Stock Broker Fraud Blog

The NYSE and its former boss Dick Grasso were heavily criticized over salary and benefits to Grasso of well over $100 million. Many thought it unconscionable for the head of a self-regulatory body to earn that kind of money. For that reason, and so it could play ball in the international arena, the NYSE simply bribed all 5000+ members of the NASD $35,000 each to vote to take over its regulatory functions.

The National Association of Securities Dealers, Inc. is an association. Its members are securities dealers. Yet, it does not like its name and wants to change it. After all, it sounds strange for an association of securities dealers to be the primary regulator of securities dealers - too much like a fox in charge of a hen house.

The NYSE takeover seemed a perfect excuse to change the name. So a few folks at the NASD thought about names that would sound more like it was something other than an association of securities dealers. After not so careful thought, the NASD came up with “The Securities Industry Regulatory Authority”, or SIRA.

Not too bad, except Webster’s defines an “authority” as “a governmental agency or corporation to administer a revenue-producing public enterprise, i.e. ‘the transit authority’.” In reality, the NASD is a non-profit corporation owned by its members. Basically, it has the same structure as a country club. Be that as it may, SIRA was announced as the new name of the NASD.

This name was not so carefully conceived because the NASD soon drew criticism for "SIRA." Even the slightest modicum of research would have revealed “sira” or “sirah” as a well recognized Islamic term for the study of the life of Muhammad. (What if, for example, the acronym “GOSPEL” had been selected?)

A test balloon was sent up for “The Securities Industry and Financial Markets Association," which semed ok -- until abbreviated “Sifma” which, said the NYSE Chief Executive, was reminiscent of "certain unpleasant diseases." Nor did it contain the misnomer “authority,” which was decidedly a keeper. Eventually, “Financial Industry Regulatory Authority” or “FINRA” was selected. It was a healthy name that did not offend any Constitutionally protected class and sufficiently obscured that the group is actually an association of securities dealers.

Well -- Oops! What were they thinking, says The National Association of Personal Financial Advisors (NAPFA) claiming the name will cause confusion. Securities dealers are dealers in securities and financial advisors are wholly different animals, not regulated by the NASD but by state regulators and the SEC.

Actually, these financial advisors have a point. For example, you have a problem with a “financial advisor” who would you call? If you called the “Financial Industry Regulatory Authority,” they would tell you “wrong number.” NAPFA said NASD made a “grave error in judgment,” since it would be insinuating it has “authority” over everyone in the financial industry, which is simply not true.

Back to the drawing board? Not likely! If the NASD has one quality it is arrogance. Offending 1.4 billion Islamic people in the world is one thing, but admitting yet another mistake is just not going to happen. As for confusion over what FINRA is or does … well, isn't that the whole reason for the name change?

During these events CEO of the NASD, Mary Schapiro remarked: "What's in a name?" Perhaps, Mary, a name might give some indication of what you are, so why not call your organization “The National Association of Securities Dealers?”

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against securities dealers and investment firms (but rules require us to use our names). Thus, whether you have a problem with a securities dealer or an investment advisor you can call us at 800-259-9010 or contact us via email to arrange a free confidential consultation with one of our attorneys.

Securities America, Inc. agreed to a $375,000 fine to settle charges by the NASD that it received improperly directed mutual fund commissions on behalf of one of its brokers, failed to supervise and failed to disclose the arrangements to the affected mutual fund owners.

The NASD said that this situation, in which a mutual fund company directed brokerage fees specifically for the benefit of a lone broker, is the first known case of its kind. NASD rules prohibit registered firms from allowing sales personnel to participate in directed brokerage arrangements. NASD fair dealing regulations also require disclosure to clients of such fees and other compensation received through arrangements involving their accounts.

A directed brokerage arrangement is one in which a client, such as a pension fund, directs a planner to use a certain broker-dealer for trade executions. In return for the commissions received on the transactions, the broker-dealer provides other services to the advisor or these can be rebated to the clients. The Securities America broker arranged for such commissions from union-sponsored retirement plan clients to be directed to his firm for his own benefit.

In its sanctioning order, the NASD said the broker negotiated an arrangement with a mutual fund company to have thousands of dollars of brokerage commissions directed to him every month and that Securities America approved the arrangement for almost two years while it received $420,000 in directed commissions from the fund company for the broker’s benefit, of which $262,000 was paid to the broker.

