Hearing Results
Woodlyn vs. Acerbic, Pollack & Richardson, Inc., Case NO 01-8489-CIV (SD Fla. 11-14/01) (Added January 2002)

Manifest Disregard of the Law, Again
Failure to Provide Citations in Award Explanation Is Not Evidence of Manifest Disregard of the Law (Added August 2001)

NFA Arbitrators Award $43 Million
Commodities Claimants Collectively Win award in Consolidated Cases, with Common Counsel on All Sides (Added August 2001)

AAA Abitration Clauses Mean AAA Arbitration
Court Upholds AAA Selection Clause, and Forces Investor to Arbitration at the AAA. MAGGIO V. WINDWARD CAPITAL MGMT. CO., No. B134322 (Calif. App., 2Dist., 5/23/00 (Added June 2000)

Commentary

SEC Approves New NASD Arbitration Code
The NASD announced that its new and improved arbitration and mediation code have been approved by the NASD. The new code adds some new rules, and reoganizes the code intothree parts: the Customer Code, the Industry Code, and the Mediation Code. Our analysis is here. (Added January 2007)

Fix Arbitration Now
From Registered Rep, an overview of the problems with the process. Unfortunately, it is the claimant's bar's version of what is wrong. It does contain an interesting discussion of PIABA's hiring of a consultant to get artists and school teachers into the arbitration pool… (Added January 2007)

NASD Sets Sights on Crooks Who Scam the Elderly
Scammers beware. The NASD'S new chief executive, Mary L. Schapiro, has vowed to send her enforcement unit after those who dupe seniors. (Added November 2006)

SEC Handling of Document Request Rebuked
The SEC cannot deny an FOIA request on the ground that the release will harm an ongoing investigation unless it actually reviews the documents in question. Sounds like a truism? Nope, apparently the SEC refused an FOIA request on that grounds, simply because it would be too much work to review the documents. The Court wasn't happy. (Added October 2006)

NASAA arbitration stance draws fire
Securities industry observers are expressing dismay that state regulators are pushing for elimination of the requirement that NASD arbitration panels include industry representatives. The issue came up last month in San Diego at the annual meeting of the North American Securities Administrators Association Inc., where industry lawyers were surprised to learn that the organization essentially had adopted the view of the plaintiff's bar in pushing to eliminate industry arbitrators or make their use voluntary. (Added October 2006)

Remarks by Mary L. Schapiro, NASD Chairman and CEO, at the NASAA Annual Conference
Topics of the speech include BrokerCheck disclosure, expungement and arbitration, with new definitions of public arbitrator,and expanded disclosure on BrokerCheck (Added September 2006)

Variable Annuities: Payday or Peril?
In May, an NASD arbitration panel awarded a group of investors $22 million in an variable annuity case. On Wall Street looks at the case, and the impact on variable annuity sales. (Added July 2006)

SIA Study Blasts Regulatory Morass
The SIA study, entitled The Costs of Compliance in the U.S. Securities Industry, found that the expense of adhering to all the new rules and regulations has reached an estimated annual total of $25.5 billion in 2005. That's up from approximately $13 billion in 2002--an increase equivalent to almost 5% of the industry's annual net revenues. The study also argues for the need to improve regulatory efficiency, suggesting that many costs could have been avoided. Factors like duplication and inconsistencies only compound firms' frustration. (Added April 2006)

NASD Arb President Fienberg's Congressional Testimony Regarding Arbitration
While there is always room for improvement, arbitration is one of the most effective methods of dispute resolution, and the NASD's arbitration forums are undoubtedly the most widely used. Linda Fienberg, the NASD Dispute Resolution President reviews the process, the fairness of the process, and what is being done to insure that the rights of all participants are protected. An excellent overview of the process and the quality of the forum. (Added March 2005)

Rogue Customers
Customers who abuse the system, and harm their brokers. (Added January 2005)

Sawtelle Award Vacated, Again
$25 Million in Punitive Damages Vacated By Court For the Second Time, Matter Referred to New Arbitration Panel (Added February 2004)

Mutual Fund Investors Worry About Charges
As more financial firms are implicated in shady mutual fund trading, many investors are starting to worry about how extensive the abuses are. While they have no reason to panic, investors shouldn't be surprised if they see an industry shakeout with more revelations of wrongdoing. (Added October 2003)

Historic Settlement Doesn’t Target Brokers—But You’re Hardly Home Free
Now that the Wall Street global settlement (the biggest fine in Wall Street’s history) is official, brokers might be inclined to heave a sigh of relief. Don’t. While the settlement will have a lasting impact on the brokerage industry, brokers have been unscathed by the Spitzer investigations so far. (Added April 2003)

Street Level: The Blame Game Continues
Now that we're entering the fourth year of a painful downturn, retail investors (some of whom only knew the market as a sporting event in which the home team always won) are coming out of the woodwork to sue financial advisers for their losses. (Added April 2003)

Your Permanent Record
The NASD is proposing expanded access to complaints against brokers (whether true or false) and making them available forever. (Added April 2003)

Law & Order: Client-Broker Disputes
The rate of NASD arbitration cases is expected to increase nearly 35 percent in 2002 compared with 2000. That's a lot of brokers on the hot seat. (Added April 2003)

Tripping Over Analysts' Feet. Or Your Own.
A Morgan Stanley broker sues Morgan Stanley for his own stock losses. (Added January 2003)

NASD Dispute Resolution Seeks Arbitrators in Selected Cities
NASD Dispute Resolution is actively recruiting new Arbitrators, with special emphasis in particular cities. (Added December 2002)

Arbitrator Disclosure Report Released
The November 13, 2002 SEC News Digest summarizes the findings and recommendations of a study on arbitrator disclosures sparked by the California Judicial Council controversy. (Added November 2002)

NYSE Arbitration Awards - August 2002
21 Awards in August, including the First Union - Raymond James Award (Added October 2002)

Customers Gearing Up to Sue Merrill
Success in Arbitration May Not Be Easy. Considerations for Investors Seeking to Sue Merrill for Analyst Recommendations. (Added June 2002)

