For the first time in its 68 years as a self-regulatory organization, the National Association of Securities Dealers sued the Securities and Exchange Commission over a right it was never granted. Guess what? It lost.

The right in question was to seek judicial review of an SEC decision reversing disciplinary action taken by the NASD and in barely concealed astonishment, the presiding Senior Circuit Judge Edwards said, “No court has ever suggested that such a review was possible.” Moreover, he continued, “we can find no case” where the NASD had ever asked for a review and “no reason to allow it do so now.”

“Simply put,” the judge said later on in his analysis, “the NASD appears before this court as a disgruntled first-level tribunal, complaining because it has been reversed by a higher tribunal.”

It all started in March 2000 when the NASD accused Key West Securities and its owner Anthony Elgindy of “engaging in a manipulative scheme” and violating NASD Conduct Rules. An NASD hearing panel the next year found no evidence of market manipulation, but that Elgindy and his firm had indeed broken NASD Conduct Rules. With neither partied satisfied, both appealed and the case went to the next level, which was a hearing before the National Adjudicatory Council (NAC).

The NAC reversed the Panel’s decision, finding both Elgindy and Key West guilty of manipulation and breaking the Conduct Rules. Elgindy was barred, the firm was expelled from the NASD and both he and the firm were fined $50,000.

But it didn’t end there. Elgindy then appealed to the SEC to review the NAC’s findings regarding manipulation, and on March 10, 2004 the SEC concluded that the evidence was insufficient to suggest manipulation and reversed the NASD’s sanctions. Not willing to accept defeat, the NASD sued the SEC.

In presenting its case before the U.S. Appeals Court, the NASD expressed concern that its Market Regulation Department would be hurt in its mission “because it will be unable to take disciplinary action against members and associated persons, except in the very narrow circumstances covered by the decision of the SEC,” according to the published Opinion.

The truth, though, was that the only mission the NASD had was as the SEC’s junior partner and they knew it because as Judge Edwards put it, the NASD counsel was unable “to explain how the Commission’s action undercut NASD’s missions beyond its statutory role as a first-level adjudicator.”

The judge finished with a flourish when he said: “In short, NASD’s position for review is not only unprecedented, it’s legally unsupportable.”