Shepherd Smith and Edwards represents clients that are the victims of securities fraud. If you have lost money in because of misconduct by someone in the securities industry, hiring an experienced law firm can greatly increase the chances of recovering your losses. Contact us to arrange a free consultation with one of our attorneys.

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

"The actions announced today should remind brokerage firms and research analysts of the importance of full disclosure of conflicts of interest in research reports," said the NASD’s Head of Enforcement. "There is no doubt that, where a research analyst is pursuing employment or has accepted a job with a covered company, NASD rules require that information concerning such a clear conflict of interest must be disclosed in research reports."

The analyst was also charged over her alleged role but is fighting the charges. Her lawyer called the allegations a "departure from the industry's current understanding of the rules," adding that the charges "ignore the plain language of the rules, which place the burden of disclosure in a member's research report on the member itself", meaning the disclosures were Wells Fargo’s duty, not that of the analyst.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

The NASD fined four firms for mutual fund sales violations and for failures to properly supervise such sales. The fine amounts are $473,000 against MML Investors Services, Inc., $354,000 against NYLIFE Securities LLC, $322,000 against Securities America, Inc. and $100,000 against Northwestern Mutual Investment Services.

The violations charged include sales of Class B and Class B shares, causing investors not to receive the benefits of price breaks on Class A shares, failures to properly notify clients of available cost free transfers from one mutual fund to another at the funds’ net asset values and failure to have adequate supervisory systems and procedures to prevent such violations.

In resolving the case, MML and Northwestern must also pay their clients who qualified for, but did not receive, the net asset transfer benefits and pay refunds to those who did not benefit from the price breaks. Including the refunds already paid, it is estimated that thousands of clients of these two firms will receive a total of more than $6.5 million.

"The cases announced today are the result of NASD's continuing commitment to help ensure that sales of mutual funds - the investment product most commonly held by investors - are made appropriately and with the benefit of full consideration of all available share classes and pricing features," said the NASD’s Head of Enforcement. Each firm consented to the sanctions without admitting or denying the allegations.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients' welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.

Yet, the fines paid were relatively small and most of the lawsuits were dismissed. Heavy duty lobbying by Wall Street had changed laws, for example to limit class actions to claims for fraud under federal laws in federal courts, with no recovery allowed from those who assist in the fraud. To make matters worse, the first case was decided by a 96 year old judge in the heart of Wall Street, who stated that the vast majority of investors just wanted to gamble anyway.

The bottom line is that the Wall Street firms identified in the investigations generated well over $100 billion as they misled investors to increase their profits, but have paid about 5% percent of those revenues for their transgressions. Meanwhile, as other major scandals continue to surface, the investment firms involved continue to make record profits.

How many in the public know that primary regulation of Wall Street firms is by an association owned and operated by those firms? The Securities and Exchange Commission is the government's agency created to protect investors, but it is instead busy lowering restrictions on investment firms and lending its weight on the side of firms sued by investors, including at the U. S. Supreme Court.

Fortunately, individual claims filed by investors have fared better than class actions. Although the mandated securities arbitration process investors must use to recover from brokerage firms is another subject of concern for those who fight for investors, it does offer a fighting chance of success.

Meanwhile, the quality of fruit on Wall Street is not likely to change until that orchard is “fumigated for bugs" through legislative changes.

By: William S Shepherd:

When I left the securities industry in 1990, I agumented a law degree with a Master of Law (LLM) in Securities Regulation from Georgetown Law School. I then founded the law firm of Shepherd Smith and Edwards. We have since represented investors in almost 1,000 securities arbitration claims nationwide and are one of the largest in the U.S. specializing in such claims. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

NASD and NYSE regulators, which will soon merge, jointly released proposed guidance for broker-dealers to establish policies and procedures on electronic communications employees use to conduct business and to "take reasonable steps" to monitor such compliance.

The two securities self-regulatory organizations (SRO's) stated that brokerage firms should have a supervisory system in place to make sure brokers are complying with all applicable rules when employing all types of electronic communications.