Make Mandatory Arbitration Unenforceable
Commentary from T. Sheridan O'Keefe (Added October 2001)

Ernst & Young Reports No NLSS Bias
Study Finds PIABA Charges Inaccurate (Added October 2001)

Constitutionality of Punitive Damages Addressed by Supreme Court
Court Gives Guidance on Review of Punitive Damage Awards (Added June 2001)

NASD Statistics for April Released
Filings up 24% over 2000 (Added June 2001)

Broker Seeks Declaratory Relief on Employment Agreement
And obtains the relief - before he leaves his current employment (Added June 2001)

The Firm's Lawyer or Your Own? (PDF)
An examination of a classic problem - do you need your own attorney? (Added March 2001)

GAO, Get Real
The General Accounting Office's study on arbitration awards is a study in meaningless statistics. Commentary by Mark Astarita (Added March 2001)

Disclosing Margin Risk (PDF)
Customers claim they do not understand the risk of margin trading, even when the risks are disclosed in writing (Added January 2001)

GAO Studies Arbitrator Disclosure
No further recommendations made. (Added December 2000)

Eligibility and Attorney Fee Awards Under Review
Courts accept cases dealing with Eligibility and Attorney Fee Awards (Added December 2000)

Court Strikes Confidentiality Provision in Customer Settlement Agreement
Clause preventing customer from speaking to regulators is void as against public policy (Added September 2000)

2nd Circuit Sets Standard for Review of Arbitration Awards
Manifest Disregard of the Law Refined (Added August 2000)

Oral Mediation Settlement Cannot be Disclosed
Difficulties in Proving Oral Agreement Because of Mediation Confidentiality. Make sure you get it in writing. (Added July 2000)

How to Settle a Case
"Most cases settle. They settle for various reasons. They settle at various stages of a dispute. They settle before attorneys get involved and then when we take over, they settle directly with opposing counsel or through the services of a mediator. We all know the high settlement rate of the NASD's mediation program and the NASD should be applauded for aggressively pushing it on the industry and on practitioners. This article is not about mediation. I'm going to suggest various means to eliminate the "middle man" - the mediator - saving you time and money in the process." (Added July 2000)

NASD Members Must Make Timely Payments of Court Awards
NAC Extends Interpretations of 2110 to include court awards (Added June 2000)

SICA Arbitration Filing Statistics for 1999
Filings and hearings were up again. (Added April 2000)

Arbitration of Employment Discrimination Claims
Stock broker employment discrimination claims are no longer subject to mandatory arbitration. (Added November 1999)

Settling the Matter
More brokers and firms are being forced to settle customer claims, particularly where the claim is less than the total arbitration expense. Is that good for the broker? (Added August 1998)

Churning or Trading?
Trading accounts sometimes look like churned accounts. Here's how to tell the difference. (Added May 1998)

Hearing Hearing
Securities Arbitration was the original focus of this site, back in the dark ages of the Internet, and this month we return to our roots, with Hearing Hearing, an overview of the hearing process. For those who are not familiar with the process at all, we have an updated version of Overview of the Arbitration Process. (Added February 1998)

Fight Back
Rogue Customers are the problem. The solution might be here. (Added December 1997)

Mandatory Arbitration
Mandatory arbitration of employment disputes is the current hot topic. The EEOC and members of Congress are looking to remove employment discrimination disputes from mandatory arbitration, and brokers are joining the cry. Is the removal of mandatory arbitration of employment disputes a good thing? You might want to watch what you wish for - since you just might get it. Check out this discussion for a side of the story you might not have considered. (Added August 1997)

Brokers Have to be Their Own Judge
Suitability, investors and brokers. All related concepts, but what do they mean? (Added March 1997)

Too Much Information
The NASD is proposing to disclose all items on Form U-4's Section 22 - including unresolved customer complaint letters. Full disclosure - or an attack on the brokerage industry? (Added February 1997)

Damage Control
Customers make outrageous claims in arbitration proceedings, and arbitrators are being criticized for not giving in to those demands? (Added December 1996)

Customer Disputes and Avoiding Them
Avoiding disputes is the best way to defend them. This article makes a number of suggestions toward that end. (Added September 1996)

Liar, Liar?
Exactly what is a misrepresentation claim, what does a customer have to prove in order to obtain an award, and how can a broker defend himself against such a claim. (Added September 1996)

General Information

Dispute Resolution Statistics
For 2006, new case filings were at 4,614, compared to 8,201 for 2004, turnaround time is at 16.6 months. (Added January 2007)

Information and Lists

NASD Arbitration Information
From the NASD, an overview of the process and procedures. (Added April 2000)

NASDR Notices to Members

06-64 SEC Approves Amendments to Rule 10308 Regarding the Classification of Arbitrators
The Securities and Exchange Commission has approved amendments to the arbitrator classification criteria set forth in Rule 10308 of the NASD Code of Arbitration Procedure (Code) to ensure that individuals with significant ties to the securities industry may not serve as public arbitrators in NASD arbitrations (Added November 2006)

06-31 NASD Requests Comment on Regulatory Relief that Should Be Granted in Response to a Possible Pandemic or Other Major Business Disruption
NASD recognizes that, in the event of a global pandemic or similar disaster, some level of regulatory flexibility may be necessary to allow firms to best serve investors and maintain market stability. NASD also understands that investor protection is perhaps most critical during times of financial and social stress. To help NASD strike the appropriate balance, we are soliciting comment from members and other interested persons regarding what specific, short-term regulatory relief may be appropriate and consistent with NASD's mission, and what specific conditions may warrant such relief. (Added June 2006)

06-10 NASD Revises Sanction Guidelines
NASD is amending the quality of markets guidelines and the guidelines for violations of Municipal Securities Rulemaking Board (MSRB) Rules G-36 and G-37. The new guidelines are effective as of March 31, 2006, and apply to all actions as of that date, including pending disciplinary cases. (Added March 2006)

05-85 SEC Approves a Proposed Rule Change to Revise the Mediation Rules of the NASD Code of Arbitration Procedure; Effective January 30, 2006
Changes were made to simplify the language and to reorganize these rules into a separate code for mediations (Added January 2006)

