In an election victory that would make Ralph Nader, Ross Perot and other pot-stirring outsiders smile, two of three candidates running against NASD’s leadership supported nominees have won seats on the self-regulator’s National Board of Governors.
Held today at NASD headquarters in Washington, D.C, the so-called “dissident” winners were Brian Kovack, president of Kovack Securities in Fort Lauderdale, and Tyler Dedman, a retired naval officer from Lake Mary, Florida. Richard Goble, of North American Clearing, was the dissident who didn’t make the cut.
“This is the first time in the history of the NASD that dissidents won a majority of the contested seats up for election,” says Bill Singer, a securities lawyer and a columnist for Registered Rep. magazine. The last victory in which dissidents won, we took 2 out of 4. This time they took 2 out of 3.”
Singer continues, “To the extent these results are a message to the NASD, it is clearly a flaming arrow. Given the paranoia the regulated members have about doing anything contrary to the regulator's wishes, the fact that so many firms put their names on ballots and voted against the NASD’s hand-picked nominees is a dramatic repudiation.”
Winning the other two available seats up for election today—and not on the dissident slate—were official nominees John Simmers, CEO of ING Advisors Network, and John Brennan, Chairman and CEO of The Vanguard Group.
Normally, per NASD governance procedure, a nominating committee chooses candidates to put on the ballot for election in the eleven districts and for the National Board of Governors. Made up of people chosen by the district and board members, the nominating committees choose the next term’s candidates. Since the candidates are not selected by the membership, the National Nominating Committee is entrusted to nominate a diverse cross-section of the industry to fill the open seats.
Kovack and Dedman were not selected as part of this process, so in order to get on the ballot, per the NASD by laws, they needed to acquire 10 percent of the NASD membership’s signatures—a feat they achieved in roughly 2 weeks.
That process, say the so-called dissidents, favors the status quo, with current members nominating their friends and peers to take over their seats at the end of their two-year term.
But an unfair election process is just one allegation of the dissidents. They say the whole self-regulatory system tilts in favor of large firms. The NASD denies any allegations that it favors one business model over another; in fact, Mary Schapiro, NASD head of Regulatory Policy and Oversight, has said in the past that the NASD is entirely “agnostic” in that regard.
However, the dissidents say small firms are being driven out of business because of an overzealous NASD that fines firms, instead of helping or guiding them, for non-customer protection related technical infractions like late reported bond trades, for instance.
John Busacca, president of North American Clearing, and one of three dissident winners that swept up the three available seats in District 7 last December, was in attendance at the board election. In the past few months he’s been sending out email blasts and letters and stumping at conferences around the country to raise awareness among small firms about the NASD election process and the group’s platform. In a letter sent out days before today’s Board of Governor’s election, Busacca wrote:
“Too many good firms, and more importantly good people, are being put out of business NOT BY THE RULES of the NASD [Busacca’s emphasis], but by the RABID ENFORCEMENT of the rules through excessive fines, suspensions and use of legal expense warfare. Small firms often collapse to the demands of an AWC [Acceptance, Waiver & Consent] in order to avoid spending thousands on legal fees.”
Alan Davidson, president of Zeus Securities in Hauppauge, NY, was the first dissident to contest and win election to the National Board in 1998. “This organization [the NASD] is in need of serious change and in my view there’s real change in the air—the days of uncontested NASD elections are over,” he says.
Singer, of Gusrae Kaplan Bruno & Nusbaum in New York, agrees, and says the game is on. “Pointedly, efforts will soon begin to spread the word,” he says. “Five individuals in three NASD offices challenged the NASD’s District candidates with success in 2005. We intend to take that effort nationwide and teach more local candidates how to win District nominations and contest the nominating committees’ candidates. Further, now that members around the country have seen that NASD is vulnerable, that it can be taken on, that dissident candidates can win—we are certain that many folks who were on the sidelines will be emboldened to step forward and join us. It is likely that the 2006 Board election will also be contested.”
As members now of the 18 member National Board of Governors, Kovack and Dedman will certainly be able to voice the displeasure of their constituents, but they’ll also be able to vote on the very proposals that they say are suffocating the small broker/dealers. They also hope the election win will be an eye-opener for smaller firms that think the NASD is a large firm organization. “People need to realize it’s one firm, one vote, and has nothing to do with the organization’s size.”
