In May, the NASD's Dispute Resolution (arbitration) unit filed an amendment to a proposed permanent rule on injunctive relief. The filing makes several changes to the proposed rule, but a controversial section preventing arbitrators from dissolving a temporary restraining order (TRO) remains.
Injunctive cases primarily involve firms suing brokers when the reps leave. Through court injunctions and TROs, firms are often able to prevent reps from contacting clients.
A pilot injunctive relief rule is in effect through Jan. 4, 2002. It requires firms to simultaneously file for an expedited arbitration hearing when they seek court injunctions against brokers. The goal is to not tie reps and clients up in court.
In its latest amendment, the NASD-DR still proposes to limit what arbitrators can do with a court order that remains in effect at a hearing. The NASD's position is that arbitrators do not have the authority to dissolve or modify a court order.
Lawyers who defend reps disagree. One legal practitioner calls this provision to restrain panelists “real poison to brokers.”
However, Dana Pescosolido, a Baltimore attorney who defends brokers in TRO cases, thinks a hands-off policy on court orders might not be significant if the SEC approves a separate proposed rule interpretation that seeks to end the practice of prohibiting account transfers via a court order (see July 2001 RR, Page 34).
Since most brokers resign on a Friday and have a window of time to contact their clients before a TRO is issued the following week, “The worst that's going to happen is that they'll be enjoined from further solicitation,” Pescosolido says. Meanwhile, ACATS requests could be processed.
The NASD-DR also still proposes to include attorneys with experience litigating injunctive cases as potential arbitration panelists. The idea is considered favorable to firms.
In addition, the latest amendment requires simultaneous service of court TROs and parallel arbitration claims against brokers. Firms have been known to delay arbitration filings in order to keep a TRO in force as long as possible.
The SEC will publish the revised TRO rule for comment. An SEC spokesperson could not say when.