05-55 SEC Approves Amendments to IM- 10104 to Provide Payment to Arbitrators for Deciding Discovery-Related Motions
The SEChas approved an amendment to Interpretive Material (IM) 10104 of the NASD Code of Arbitration Procedure (Code) to provide payment to arbitrators for deciding discovery-related motions without a hearing session. (Added August 2005)

05-36 SEC Approves New Interpretive Material to Rule 10308 Regarding Arbitrators Who Also Serve as Mediators; Effective Date: May 6, 2005
The SEC has approved a new IM to Rule 10308 of the NASD Code of Arbitration Procedure relating to mediators who also serve as arbitrators. The amendments clarify that (1) fees for service as a mediator are not included in determining whether an attorney, accountant, or other professional derives 10 percent of his or her annual revenue from industry-related parties; and (2) service as a mediator is not included in determining whether an attorney, accountant, or other professional devotes 20 percent or more of his or her professional work to securities industry clients. (Added May 2005)

05-35 SEC Approves Amendments to IM- 10104 and Rule 10315 to Permit Arbitrations in Foreign Hearing Locations; Effective June 6, 2005
The Securities and Exchange Commission (SEC) has approved amendments to IM-10104 and Rule 10315 of the NASD Code of Arbitration Procedure (Code) to permit parties to have their hearings in a foreign hearing location, and to allow the director of arbitration to authorize a higher or additional honorarium for the use of a foreign hearing location. (Added May 2005)

05-09 NASD Amends Rule Governing Predispute Arbitration Agreements with Customers
The SEC has approved changes to NASD Rule 3110 that require firms to modify their predispute arbitration agreements with customers to provide enhanced disclosure about the arbitration process. The amendments also: require members to provide copies of predispute arbitration agreements and relevant arbitration forum rules to customers upon request; clarify the use of certain limiting provisions; and require firms seeking to compel arbitration of claims initiated in court to arbitrate all of the claims contained in the complaint if the customer so requests. Firms must use the new language, and comply with the rule amendments for all agreements executed after May 1, 2005. Questions regarding these changes may be addressed to Mark Astarita (Added February 2005)

04-60 SEC Approves Increase to the Arbitrator Panel Training Fee
The SEC has approved an NASD proposal to increase the fee for arbitrator panel training from $100 to $125.1 The fee change is effective on September 16, 2004. (Added August 2004)

04-57 NASD Extends Jurisdiction to Suspend Formerly Associated Persons Who Fail to Pay Arbitration Awards
The SEC has approved two amendments to the NASD By-Laws that further strengthen NASD's ability to prevent formerly associated persons from re-entering the securities industry if they have failed to pay awards or settlements relating to arbitrations or mediations submitted under NASD Rules. (Added August 2004)

04-44 Impermissible Confidentiality Provisions and Complaint Withdrawal Provisions in Settlement Agreements
The purpose of this Notice is to remind members that the use of certain provisions in settlement agreements with customers or other persons that impede, or have the potential to impede, NASD investigations and the prosecution of NASD enforcement actions violates NASD Rule 2110, which requires members to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. Specifically, some member firms continue to use confidentiality provisions that prohibit or restrict the customer or other person from disclosing the settlement terms and the underlying facts of the dispute upon inquiry to NASD or other securities regulators, despite repeated NASD communications cautioning members against this practice.1 In addition, some member firms require customers to withdraw complaints filed with NASD or other securities regulators as a condition to settlement, or require customers to provide false or misleading affidavits that repudiate or otherwise contradict earlier factual claims made by such customers, in contravention of NASD rules. Accordingly, members and their associated persons are reminded that the use of such confidentiality provisions or complaint withdrawal provisions, or compelling customers or other persons to provide false or misleading affidavits, violates Rule 2110. (Added June 2004)

04-43 Members’ Use of Affidavits in Connection with Stipulated Awards and Settlements to Obtain Expungement of Customer Dispute Information under Rule 2130
On December 16, 2003, the SEC approved Rule 2130 governing the expungement of customer dispute information from the CRD As described in further detail in this NTM, Rule 2130 applies to any request made to a court of competent jurisdiction to expunge customer dispute information from the CRD system that has its basis in an arbitration or civil lawsuit filed on or after April 12, 2004. This Notice addresses members' obligations under Rule 2130 regarding the use of affidavits in connection with settlements that are incorporated into stipulated awards to obtain expungement of customer dispute information from the CRD system under Rule 2130. (Added June 2004)

04-16 NASD Adopts Rule 2130 Regarding Expungement of Customer Dispute Information From The Central Registration Depository
The SEC approved new Rule 2130 concerning the expungement of customer dispute information from the CRD system. Rule 2130 will apply to any request made to a court of competent jurisdiction to expunge customer dispute information from the CRD system that has its basis in an arbitration or civil lawsuit filed on or after April 12, 2004. All requests to expunge customer dispute information from the CRD system arising from arbitrations or civil lawsuits filed before April 12, 2004, including any settlements arising therefrom, will continue to be subject to the terms of the moratorium in effect as of January 19, 1999. (Added March 2004)

03-25 Waiver Program for Parties in California Arbitration Proceedings has Been Extended to September 30, 2003; New Waiver Agreement Form Effective March 31, 2003
SEC has approved an extension to a pilot program in IM-10100 of the NASD Code of Arbitration Procedure governing Failure to Act Under Provisions of Code of Arbitration Procedure. The pilot program provides that members and associated persons involved in NASD arbitration proceedings in the State of California are required to waive application of California Ethics Standards for Neutral Arbitrators in Contractual Arbitration to their arbitration proceedings upon the request of investors or, in industry cases, upon the request of associated persons with claims of statutory employment discrimination, for a pilot period ending September 30, 2003 (or until pending litigation has resolved the question of whether or not the California Standards apply to NASD arbitration). The waiver agreement form has been revised as of March 31, 2003. (Added May 2003)