The SRO's added that, once "reasonable" policies and procedures are in place, the firms would themselves decide what "additional supervisory policies and procedures are required to adequately supervise their business and manage the member's reputational, financial, and litigation risk." Unlike SRO rules, SRO "guidelines" do not require approval of the SEC.

The regulators addressed generally the use of weblogs and other electronic methods and also covered the review of certain e-communications by legal or compliance personnel. The release advised some type of compliance review of e-mails sent by a registered representatives, including as part of standard branch office inspections.

While its own guidelines are non-specific, these stressed that "vague language addressing these issues may leave room for unwanted individual interpretation," adding that there should be "specific language explaining to employees the potential consequences of noncompliance."

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

HSBC Brokerage, a New York firm which allegedly directed all government securities orders to an affiliated broker-dealer, agreed to pay $250,000 to settle NASD charges it failed to have adequate systems in place to ensure the best execution for its clients.

Allegedly the firm routed orders to affiliate, HSBC Securities (HSI), without taking adequate steps to ensure that its customers could not get better prices through other sources. The NASD said in a news release that "HBI's inability to provide documentary evidence of its supervisory review for best execution of trades inhibited NASD's ability to review transactions for best execution." HBI settled this action without admitting or denying the charges.

Prior to a merger of the two related firms, HBI's retail brokerage business was primarily located in HSBC bank branches, the NASD said. To support the retail business, HBI operated a trading desk to handle orders placed by brokers.

The NASD found that in mid-2004 HBI directed its fixed income traders to route all government securities orders to HSI for execution. The dollar volume of U.S. Treasury transactions that HBI sent to HSI rose from approximately one-forth of all orders in late 2003 to almost 100 percent by December 2004.

While HBI's traders were required to "shop" orders for government securities transaction before placing it with the affiliate, according to the NASD, HBI had inadequate systems to monitor this process by its traders. While several HBI officers apparently recognized the increased risk associated with directing all government securities orders to a single, affiliated broker-dealer, the firm failed to put proper procedures in place to ensure clients received the best execution on their orders.

The law firm of Shepherd Smith and Edwards represents institutional and individual investors nationwide to recover losses caused by investment and brokerage firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

The NASD fined Omaha, Neb.-based Securities America Inc. a total of over $15 million for luring 32 long-term employees of Exxon Corporation into early retirement using false promises of high returns. The NASD stated that supervisors at Securities America largely ignored such actions by its registered representative who has been charged with violating securities regulations.

The NASD is focusing much of its enforcement resources on brokers and investment firms specializing in retirement planning services. The NASD's chief counsel of the New Orleans region said retirement-age workers are extremely vulnerable to retirement planning investment scams. In many cases, the workers have little financial sophistication, but huge portfolios of assets that must be invested for post-employment purposes.

Employees of large companies such as Exxon are tempting targets for unscrupulous brokers touting inflated predictions of earnings to generate huge fees for the brokers. The target employees are able to "rollover" their retirement accounts, sometimes worth over a million dollars, to banks or brokerage firms. Often these workers hive little or no experience in investing and must rely entirely upon an investment advisor. This problem will grow as the baby boom generation retires.

The NASD counsel described how hungry salespersons go into companies to pitch themselves, their firms and claims of superior returns on retirement assets. They use free lunches and dinners to attract candidates aiming to get the trust of long-time workers, enticing some to even retire early. While many of these salespersons have proper motives and operate appropriately, he added, but "clearly, there is potential for abuse."

The NASD spokesman indicated that it will focus its efforts to address incompetence, unsuitability, over-concentration, illiquidity, abusive fees, hyped predictions, misleading written and oral representations and omissions, and failures to supervise. He specifically discussed abusive practices using annuities and more recently invented ETF's (exchange traded funds).

While the NASD claims it is employing heightened scrutiny to protect retires, abuses are likely to continue. Enforcement of NASD regulation is mostly reactive and often inadequate. It currently has oversight responsibilities over some 650,000 registered representatives at over 5,000 licensed brokerage firms. The task will soon grow because the New York Stock Exchange is divesting itself of regulatory duties over its membership, which includes most large large brokerage firms.

NASD member firms collectively hold trillions of dollars in assets and receive hundreds of billions in revenues. Critics point out that the millions of dollars in fines of its members by the NASD adequately deter wrongdoing in the industry.

