California Supreme Court Confirms NASD Rules Preempt State Law

The California Supreme Court has ruled that NASD and NYSE Arbitration Proceedings do not need to conform to California's restrictive rules regarding arbitrations and arbitrator selection.

The California rules, which were designed to address growing concern over private arbitrations, would have thrown securities arbitration into a morass, and would have increased the cost to investors, and the brokerage industry. Securities arbitration is already a regulated process, as the SEC, and ultimately Congress, control the process through their rule making authority. Practitioners were concerned that by allowing individual states to set their own rules, the nationwide system of arbitration that has been put into place would break down, increasing delays and costs to the participants.

The 9th Circuit reached a similar conclusion in March of this year.

NASD Rules Preempt State Law

Still More Morgan Stanley Problems.

As if there isn't enough going on at Morgan Stanley, it now appears that they are having a serious problem with employee defections. According to the WSJ article, things have gotten so bat that Morgan Stanley is, or was, trying to get its traders to stop doing business with rivals who hire MS employees.

The "was" is in that sentence because apparently someone at Morgan Stanley woke up, remembered that they have an obligation to obtain the best prices and the best executions for their customers, and cutting off another brokerage firm to "punish" it for hiring employees could in fact impact your executions.


WSJ.com - Morgan Stanley Plays Hardball With Rivals Poaching Its People

Insider Trading at the NYSE

A few weeks ago I commented on a story that friends of insiders at the Exchange had advance notice of the pending deal with Archipelago and rumors were that they were buying up seats before the announcement. Forbes had a story that said the deal was done weeks before, and that friends of insiders were buying up seats.

Given the fact that the price of a seat doubled, for a cool million dollar profit, that type of story is not going to go away, and it hasn't. Newsweek is running a story that claims that NYSE Members who sold seats before the announcement have gotten the Exchange to start an investigation.

Story

Waddell and Sawtelle Still Going At It

You may recall the huge punitive damage award entered in favor of broker Stephen Sawtelle - $25,000,000. Or maybe you don't remember it because Sawtelle still has not been paid on the punitive damage portion of the award, as there have been multiple appeals of the decision. Now it looks like a mediation regarding the appellate issues has failed. I wonder if he gets interest on that $25 million?

Article

SEC probes pension consultant conflicts

The next scandal? According to Reuters, the SEC is investigating whether pension consultants may be providing biased advice because of their dealings with money managers and brokerage firms. The investigation has been going on for a year, cases have gone to enforcement, and proceedings may follow soon.
Article

WSJ.com - Perelman Beats Morgan Stanley

Morgan Stanley lost its legal fight against financier Ronald Perelman, who a jury says relied on representations made by the investment bank when he sold his camping-gear company Coleman to Sunbeam in 1998. The jurors awarded Perelman $604.3 million in compensatory damages. Punitive damages could bring Morgan's overall hit to more than $2.5 billion.
WSJ.com - Perelman Beats Morgan Stanley

Three Amex Officials Resign

Big resignations at the AMEX in the past few days. Reuters carried an article that the top regulator at the AMEX, Glen Barrentine, has resigned.

Buried in the article is the news that the Michael Ryan, the Exchange's General Counsel is resigning at the end of the month, along with Exchange President Peter Quick. The former chairman, Salvatore Sodano, stepped down in January, and left the Exchange last month.

Readers will recall that Ryan, Quick, Barrentine and Sodano all received Wells notices from the SEC. A Wells Notice is notification from the Commission that it intends to file a regulatory complaint against the individual named. It does not appear that any action has been filed, although the article makes reference to a decision by the Commission not to proceed against Barrentine.

One can only wonder if these resignations are an attempt by the AMEX to head off an SEC complaint by having these senior executives resign.

Time will tell.


Top News Article | Reuters.com

The Five Dumbest Things on Wall Street This Week

Greenberg complains that he wasn't consulted on AIG's restated earnings; Gilmartin leaves Merck; GM and Ford are upset about bond rating; Blockbuster is upset with Carl Icahn and cut him off during an earnings call; and the Fed's blunder on its inflation statement.


The Five Dumbest Things on Wall Street This Week

Morgan Stanley Hit With Class Action Alleging Discovery Improprieties

Now the gloves are off. A claimant's securities law firm has filed a class action suit against Morgan Stanley. According to this article in law.com, Morgan Stanley has committed violations of discovery rules in as many as 1,000 securities arbitrations. According to the article, the plaintiffs are seeking a new hearing, and a refund of their filing fees.

I haven't seen the complaint, but this should be interesting. Morgan Stanley has been the subject of sanctions in arbitration proceedings, and has been sanctioned by the NASD for discovery abuses.

Speculation Regarding Online Broker Takeovers

I am actually surprised that this has not happened already. With all of the wirehouses moving towards online trading over the past 5-6 years, one would have thought that one of them would purchase a major online firm.

Apparently rumors are flying that E*Trade and/or Ameritrade are ripe for a purchase.

Still Not Convinced Lying Is Wrong?

We all know Martha Stewart went to prison for lying to investigators, and not for insider trading. Part of the lesson to be learned in the Martha case was that lying to investigators is a serious matter, or as I like to put it, tell the truth, or shut up. Article

That rule was proven to be true once again. Many will recall the "wrong number" telephone message scam, where a voice mail message is left for the "wrong" person, and the message is a stock tip.

Aside from the fact that the accused scammer faced a civil SEC action, he has just plead guilty to obstructing justice, and faces 20 years in prison - not for the scam, but for "obstructing justice" which usually translates into lying to investigators.

Let's review.

Running a scam - $50,000 and a $25,000 fine.

Lying to the SEC - 20 years in prison

Keeping your mouth shut - priceless.

Telemarketer pleads guilty in pump-and-dump scheme - May. 3, 2005


UPDATE - 5/4/05 - Reuters is reporting that the obstruction charges stem from allegations that the defendants"altered, destroyed and concealed records and documents," and told an "employee to delete company computer files." A variation on the lying theme which is a big more intentional and serious than the Martha series of events, but equally demonstrating the point - screwing with the SEC can get you more time than the underlying acts or allegations.


Reuters Article