03-23 SEC Approves Amendment to Rule 3070 to Require Filing with NASD of Criminal and Civil Complaints and Arbitration Claims
On March 3, 2003, the SEC approved SR-NASD- 2002-112, a proposal to amend NASD Rule 3070 to require members promptly to file with NASD copies of certain criminal and civil complaints and arbitration claims that name a member or an associated person as defendant or respondent. (Added May 2003)

03-06 NASD to Refund Arbitration Member Surcharge Under Certain Circumstances
For arbitration claims filed on or after January 13, 2003, NASD will refund the member surcharge paid by each member firm named as a party (or where its present or former associated person has been named as a party) in an arbitration filed by a customer in which the arbitration panel: (1) denies all of the customer's claims; and (2) allocates all of the forum fees against the customer. (Added January 2003)

03-04 NASD Solicits Vote on Amendments to the NASD By-Laws Concerning the Definition of Disqualification and Failure to Pay Arbitration Awards; Last Voting Date: February 10, 2003
The first amendment would make the definition of "disqualification" in the NASD By- Laws consistent with the definition of "statutory disqualification" in Section 3(a)(39) of the Exchange Act. The second amendment would permit NASD to suspend for failure to pay an arbitration award former associated persons who terminated their registration before the award was entered. The amendment would provide that NASD can take such action for a period of two years after the award is entered. The third amendment would clarify that NASD may suspend the association, and not just the registration, of any person who fails to pay an arbitration award. (Added January 2003)

02-83 NASD to Deduct Unpaid Mediation Filing Fees from CRD Accounts
Effective February 14, 2003, NASD will begin to deduct unpaid mediation filing fees owed by member firms from members' Central Registration Depository (CRD) accounts. NASD will use the same procedures as are now used to collect delinquent arbitration fees owed by members. (Added December 2002)

02-68 SEC Approves Rule Change to IM-10100
Industry parties in California arbitration proceedings must waive contested California arbitrator disclosure standards if all parties who are investors, or associated persons with claims of statutory employment discrimination, have executed waiver agreements (Added October 2002)

02-59 SEC Approves Amendment to Rule 10314 Regarding Specificity of Answers; Effective October 14, 2002
The SEC has approved amendments to Rule 10314 of the NASD Code of Arbitration Procedure to conform Rule 10314(b) to the current minimum standard applicable to claims, so that Answers need only specify relevant facts and available defenses to the Statement of Claim submitted. (Added September 2002)

02-58 SEC Approves Default Procedures Regarding Suspended or Terminated Respondents Who Fail to Answer Arbitration Claims; Effective October 14, 2002
The SEC has approved amendments to Rule 10314 of the NASD Code of Arbitration Procedure to provide default procedures for situations in which a suspended, terminated or otherwise defunct member or associated person fails to answer in an arbitration proceeding, and the claimant nevertheless elects to pursue arbitration. (Added September 2002)

02-13 SEC Approves Permanent Injunctive Relief Rule
The SEC has approved amendments to Rule 10335 of the NASD Code of Arbitration Procedure governing injunctive relief in intra-industry disputes. The amendments, which substantially modify the existing pilot rule and make it a permanent part of the Code, will apply to all claims filed on or after March 25, 2002. Under the new rule temporary injunctive relief will no longer be available in arbitration. Parties in intra-industry cases may seek temporary injunctive relief in a court of competent jurisdiction. If a court orders temporary injunctive relief, the permanent rule requires an expedited hearing in arbitration on the underlying dispute before a panel of three arbitrators. (Added March 2002)

01-70 SEC Approves Increases To Member Surcharges And Process Fees In NASD Arbitration Proceedings, And Other Amendments To Fee-Related Provisions Of The NASD Code of Arbitration Procedure
For claims filed on or after November 19, 2001, member surcharges and hearing process fees will increase by an aggregate of 10 percent. In addition, the incremental prehearing process fee payments currently paid by member firms we increased to $750. The cap on adjournment fees is raised to $1,500 and the requirement that the fee be paid in advance has been removed. (Added October 2001)

01-13 SEC Approves Amendments To Director's Authority To Remove Arbitrators For Cause
The SEC has approved the amendments to NASD Rules10308 and 10312 to provide authority for the Director of Arbitration to remove arbitrators for cause after hearings have begun. The Code of Arbitration Procedure presently provides that the authority of the Director to remove an arbitrator for cause ceases after the earlier of the first pre-hearing conference or the first hearing. The amendments eliminate this restriction, and allow the Director or the President of NASD Dispute Resolution, Inc. non-delegable authority to remove an arbitrator for cause at any time and, if the challenge is raised after the initial pre-hearing or hearing session, to require that it be based on information not known to the parties when the arbitrator was appointed. (Added February 2001)

01-03 SEC Approves Early Expiration Of Large And Complex Cases Rule
The SEC has approved amendments to NASD rules that revise Rule 10334 to accelerate the expiration of the large and complex cases rule from August 1, 2002 to December 31, 2000. The reason for the expiration was the lack of use of the procedures. (Added January 2001)

00-63 NASD Regulation Provides Guidance On The Use Of Installment Payments To Satisfy Arbitration Awards
(Added September 2000)

00-22 SEC Approves New Voluntary Single Arbitrator Pilot Program For A Two-Year Period
The new rule—Rule 10336—will be entitled Single Arbitrator Pilot Program and will be effective for a two-year period. The Pilot Program is voluntary and will allow parties with claims of $50,000.01 to $200,000 to select a single arbitrator to hear their cases, rather than the panel of three arbitrators they would otherwise select. (Added April 2000)

99-100 SEC Approves Creation Of Dispute Resolution Subsidiary And Related By-Laws And Rule Changes
(Added December 1999)

99-96 SEC Approves New Arbitration Disclosure Rule And Procedures For Employment Arbitration
New rules that create a new Rule 10210 Series, containing special rules applicable to the arbitration of employment discrimination claims; add a new Rule 3080, which contains a model disclosure statement to be given to persons who are signing the Form U-4 to apply for registration; and make conforming changes to Rules 10201 and 10202.1 (Added December 1999)