The law firm of Shepherd Smith and Edwards represents companies, pension funds and individual investors of all types to recover losses. Retirees and senior citizens have a higher rate of sucess in recovering than other investors. To learn whether our firm may be able to assist your pension fund, you, a relative or a friend contact us to arrange a free confidential consultation with an attorney.

The National Association of Securities Dealers has issued an “Investor Alert” warning of a rise in deceptive sales practices in the sale of annuities to senior citizens

The NASD also states that consumer confusion about annuities has also risen. “This is due, in part, to questionable or deceptive sales practices employed by companies and agents looking to take advantage of uninformed consumers,” it adds.

An “annuity” is defined in the release as “a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid.”

“There are several types of annuities, all of which carry varying levels of risk and guarantees,” the release states. It then lists Single Premium Annuity, Multiple Premium Annuity, Immediate Annuity, Deferred Annuity, Fixed Annuity, Variable Annuity and Equity-Indexed Annuity) but fails to indicate the particular risks of each.

The NASD advises investors to beware of “red flags” of possible deceptive sales practices, including high-pressure sales pitches, “limited-time” deals and tactics to move investors from one annuity to another. There is also a warning about unlicensed agents. The alert adds: “Remember, if it seems too good to be true, it probably is!”

Others warn that the use of terms such as “insurance” and “guarantee” are often misleading and can deceive seniors into believing annuities are always safe, which is not the case. Part of the deception is to mask whether one can even get out of an annuity and, if so, the downside risk and/or penalties involved.

However, none of these warnings are helpful to senior citizens and others who have already been scammed!

If you or someone you know may have been a victim of annuity fraud contact Shepherd Smith and Edwards. We have helped thousands of investors recover losses. You may contact our law firm to arrange a free confidential consultation with one of our attorneys.

The complete text of this and other NASD Investor Alerts is available at http://www.nasd.com/InvestorInformation/InvestorAlerts/index.htm

For decades investors have been told their accounts were protected by the Securities Investor Protection Corporation (SIPC) without being told what was covered by this insurance. Few realize this protection only provided that whatever securities and cash are in an account when a firm goes out of business would be returned to the investor. (Furthermore, such claims are difficult to file and often take years to process.)

Thus, if investors are defrauded into purchasing investments, if their accounts are churned for commissions or if other wrongdoing occurs in their accounts, they are NOT protected by this Federal insurance. Even claims for unauthorized transactions, including the sale of viable securities in order to purchase worthless securities from the firm or its officers are not always refunded. In short: Fraud is not covered by SIPC!

After years of complaints, efforts by attorneys representing investors and pressure by some consumer-friendly legislators, the National Association of Securities Dealers, Inc. (NASD) and the Securities Exchange Commission (SEC) were finally persuaded to act. However, rather than force brokerage firms to disclose the insurance coverage (or lack of it) the NASD and SEC passed a much less effective requirement.

The new rule requires members to merely advise new customers, and remind existing customers annually, that they can obtain information about the Securities Investor Protection Corporation by contacting SIPC. The phone number and Web address will be included.

As is true with most insurance companies it is very difficult to determine from the information provided by SIPC what is and is not covered by this protection. Therefore, the vast majority of investors will remain in the dark and continue to be misled into believing they can recover if they are defrauded by a broker or firm in an insured account.

Once again the SEC is serving Wall Street firms rather than protecting investors. These firms do not want securities fraud to be covered by SIPC because their premiums would be much higher. Meanwhile, these firms have the best of both worlds: The can continue to “sell” investors into a false sense of security by indicating their accounts are “insured”, yet pay low premiums because the insurance covers little and rarely pays any claims.

Additional propaganda can be found in SR-NASD-2006-124 (Release No. 34-55737, 5/10/07 and at http://www.sec.gov/rules/sro/nasd/2006/34-54871.pdf; 72 Fed. Reg. 27606, 5/16/07).

The NASD announced this week that it fined two Fidelity brokerage firms $400,000 for preparing and distributing misleading sales literature promoting Systematic Investment Plans, which were sold primarily to U.S. military personnel. Issuance and sales of new systematic investment plans after these were prohibited by Congress last fall.

