Q:
I've been a broker for 22 years and worked for two of the largest brokerage firms in the world.
Several years ago, I received a phone call from a long-standing client, who'd received “something strange in the mail,” eight photocopied pages starting out with the word COMPLAINT. It was the complaint portion of my CRD (Central Registry Depository), but it was missing the 16 preceding pages instructing the reader on how to read it. It had been mailed to him in a plain envelope with his name and address handwritten.
The following week, I received calls from my highest-net-worth clients saying they'd received similar handwritten envelopes with the identical contents. They were all postmarked from the same place and the same day with identical stamps. Each client had come with me from my prior firm and owned at least one of the same securities that the clients in the CRD owned.
I called the NASD, talked to a compliance officer, but haven't heard anything yet.
In examining the CRD, I noticed something distinctive. The date it was retrieved was on all the copies everyone had received. I subpoenaed the NASD to disclose to whom my record was released on that day. It was someone I'd never heard of. That's because the person used a false name.
Later I learned it was a registered rep with whom I'd worked at my prior firm. In accessing the file, he'd also misrepresented himself online in the CRD Public Disclosure Program (PDP) identification section by identifying himself as “other” rather than “registered rep.” That's a violation of the PDP's terms and conditions. Subsequently, he was identified.
I also told the office manager at my new firm what had happened. I was afraid clients would jump to conclusions about me as a broker, take action in their portfolios not in their best interest or sue. The manager asked for one of the envelopes, but nothing came of it.
I also called the office manager of my old firm. He hired a forensic specialist who was given handwriting samples of people working in the office. The specialist asked for more samples, but wasn't given them.
(1) Is there any way I can get the complaints expunged from my CRD, since I hadn't done anything wrong? (2) What recourse do I have against the person or persons who sent out my CRD? (3) Do I have any recourse against the person's employer since the CRD was accessed from my former office and shared with fellow brokers? (4) Does any of this conduct violate the NASD regulations or commonly-accepted industry practices?
Finally, I'm interested in finding other registered reps who've experienced a similar incident and attorneys who've dealt with these issues. Please email Ann Therese Palmer, this column editor, at [email protected] to reach me.
A:
My first word of advice is to document what is taking place with respect to the communications between this broker and your clients, as well as your own contacts with your clients about these communications. Make a note of the dates of conversations and pay particular attention to documentation of how you are being harmed in your business as a result of what this broker has done.
It's probably unlikely you can get the complaints on your CRD removed. You certainly cannot get them expunged because “you hadn't done anything wrong.” In fact, even if a stockbroker prevails in an arbitration hearing brought by a customer and is awarded all of his costs and attorneys' fees in defending the claim, that's not a basis for expunging the customer complaint and arbitration. If the customer complaints on your CRD were filed after April 12, 2004, then you cannot get them expunged unless they have been heard and the arbitration panel made one of the following explicit findings in the arbitration award:
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the claim, allegation or information is factually impossible or clearly erroneous;
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the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
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the claim, allegation or information is false. Even if there are arbitration awards that set out one of the factors above, you must then file an action in court in order to direct that the complaint be expunged.
Your better remedy may be a direct action against this former stockbroker co-worker for intentional interference with business relations, if this tort is recognized in your state.
This former co-worker may have violated one of my favorite NASD rules — Rule 2110, “Standards of Commercial Honor and Principles of Trade.” This rule states “a member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.” You'd need to show presenting a false identity on the NASD Web site to access information about you and then sending that information to clients of yours who had an existing business relationship with you fell below the high standards established by this rule.
Tracy Pride Stoneman
Tracy Pride Stoneman, P.C.
Denver
719-783-0303
[email protected]
A:
This question reveals the very worst aspects of the securities industry: a registered rep's former firm and their employees (former co-workers) engaging in a systematic pattern of destroying business and client relationships by using a false name, anonymous mailings and innuendo. This scenario brings to mind Joseph Welch, the lawyer who half a century ago during the McCarthy hearings, forcefully beat back that scheming Wisconsin senator with the now legendary words, “Have you no shame, sir?” Unfortunately, too many members of the securities business lack this sense of shame today and are willing to do anything for new or continued business — including destroying a colleague's hard-earned reputation.
Now, you are left with problems concerning your CRD, the former co-worker and firm and the typical deafening silence emanating from the NASD. Responding to these three distinct problems, however, is not easy or simple.
The NASD administers the CRD system on behalf of a number of federal and state governmental and private entities, which rely upon the information to make regulatory and business assessments. Generally, CRD system information changes are not common, except if there's an amendment to a form or an arbitration panel orders a change, which must be confirmed by a federal or state court. You haven't disclosed whether the complaints contained on your CRD are, in fact, accurate. Accurate information will not be changed by the CRD system, meaning you will, most likely, have no recourse.
However, if the CRD information is inaccurate, there may be some small hope to change the disclosures. To the best of my knowledge and research, the scenario discussed below hasn't been tried in any federal or state court. An injured registered rep may consider bringing a declaratory judgment action against the NASD CRD system, seeking a court order directing that the false or inaccurate information be changed. This tactic has no guarantee of success and the cost may be prohibitive. Despite the enormous challenges you might face, it might be worth consideration with experienced legal counsel if you feel so aggrieved.
Regarding the former co-worker and firm, you have almost no avenue of relief. The NASD BrokerCheck terms and conditions, operated as part of the NASD Public Disclosure Program, clearly state the NASD CRD information “shall be used ONLY for your own personal or professional use …to assist you, your clients or your organization in determining whether to conduct or continue to conduct securities or commodities business with NASD member firms or their associated persons…” [Emphasis in original] Thus, the former co-worker and firm seem within their rights to use this information in the manner described. Although you will probably have no action against the former co-worker or firm, you may raise the false information claim with the NASD CRD administrators, who may investigate and consider appropriate action, if they find such cause.
Finally, your question raises deep concerns over the NASD's lack of response to you. The NASD frankly ignores these types of problems, leaving parties to other methods of resolution, notably, NASD arbitration and mediation. No public NASD attempt has ever been initiated to investigate disputes like yours. But, let a member firm disclose a minor complaint on the rep's Form U4 or U5, and the NASD turns it into the most compelling investigation since O.J. Clearly, the NASD should investigate these situations and attempt to enforce “high standards of commercial honor and just and equitable principles of trade.” Hopefully, our grandchildren will be around to see the NASD's position change.
Although you may feel betrayed and your business damaged, there may be very little that you may be able to do to correct the situation.
Ernest E. Badway,
Saiber Schlesinger Satz & Goldstein Newark, N.J.
973-622-3333
[email protected]
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Ethical Rep is a monthly feature in which more than 30 prominent securities attorneys, experts and law school professors help Rep. readers deal with work-related ethical quandaries. Have you encountered a situation at work that makes you uncomfortable? Are you confused about how your responsibilities to clients might change as regulations continue to evolve? Drop a line to Rep.'s contributing editor, Ann Therese Palmer, and our group of experts will help you work through the problem.
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