99-95 NASD Announces Changes To The By-Laws Associated Person Definition
Current definitions will be amended to expanded to encompass those who hold a five percent or greater interest in the member firm and to include explicitly a person who has applied for registration on Form U-4. (Added December 1999)

NASD Notice to Members 99-23 - SEC Approves New Arbitration Fees; Effective March 18, 1999
NASD Notice to Members 99-23 -Arbitration fees for customers and members are increased. In some instances, member fees will double, and even triple. (Added March 1999)

News Items

Pro Or Hourly Wage Earner? UBS Pays $89 Million to Settle Overtime Suits
UBS announced it had agreed to pay $89 million to settle class-action wage and hours claims of reps filed this past summer in several federal courts. Smiliar lawsuits have been filed against Morgan Stanley, Smith Barney, Wachovia and Ryan Beck, and came on the heels of Merrill's settlement of similar claims. (Added February 2006)

NASD Warns Investors to Protect Online Account Information
NASD's Investor Alert, Protect Your Online Brokerage Account, highlights the risks involved when transacting investment business online and outlines steps investors can take to prevent unauthorized access to their account information. (Added July 2005)

NASD Arbitration Panel Awards a N.J. Couple $165K against Merrill Lynch for Fraudulent/Conflicted Research Relating to the Stock Internet Capital
A New York based NASD arbitration panel, ordered Merrill Lynch to pay a New Jersey couple $164,842.57 and to pay all $9,000 in arbitration fees. The couple claimed that they were defrauded by Merrill Lynch as a result of the fraudulent research published by Merrill Lynch and relied upon by their Merrill Lynch broker in recommending ICGE to them. The Claim which arose out of the historic New York Attorney General's investigation/settlement, asserted that Merrill Lynch's research department was conflicted due to the influence of its investment banking department and that, as a result, fraudulent ratings were issued and maintained with regard to ICGE. (Added May 2005)

NASD Fines 29 Firms Over $9.2 Million for Late Reporting
NASD has censured and fined 29 securities firms over $9.2 million for more than 8,000 late disclosures of reportable information about their brokers – including customer complaints, regulatory actions and criminal charges and convictions. NASD also prohibited Merrill Lynch and Wachovia from registering new brokers for five business days, in view of the number of their reporting violations in this case and their previous regulatory filing histories. NASD imposed a similar prohibition and a $2.2 million fine against Morgan Stanley in July for late reporting violations. Under NASD rules, after a securities firm hires a broker, it must ensure that information on the broker’s application for registration (Form U4) is kept current in NASD’s Central Registration Depository (CRD). The firm must update that information whenever significant events occur – including regulatory actions against the broker, customer complaints, settlements involving the broker and criminal charges and convictions. Normally, those updates must be filed within 30 days. If the reportable event involves a statutory disqualification (usually the result of a criminal conviction), the event must be disclosed within 10 days. In addition, firms must notify NASD within 30 days of learning that information disclosed on a termination notice (Form U5) filed for a broker has become inaccurate or incomplete. During the period January 2002 through March 2004, each of the 29 firms failed to timely report at least 25 percent of the required disclosures in the areas reviewed by NASD, and some firms failed to timely report over 70 percent. NASD also found that each firm failed to have supervisory systems and procedures in place reasonably designed to achieve compliance with these reporting requirements. The firms included in the proceeding were Merrill Lynch, Pierce, Fenner & Smith, Inc., American Express Financial Advisors, Inc., Wachovia Securities LLC, Prudential Equity Group, LLC, LINSCO/Private Ledger Corp., PFS Investments, Inc., Raymond James Financial Services, Inc., Metropolitan Life Insurance Co., NYLife Securities, Inc., WM Financial Services, Inc., Edward Jones & Co., LP, Chase Investment Services Corp., AXA Advisors, LLC, MML Investor Services, Inc., Banc of America Investment Services, Inc., ING Financial Partners, Inc., New England Securities, J.P. Turner & Company, L.L.C., Financial Network Investment Corp., Allstate Financial Services, LLC, RBC Dain Rauscher, Inc., Wells Fargo Investments, LLC, World Group Securities, Inc., Farmers Financial Solutions, LLC, InterSecurities, Inc., Jefferson Pilot Securities Corporation, J.J.B. Hilliard, W.L. Lyons, Inc., Quick & Reilly, Inc., and SunAmerica Securities, Inc. To resolve these actions, each firm agreed to conduct internal audits to evaluate the effectiveness of its system for ensuring compliance with these reporting obligations. In addition, an officer of each firm must certify that such audits have occurred, that recommendations from the audits have been implemented and that the firm has established systems and procedures reasonably designed to achieve compliance with NASD reporting requirements. (Added December 2004)

SEC Approves NASD Arbitrator Classification Rule Changes
The SEC has approved rule amendments that further define several key arbitration rules, in an effort to provide additional assurance that individuals with ties to the securities industry may not serve as public arbitrators. The NASD Code of Arbitration Procedure classifies arbitrators as "public" or "non-public." NASD currently defines public arbitrators as individuals who are qualified to serve as arbitrators and who are not either personally engaged in certain activities that would make them non-public, or the immediate family member of a person engaged in such activities. (Added June 2004)

Investors Return to Risky Margin Buying (AP)
Such short memories these investors have. They got burned before by borrowing cash to buy stocks. And now they are right back doing that again. Buying on margin, as it's called, is going on at a pace not seen in some parts of the market since the height of the last bull market. And individual investors seem to be behind much of these gains. (Added October 2003)

Former Citigroup analyst wins $1.4 mln settlement
A former Citigroup Inc. C.N stock researcher won $1.36 million in an arbitration award after claiming that she was discriminated against and improperly discharged, according to a NASD dispute resolution report. (Added July 2003)

Morgan Stanley Contests NASD Liability Ruling
Objects to arbitrators citation to the firm's global settlement. (Added July 2003)

NASD Launches Online Chairperson Training for Arbitrators
NASD announced that its Dispute Resolution division will launch its online Chairperson Training program for arbitrators, on June 2, 2003. This program will facilitate the training to become an NASD arbitration Chairperson, while prospective arbitrators will continue to be required to attend the standard arbitration training course, in-class. (Added May 2003)