The NASD found that between January 2003 and January 2006, the two firms violated NASD advertising rules by preparing and distributing misleading sales literature. From May 2003 through January 2006, the Fidelity firms prepared and distributed a brochure entitled "Time is Money" that included misleading performance claims about its “Destiny Plans”. According to "mountain charts" contained in the brochures, these plans significantly outperformed the S&P 500 Index over a 30-year period. Yet, during the most recent 10- and 15-year periods—the time frame most relevant to current and prospective investors - Destiny Plans substantially underperformed the S&P 500 Index.

The brochures also showed average annual total returns for 1, 5 and 10 years as well as the life of the Plan, without showing comparable returns for the S&P 500 Index. This also created the misleading impression that the plans outperformed the S&P 500 Index when instead that index significantly outperformed the plans.

The Fidelity brokerage firms also used the performance of one class of the shares in charts, when investors could actually only purchase another class which did not perform as well because of higher expenses. The broker-dealers prepared and sent over 10,000 copies of these brochures for use by their registered representatives.

The NASD also found that the Fidelity firms also prepared and distributed a misleading newsletter to over 325,000 of the plan holders with a chart showing plan performance. However, the chart demonstrated performance of the underlying mutual fund portfolio rather than the performance of the plan itself which, after sales fees and expenses were charged, significantly reduced the plan’s performance.

The NASD further found that Fidelity did not adequately supervise the review of the sales literature in light of the unusual features of these products.

An NASD Hearing Panel issued $100,000 in fines against Kenneth Pasternak, former CEO of Knight Securities, L.P. (now known as Knight Equity Markets, L.P.), and John Leighton, former head of the firm's Institutional Sales Desk, for supervisory violations in connection with fraudulent sales to institutional customers in 1999 and 2000.

In addition, Pasternak was suspended in all supervisory capacities for two years, while Leighton was barred in all supervisory capacities.

In March 2005, NASD's Department of Market Regulation charged Pasternak and Leighton with failure to supervise the firm's leading institutional sales trader, Joseph Leighton, who is John Leighton's brother. The NASD complaint also charged Pasternak with failing to establish and enforce a supervisory system designed to ensure compliance with federal securities laws and NASD rules.

In a 2-1 ruling, the panel found that Pasternak and John Leighton failed to supervise Joseph Leighton's trading activities. "For all intents and purposes, Joseph Leighton ran the Institutional Sales Department as he saw fit," the majority ruling says. "Pasternak, John Leighton, and Joseph Leighton each concluded that as long as the customers did not learn of the extraordinary profits Knight earned on their orders, there was no limit to the amount the firm could make on an institutional order."

The majority also found that Pasternak's response to numerous red flags was "woefully inadequate," that Pasternak and John Leighton "never questioned Joseph Leighton's activities or confirmed he was providing his customers with best execution and a fair price," and that the overall supervisory void "allowed Joseph Leighton to take advantage of his customers over a 21- month period by filling orders at prices that netted Knight unreasonably high profits."

In April 2005, Joseph Leighton agreed to a bar from the securities industry and a payment of more than $4 million to settle charges by the Securities and Exchange Commission (SEC) and NASD that he made millions of dollars in fraudulent trades with Knight's institutional customers. The SEC and NASD found that Joseph Leighton generated excessive profits by pricing trades with institutional customers in a manner contrary to customers' expectations and industry custom, and using deceptive trading practices to disguise both his pricing and the amount of Knight's profits.

In December 2004, Knight paid more than $79 million to settle SEC and NASD charges against the firm arising from Joseph Leighton's fraudulent and deceptive conduct.
More than $3.3 million of Joseph Leighton's monetary sanction and more than
$66 million of the firm's monetary sanction was paid into a Fair Fund established by the SEC to compensate investors harmed by Joseph Leighton's fraud.

Unless the matter is appealed to NASD's National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel's decision becomes final after 45 days.

Washington, DC — The NASD today issued an updated Investor Alert warning investors - not brokers - about the risks associated with trading on margin. Since the release of a previous Alert on this topic in 2003, the amount of debt taken on by investors to buy securities has reached a record high of $321.2 billion in February 2007.

