NASD To Require Arbitration Award Explanations Upon Investor Request - NOT the Firm's Request

The NASD announced that its Board of Governors has approved an amendment to the Code of Arbitration Procedure allowing customers arbitrating disputes with brokers or brokerage firms to require a written explanation of the arbitration panel's decision. Registered representatives arbitrating industry disputes may also require written explanations of decisions. Currently, issuing an explained decision is solely within the discretion of an arbitration panel.

The procedure will not allow the same request to be made by the firm or broker, and we are witnessing the continued trend of one-sideness in the administration of securities arbitration. The NASD continues to provide different, and "better" rights to the investor, that those it affords to the industry, a troubling trend that will ultimately destroy the NASD arbitration process. Venue decisions, the discovery guide, arbitrator selection have all changed in recent years, to the benefit of the investor, and in most instances, to the detriment of brokers and brokerage firms.

The NASD did not offer any reason for the disparate treatment of parties to arbitration and why they have decided to deny this "right" to industry participants in a customer dispute. However, the amendment has not yet been filed with the SEC, and perhaps the filing will explain this decision.

We will also expect to see a discussion of this proposal, given the fact that detailed awards have been the subject of much debate and discussion over recent years. While most parties to arbitration proceeding want to know how a panel reaches a decision, the downside of such a procedure is that reasoned awards are subject to greater attack on motion to vacate awards. The adage about curiosity and the cat may come into play here, and the advice of most seasoned securities attorneys is in favor of a traditional award, that describes the dispute and gives the decision.

The procedure, according to the press release, will require the customer to make the request for an explanation prior to the first hearing, which will undoubtedly cut down on the number of such awards that are actually issued. Given the fact that the law does not require an explanation, explanations are not necessarily a good idea for the parties. Arbitrators will have to be careful as to the explanation that they give, to insure that they are not giving the parties the means to undue their hard work.

Supreme Court: Sentencing Guidelines Advisory, Not Mandatory

While not a securities case, the decision of the United States Supreme Court in United States v. Booker will have a significant impact on criminal securities cases.

The decision rules that the federal sentencing guidelines are advisory, not mandatory. This is significant since the guidelines are a complex set of rules and tests which are used to determine sentences in all criminal cases. There is very little leeway in the guidelines, and for most cases, in particular the securities fraud cases, the guidelines result in extremely long sentences, longer than would be available in the state courts for the same crime.

The guidelines were designed to give uniformity to sentences across the country, but in doing so, they took away a judges discretion in sentencing. The guidelines raised the stakes for defendants, since there was very little room for departures from the guidelines. Given the harsh sentences, many defendants were forced to plea bargain, since the risk of losing after trial was increased by the lengthy sentences.

This article discusses the potential impact of the decision on past, pending and future cases.

Registration of Investment Advisors

Registration of Investment Advisors New SEC requirements are forcing Hedge Fund Managers to register as Investment Advisors. We present an overview and introduction to the process, for such advisors, and anyone who is considering providing investment advice to third parties.