WASHINGTON (April 18, 2005) – It often pays to fight back in NASD disciplinary proceedings, according to a new study by Sutherland Asbill & Brennan attorneys Brian Rubin and Christian Cannon. The study, titled "The House That the Regulators Built: An Analysis of Whether Respondents Should Litigate Against NASD," will be published in an upcoming edition of BNA Securities Regulation and Law Report.
After analyzing all of the disciplinary proceedings brought from 2000 to 2004, Rubin and Cannon found that it often pays for respondents to litigate even though NASD successfully proves liability the vast majority of the time at the hearing level (89%). For example, respondents win more than twice as often when fraudulent conduct is alleged than when it is not. In addition, the Hearing Panels often do not impose the sanctions requested by the staff. For example, respondents who were represented by counsel were successful in getting lower monetary sanctions 60% of the time. When reduced, those monetary sanctions were reduced to 34 cents on each dollar sought by NASD staff.
"The results of this study may surprise people because at first glance, respondents often look and feel very overmatched when facing NASD," notes Sutherland associate Cannon. "That's because NASD, which is the primary private-sector regulator of America's securities industry, has a staff of about 2,200 and an annual budget of around $400 million."
NASD registers brokerage firms, tests registered representatives, writes rules to govern the behavior of firms and their employees, examines them for compliance and disciplines those that fail to comply. It also uses its resources effectively, filing 1,360 enforcement actions in 2004, and barring or suspending 830 individuals from the securities industry, while collecting a record $102 million in disciplinary fines—triple the amount collected in 2003.
According to the Sutherland study, in certain circumstances, litigating against NASD can pay off. The study details how respondents have fared depending on the hearing officer, the nature of the charges, which NASD office brought the complaint and whether a respondent was represented by counsel.
"Because NASD is well-funded, has its own procedural rules and heads every Hearing Panel with an NASD employee, for respondents, it feels like always having to play at Yankee Stadium with Babe Ruth suited up," says Sutherland partner Rubin. "But this study shows respondents and counsel need not be so averse to litigating. Just as Ruth and the Yankees didn't win every World Series, NASD doesn't successfully prosecute all of its cases."
Brian Rubin is a partner in Sutherland's Litigation Group. Prior to joining the firm, he was NASD's Deputy Chief Counsel in the Department of Enforcement where he investigated and prosecuted broker-dealers, registered representatives, investment bankers, securities analysts and associated persons for violations of federal securities laws and NASD rules. He was recently part of a Sutherland team that successfully tried a case against the SEC where the Division of Enforcement had alleged fraudulent sales of mutual funds by three representatives and failure to supervise by their brokerage firm and former president. Mr. Cannon is an associate in the firm's Litigation Group and was previously a registered representative in the securities industry.
Sutherland Asbill & Brennan LLP is a national law firm known for solving challenging business problems and resolving unique legal issues for many of the nation's largest companies. Founded in 1924, the firm has grown to more than 400 lawyers with offices in Atlanta, Austin, Houston, New York, Tallahassee and Washington. For further information about the firm, please visit sutherland.com.