NASD Arbitration Stats, March 2003
Volume at the NASD Arbitration forum continues to climb, recording in the first quarter 24% more new cases than the comparable period in 2002 (Added May 2003)

NYSE Arbitration Stats, March 2003
Claims up, but increase is from industry, not customers (Added May 2003)

Rapoport Update - New Developments regarding Out of State Attorneys in Florida.
Developments and Reactions (Added May 2003)

Panel Awards $750,000 in Sale of Annuity to 96 Year Old Man
Danks vs. Merrill Lynch (Added March 2003)

Expungement Rule Moves to Comment Stage
Controversial NASD Expungement Rule Is Out for Public Comment. Expires 3/31/03 (Added March 2003)

Update: Mayo vs. Dean Witter Reynolds, Inc.
SEC Files Amicus Brief, along with NASD and NYSE (Added February 2003)

NASD Listens, and Speaks
Summary of NASD Dispute Resolution Program at New York County Lawyers Association (Added February 2003)

Raiding Case Results in $22 Million Award
First Michigan vs. JJB Hilliard - 171 hearing sessions, 5 years in arbitration (Added February 2003)

Customer Receives $12 Million in Arbitration Against Banking Unit
Castelein vs. Corporate Securities Group (Added February 2003)

NASD Arbitration Statistics, 2002
Filings up 11%, resolutions up 7%; gap increasing (Added January 2003)

NYSE Arbitration Statistics, 2002
Dramatic Surge in New Filings During 2002 (Added January 2003)

California Standards Disputes Continue; Mayo vs. Dean Witter Winds Through the Courts
Mayo has become a lightning rod in the controversy over the California Judicial Council Standards, attracting filings and affidavits from both the NASD and the NYSE (Added January 2003)

Down market = more securities arbitration cases
A record-high number of securities arbitration case filings by nervous or disgruntled investors suggests stockbrokers should take extra care to educate their clients — and to watch their backs. (Added January 2003)

Judge dismisses suit challenging California arbitration rules
A California Judge dismissed the NASD and NYSE lawsuit against the California Judicial Council which sought to undo California's overly strict arbitration standards for arbitrators. (Added November 2002)

NYSE Arbitration Statistics -3Q02
Decisions, Filings, Settlements all Up (Added October 2002)

NYSE Arbitration Awards, Sept. 2002
Awards in 14 Cases, including two where firms lost promissory note claims. (Added October 2002)

Merrill Is Told to Pay Couple Sum of $7.7 Million for Losses (Sub)
Merrill Lynch & Co. was ordered to pay a Pennsylvania couple $7.7 million in one of the largest awards to individual investors by a securities firm. According to the Wall Street Journal, a JAMS arbitration panel ruled that Merrill Lynch didn't advise the customers on strategies to protect the value of their investment in Internet highflier FreeMarkets Inc. and failed to execute an order they placed to sell half of their stake before the stock tanked. (Added August 2002)

NYSE Arbitration Awards - April 2002
Awards up in number, with a few interesting broker and customer wins (Added June 2002)

New Jersey To Adopt Revised Uniform Arbitration Act
Joins Hawaii, New Mexico, Nevada and Utah (Added June 2002)

NASD Arbitration Statistics - April 2002
Filings Up 16% from 2001 (Added June 2002)

Dingell-Markey Present Laundry List of Arbitration Inquiries
Seeking Information from the GAO, SEC and NASD Regarding Arbitrator Bias, Motions to Dismiss and Unpaid Awards (Added June 2002)

Rule Adopted on Replacement Arbitrators
SEC Approves NASD Rule Change Regarding Replacement Arbitrators (Added May 2002)

NYSE Mediation Stats: 1998-2001
NYSE Releases Statistics (Added May 2002)

NASD Dispute Resolution has Record Year
Cases filed in 2001 with the NASD Dispute Resolution arbitration forum increased 24 percent from 2000 filings, an increase of almost 1,400 cases, in year-end statistics announced today. Some of the most common allegations made in these claims were negligence, misrepresentation, unsuitable recommendations, and failure to supervise. (Added April 2002)

Expertise Questionaires From NASD-DR
NASD-DR Continues to react to criticism of its expertise ranking system (Added March 2002)

NYSE Award Summary - January '02
Fourteen Awards: Three industry disputes, eleven customer disputes (Added March 2002)

NASD Approves Customer Transfer Interpretation
Freezing accounts when broker transfers firms no longer an option (Added February 2002)

SEC Approves Injunctive Relief Rule
New Mechanism for Resolution of Raiding Disputes Approved (Added February 2002)

SIA Opposes New Expungement Rule Proposal
Cites "Dangerous and unmistakable message that...arbitration panels cannot be trusted" (Added February 2002)

NYSE Awards, 11/01
New awards include a half-billion dollar award, with 200 million dollars in punitive damages (Added January 2002)

PIABA Downloads Entire SAC Library of Arbitration Awards
Lawsuit Pending Between PIABA and CCH and SAC (Added November 2001)

NASD September Arbitration Statistics
Filings slow, but still up 19% over last year, with 4,979 cases filed through September 2001. Mediation filings are down 25%. (Added October 2001)

Investor Burned in Attempt to Void Settlement
They settled, they sued anyway, they lost. (Added October 2001)

SROs Differ On Approach To Post-Attack Arbitration Recess
The National Association of Securities Dealers and New York Stock Exchange are using different criteria to decide which arbitration cases should be postponed in the wake of the World Financial Center catastrophe. The NASD is making its decisions on a firm-by-firm basis, whereas the NYSE will make its calls on a case-by-case basis. (Added October 2001)

Investors cry foul as money vanishes
Record wave of stock traders taking brokers to arbitration (Added October 2001)

NASD Files Amicus Brief In Fiserv Appeal
SRO Supports Expedited Appeal, in support of customer's request. (Added September 2001)

Broker Awarded $28 Million on Termination Claim
$25 million in punitive damages against firm and management for post-resignation conduct (Added September 2001)

Supreme Court and Arbitration
Employment exclusion reviewed (Added December 2000)