"We are concerned too many investors are unaware they could suffer substantial financial losses by using debt to purchase securities," said Mary L. Schapiro NASD Chairman and CEO. "By updating our Alert on this topic, we hope to remind investors not to underestimate the risks involved."

The Alert, Investing with Borrowed Funds: No "Margin" for Error, explains that investors who cannot satisfy margin calls can have large portions of their accounts liquidated under the market conditions at the time, favorable or unfavorable. That liquidation can result in substantial losses. Some of the risks associated with opening a margin account explained in the Alert are:

* Firms can force the sale of securities in accounts to meet a margin call.
* Firms can sell securities without contacting the account holder.
* Account holders are not entitled to choose which securities or other assets can be sold.
* Firms can increase margin requirements at any time and are not required to provide notice.
* Account holders are not entitled to an extension of time on a margin call.
* Account holders can lose more money than is deposited in a margin account.
* Account holders should ask whether they will automatically be placed in a margin
account and, if so, the rate of interest and what circumstances would trigger a margin loan.

It is interesting that the NASD should undertake to make such blanket statements about the lack of legal requirements on NASD members since court decisions over the years are split both for and against firms who treat margin borrowers in an unconscionable manner. Observers note that the NASD is prone to take such positions on behalf of its members, although its retulatory purpose is to protect investors.

Furthermore, many question why the NASD is not concentrating its efforts on requiring brokerage firms to discourage unsuitable borrowings. All NASD members must react to NASD Notices to Members, while the vast majority of investors have no knowledge or contact with NASD releases. It is clear that efforts to restrict member lending would have a far greater effect on solving the problem than the NASD's recent action.

Meanwhile, the NASD may be reluctant to take steps to address this problem because approximately $20 billion in margin interest is earned each year by NASD member firms, with very few losses incurrred. Thus, the NASD is avoiding any true effort to discourage borrowing and instead offering obscure warnings to investors while also making questionable statements to exonerate its members from liability.

A Federal Appeals Court in New York reversed prior decisions and decided that statements in a NASD Notice of Termination Form U-5 are subject to absolute privilege from defamation actions. The Securities Industry and Financial Markets Association claim the ruling is a victory for investors and that firms will now be encouraged, rather than discouraged, from offering investors full disclosure regarding a broker that has participated in any wrongful actions. Yet, observers believe it is the brokerage industry itself that won a victory.

In Judge Victoria A. Graffeo’s opinion, the court discussed that Chaskie Rosenberg was hired as a financial services representative in 1997 for defendant Metropolitan Life Insurance Company’s All-Boro agency. Based in Brooklyn, the agency served members of the local Hasidic Jewish community. Most of its employees were also Hasidic Jews.

MetLife performed an agency audit in 1999 because the agency accepted third-party checks to pay for life insurance policy premiums. Following another audit, MetLife shut the agency down and moved employees to a different office. Rosenberg was let go after a third audit by MetLife. '

In its termination notice statement, MetLife said it seemed that Rosenberg violated policies related to speculative insurance sales and that he may have been an accessory to money laundering violations. MetLife also said that Rosenberg had been investigated internally for violating regulations that were related to investments.

Rosenberg filed a lawsuit alleging breach of contract, employment discrimination, libel, and other causes of action. He says that MetLife ignored what was considered a Hasidic lending practice—that a customer’s check could be drawn on an account that was not in his or her name and that it would not have to be considered a third-party payment.

A jury ruled against Rosenberg and the court dismissed the remaining allegations. Regarding Rosenberg’s libel claim, it says that statements made by MetLife in Form U-5 were absolutely privileged. Rosenberg filed an appeal, and the U.S. Court of Appeals for the Second Circuit requested the high court weigh in on the issue of privilege.

The state high court ruled in favor of MetLife, noting that although absolute privilege is usually reserved for communications by individuals engaged in a public function, it can also apply to “preliminary or investigative stages of the process, particularly where compelling public interests are at stake.”

The court said that the NASD is the biggest securities self-regulation organization subject to SEC oversight and that it has the authority to enforce the 1934 Securities Exchange Act requirements, in addition to being the main regulator for the brokerage industry. The court noted that investigating and adjudicating suspected SEC and NASD violations is one of NASD’s primary roles and that it is entitled to question individuals, examine documents, engage i