NYSE Filings on Pilot Program for Mediation and Conferences
Seeks to extend pilot program which are due to expire (Added December 2000)

NASD & PIABA Tangle
Accusations of Panel Selection Rigging (Added July 2000)

Use of "Prior Bad Act" Evidence Causes Reversal of Award
Prior NASD Disciplinary Proceedings Cannot Be Used at Trial (Added July 2000)

NASD Spins Off NASD Dispute Resolution, Inc
New Corporation, New Structure (Added July 2000)

Restrictive Covenant Denied as Overbroad
Not unique employee, no geographic restriction, no injunction. (Added June 2000)

Arbitrators Dismiss Statement of Claim as Time Barred
Statement of claim dismissed on the pleadings, without a hearing (Added May 2000)

Arbitration Case Briefs: Award Not Irrational
Jones vs. Donald & Co. (Added April 2000)

NYSE Announces Arbitration and Mediation Rule Changes
The changes include extended times for challenging arbitrators, prehearing conferences in certain cases and mediation provisions. (Added December 1998)

Merrill Deal Paves Wave for New ADR
Last Year, the NASD proposed that employment disputes should not be subject to mandatory arbitration. Merrill Lynch is following that lead. (Added May 1998)

Publications

General Information And Forms For Arbitration Cases - Arbitrators
NASD Dispute Resolution consolidated into a single packet a host of important information and forms that arbitrators need to complete their assignments. The packets contain general information about NASD, tips for contacting staff in the five regional offices by e-mail, important information about your duties and obligations, managing the discovery process, conducting the initial pre- hearing conference and the hearing, the importance of peer evaluations, and guidance on disciplinary referrals and expungement requests, among other things. (Added October 2003)

NASD Mediation: An Alternate Path to Resolving Securities Disputes
This brochure contains a general discussion of mediation as an alternative means to resolve disputes and provides a comparison of arbitration and mediation. (Added October 2003)

NASD Dispute Resolution Arbitration Procedures Brochure
This brochure provides an overview of the arbitration process from filing the claim through the arbitration hearing and award. (Added October 2003)

NASDR Online Request for Mediation Form
This online form will allow you to request a mediation of a dispute through the NASD Dispute Resolution Mediation Program. You may file a Request for Mediation at any time, whether or not you have already filed an arbitration claim. When the NASD receives the request, their staff will contact the other party or parties to the dispute to explain the mediation process, and seek their agreement to mediate. However, mediation is a voluntary process, and no party is required to mediate a dispute. (Added October 2003)

Recent Court Decisions

Eighth Circuit Enforces Arbitration Agreement Against Employee Who Refused to Sign Acknowledgment Form
The Eighth Circuit Court of Appeals enforced an arbitration agreement against an employee who refused to sign an acknowledgment form, finding that she accepted the agreement through her continued employment. (Added July 2006)

Arbitrator May Compel Nonparty to Produce Documents Before Hearing, Says Federal Court in Georgia
A continuing controversy in securities arbitration is whether the parties can obtain pre-hearing discovery from third parties. The issue revolves around the question of whether arbitrators (or parties) have the ability to issue discovery subpoenas. Most state court civil procedures do not permit the service of discovery subpoenas, only trial subpoenas. In this decision, the Federal District Court in Georgia hed that the Federal Arbitration Act impliedly permits the arbitration panel to order document discovery prior to a hearing. The Third Circuit Court of Appeals came to the opposite conclusion in a recent case, Hay Group, Inc. v. E.B.S., Acquisition Corp., 360 F.3d 404 (3d Cir. 2004) (holding that the FAA “restricts an arbitrator's subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time." (Added June 2006)

Ignoring an Employment Agreement's Unambiguous Language Constitutes Manifest Disregard of the Law
When an arbitrator ignores unambiguous contract provisions, the courts will vacate the award for manifest disregard of the law, according to the Fourth Circuit Court of Appeals (Added March 2006)

Party Seeking to Confirm Arbitration Award Can Proceed in Federal Court Regardless of Where Its Initial Complaint Was Filed
By filing an initial complaint seeking to compel arbitration in state court, a party to arbitration does not waive its right to later seek confirmation of an award in federal court, according to the Ninth Circuit Court of Appeals. In Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 2006 WL 466652 (9th Cir. 2006)(Westlaw registration required), a federal district court confirmed an arbitration award in favor of Merrill Lynch. Moore appealed, arguing that the federal court lacked jurisdiction because Merrill Lynch had “waived diversity” by filing its initial action in Arizona state court (Added March 2006)

California Court Enforces Class Action Waiver in Employment Agreement
In the context of an employment agreement, courts will enforce a provision excluding class action claims from an arbitration clause, according to the California Court of Appeal. (Added February 2006)

Orange County Choppers, Inc. v. Goen Technologies Corp., 2005 WL 1538216 (S.D.N.Y., 2005)( - Broad Arbitration Clause Presumes Arbitrability
Interpretation of a contract with broad language in the arbitration agreement is a matter for the arbitrator, not the courts, according the Southern District Court of New York. (Added July 2005)

Pennington, et al. v. Frisch's Restaurants, Inc., 2005 WL 1432759 (6th Cir. June 27, 2005) - You're Bound by What You Sign
When you sign an arbitration agreement or an acknowledgement of receipt of an arbitration agreement, whether you've read it or not, you've manifested assent to the agreement, according to the Sixth Circuit Court of Appeals. (Added July 2005)

Hamilton v. Sirius Satellite Radio Inc., 2005 WL 1538218 (S.D. N.Y. June 28, 2005)( - Another Decision Showing Deference to Arbitral Awards
An arbitration award supported by evidence cannot be reviewed by the courts for manifest disregard of the law, according to the Southern District of New York. In Hamilton v. Sirius Satellite Radio Inc., 2005 WL 1538218 (S.D. N.Y. June 28, 2005)(Westlaw registration required), Hamilton sued Sirius for wrongful discharge in violation of the Family Medical Leave Act. The arbitrator granted Sirius's motion for summary judgment and Hamilton appealed to vacate the arbitration award for ‘manifest disregard of the law.' Hamilton argued that the arbitrator disregarded the law because he did not extend the ‘constructive discharge' standard to this case where severance pay was offered as an alternative to termination. According to the Court, vacating an arbitration award for ‘manifest disregard of the law' is appropriate only in “those exceedingly rare instance where some egregious impropriety on the part of the arbitrators is apparent.” Therefore, an arbitration decision must be confirmed if there is “even a barely colorable justification for the outcome reached.” (Added July 2005)

Price v. Ernst & Young, 2005 WL 1562955 (Ga. App. 2005) - Non-Parties Can Compel Arbitration
Even non-signatories to an arbitration agreement can compel arbitration under equitable estoppel when the asserted claim arose out of the underlying contract, ruled the Georgia Court of Appeals. (Added July 2005)

Booker v. Robert Half Int'l, 2005 WL 1540796 - Arbitration Clause Enforceable, But Punitive Damages Can't Be Restricted
An arbitration clause in an employment contract is enforceable, but a restriction on punitive damages is not, because a D.C. statute specifically allows for them. (Added July 2005)

Taylor v Van-Catlin Construction - Courts Give Arbitrators Broad Deference to Determine Awards
Even if the arbitrator misread, misapplied or misinterpreted applicable case law or statute, that would have been an error of law, not an act exceeding his arbitral powers, and the award not subject to judicial review, according to the California Court of Appeals. (Added July 2005)

Doleac v. Real Estate Professionals, 2005 WL 1500271 (Miss. June 16, 2005) - Reference to Private Arbitration Provider Rules Makes Arbitration Clause Binding
An arbitration clause in one document can be applied to other documents that are part of the same transaction and an arbitration clause referencing specific arbitration organization rules requires submission to binding and final arbitration under those rules, according to the Mississippi Supreme Court. (Added July 2005)

Supreme Court Strikes Excessive Punitive Damages
Punitive damages awards that exceed single-digit ratios, deal with economic transactions, and occur in tandem with compensatory awards with punitive elements are particularly susceptible to a due process challenge (Added June 2003)

Firm Compelled to Arbitrate With Non-Customers in Selling Away Case
Investors who were customers of an associated person are customers of the NASD member by virtue of their relationship with the associated person. (Added June 2003)

Court Permits Damage Claim for Holding Stock Based on Fraud
California law recognizes a common law cause of action by persons wrongfully induced to hold stock instead of selling it. (Added May 2003)

Court Affirms Arbitrator Authority to Dismiss Claims Prior to Hearing
Reed vs. Mutual Service Corp - California - 2003 (Added March 2003)

Dispute Between Two Brokers is Subject to Arbitration, Even Without Written Agreement
Court Compels Arbitration Based on NASD Rule 10101 (Added March 2003)

Control Person Arbitration Award Vacated - Culpable Participation Required for Liability
Control person liability does not lie unless the controlling person was, in some meaningful sense, a culpable participant in the fraud. General deficiencies in supervision, are insufficient, liability requires culpability regarding specific trades and misrepresentations. (Added February 2003)

Sawtelle Punitive Damage Award Vacated
Court vacates punitive damage award on constitutional due process grounds as being arbitrary and excessive, labeling the $25 million dollar punitive damage award at "grossly excessive." (Added February 2003)

CA Arbitration Dispute Allows Claim to Be Filed in Court
Linden vs. American Express Financial advisers - since forcing Claimant to give up her rights under California law, court vacates order compelling arbitration. (Added January 2003)

Stay of Non-Arbitrable Claims is Discretionary Where Arbitrable Claims Exist
Baggesen vs. American Skandia Life Assurance Corp. (Added January 2003)

Court Compels Arbitration in Selling Away Case
Customer is "customer" of broker, therefore he is a customer of the firm? (Added December 2002)

U-4 Arbitration Agreement Does Not Supercede Eariler, Broader Agreement
Bailey vs. Chase Securities, Inc., et al, 01-Civ-7222 (AGS), 2002 U.S. Dist. LEXIS 7788 (SDNY 5/1/02) (Added June 2002)

Futures Account Agreement Does Not Encompass Claims Relating to Separate Agreement
Crotser vs. Smith Barney & Co., Inc., NO 228226 (Mich. App., 4/30/02) (Added June 2002)

Rule Changes and Proposals

NASD DR Proposes Restricting Subpoena Power to Arbitrators
In an effort to protect investors and other parties from abuse in the subpoena process and to maintain a uniform rule nationwide, NASD Dispute Resolution announced that it has filed with the U.S. Securities and Exchange Commission (SEC) proposed revisions to the Code of Arbitration Procedure which would permit only arbitrators to issue subpoenas. (Added April 2006)

NASD Release on Expungement Rules
New Rules Effective April 12, 2004 (Added April 2004)

NASD Defunct Firm Proposal
Default Arbitration Procedures against Defunct, Expelled Firms. Comment Period Ends May 22, 2002 (Added June 2002)

SR-NASD-99-19 - Proposed rule change to amend the Code of Arbitration Procedure to facilitate use of dispute resolution programs offered by providers other than self- regulatory organizations.
The proposed rule change is intended to facilitate use of dispute resolution programs offered by providers other than self-regulatory organizations, and to ensure that NASD Regulation may take disciplinary action for the failure of a member or associated person to comply with an award obtained pursuant to the rules and procedures of such dispute resolution programs. (Added May 1999)

SR-NASD-99-21 - Creation of New Dispute Resolution Subsidary by NASD
NASDR has filed with the SEC a proposed rule change to create a dispute resolution subsidiary, NASD Dispute Resolution, Inc. ("NASD Dispute Resolution"), to handle dispute resolution programs. (Added May 1999)

SR-NASD-99-08 - Proposed Rule Changes regarding arbitration of discrimination claims
NASDR has filed with the SEC a proposed rule change to amend Rules 10201 and 10202, and to add new Rule 3080 and new Rule Series 10210 of the NASD to enhance the dispute resolution process for the handling of employment discrimination disputes, and to expand disclosure to employees concerning the arbitration of all disputes. (Added March 1999)