SEC Approves New NASD Arbitration Code

The NASD announced today that its new and improved arbitration and mediation code have been approved by the NASD. The new code adds some new rules, and reoganizes the code intothree parts: the Customer Code, the Industry Code, and the Mediation Code. The organization of the code as always been a source of confusion for new entrants to the field, and the NASD hopes that maintaining separate codes eliminates confusion regarding which rules apply to which disputes. To make it easier to find specific rules, the code is now organized to follow the sequential order of a typical arbitration.

The new code also makes it mandatory that parties must produce (or formally object to producing) documents requested in the discovery process. In addition, the code codifies the ability of arbitrators to sanction parties for non-compliance with the discovery rules or orders of the panel. Collectively, these changes should significantly reduce the number of discovery disputes in NASD arbitrations involving customer disputes. The new rules also establish uniform procedures for filing, responding to and ruling on motions in NASD arbitrations.

There is also a change to arbitrator selection. In a customer arbitration, the parties will receive three randomly generated lists - a public arbitrator list, a public chair-qualified arbitrator list and a non-public arbitrator list, each containing eight names. Gone will be the practice of striking all of the names on the list - parties will be able to only strike four of the eight names on the list. The list is also now generated randomly, rather than rotationally.

The new arbitrator selection process goes into effect immediately, for any case where arbitrators have not yet been selected We predict some problems with the new procedure, specifically the ability to only strike 4 of the 8 proposed arbitrators. Claimant's attorneys are going to have a problem when 5 former inhouse counsel show up on that industry list, and the defense side will have a similar problem when 5 PIABA attorneys show up on the public arbitrator list.

The reality is that arbitrator selection is undoubtedly an overblown "controversy." Arbitrators are professionals in their "other" life, and while we all bring our own experience to the process, in the end, the decision making process should be fair. We have all had experiences with apparently bad or prejudiced arbitrators, but those are extremely rare - if they exist at all.

The new code as approved is not at the NASD web site as of today, but they promise that it will be availalbe at the site, and in hard copy for those who request it.

Big Law Raises Rates Again

Actually, they are raising salaries. Law school graduates will now receive $160,000 a year to start at BigLaw. Graduated in 2001? $250,000.

Nice work if you can get someone to pay for it.

NASD Members Approve Merger

In an unusual Sunday morning press release, the NASD announced that its membership approved the merger of the regulatory function with the NYSE.

The press release trumpets "NASD member firms overwhelming approved" the bylaw changes to authorize the merger. While the release is full of other glowing language, labeling the vote a "mandate", the details reflect that 83 percent of the firms voted, and only 64 percent of those supported the change.

Overwhelming? A Mandate? 64% of the vote is hardly "overwhelming", and if my math is correct, that is only 53% of the members voting in favor of the proposal. While it might be unfair to analyze the vote including firms that did not vote, 53% of yes votes from eligible voters is hardly a mandate.

The SEC does the same thing. Glowing overstatements of marginal victories, and a failure to report losses in their enforcement actions.

The consolidation of regulatory functions is undoubtedly good for the regulated, but aren't we entitled to expect more honesty from our regulatory authorities?

First Thing We Do, Let's Kill All The Lawyers

This famous line from Henry VI was not a criticism of lawyers; it was actually in praise of attorneys. The quote is expresses the speakers desire to eliminate impediments to a revolution – they need to get rid of the lawyers in order to overthrow the government.

Last week, a Bush Administration Official expressed his own concerns about lawyers getting in the way of attempts to overthrow our constitution. Shakespeare understood the importance of attorneys in a free and open society. One has to wonder why the current Administration does not.

In a radio interview last week, Charles Stimson, deputy assistant secretary of defense for detainee affairs, in his best insurgent voice, once again presented an Administration attack on the constitution, this time the right to counsel. However, he also attacked attorneys themselves, saying that those who are representing Guantánamo Bay detainees should not be doing so, urging those attorney’s paying clients to stop using their services. He cited many of the law firms by name and suggested that corporate CEOs "make those law firms choose between representing terrorists or representing reputable firms." Not content with that beaut, he then suggested that the attorneys were receiving money from terrorists, suggesting that some of the firms "are receiving monies from who knows where, and I'd be curious to have them explain that."

Enough is enough. Regardless of your views on the detention of suspected terrorists, and despite your frustration at the war on terror, a basic tenant of our constitution, our system of justice, and our entire way of life is the right to counsel, the right to confront your accuser, the right to a speedy and fair trial. If we lose those rights, we become exactly what we are supposedly fighting.

On Wednesday, Mr. Stimson apologized. Sort of. He was sorry if his comments “left the impression” that he was attacking the attorneys. What? That is exactly what he did. He attacked attorneys who are defending the constitution. And this from the man who is in charge of policy regarding the detainees?

This Administration has avoided the constitution on so many levels, and has for the most part gotten away with it, that they are now flat out brazen in their contempt for the constitution and our entire democratic government.

I understand that those pesky lawyers keep getting in the way, but those pesky lawyers are protecting the constitution, and our entire way of life.

The terrorists are trying to destroy our way of life. Do we really need our government doing the same thing?

A 100 Million Dollar Legal Bill?

We all know that legal costs are rising, but this takes the cake. Former NYSE Chairman Dick Grasso says that his legal billing fighting Spitzer's old office have exceeded $100 million.

WHAT? I like Dick Grasso and support his defense of the Spitzer case, and have done so many times in this blog, but has he lost it? How in the world could the legal bill be one hundred million dollars?

The article says that there were 62 depositions. 62 depositions is a lot, but fine. A day for the dep, a day to prepare, 124 days of work. He is using a big law firm, so we can assume that there is a partner and an associate at each deposition, and another associate in the office . That is about $1,500 an hour.

The fees could not possibly be any higher than this, and that works out to "only" $1.5 million. Where the heck is the other 99 million dollars?

The man has to be wrong. No one could possibly charge $100 million dollars in this litigation, and no one would - the amount at stake is $189 million.

But if its true, will someone please tell Mr. Grasso that experienced securities litigators at small firms are not charging $1,500 an hour? Could someone please tell him that small firms, would handle 62 days of deposition for less than $50,000? And probably handle the entire case, through trial for less than 1% of that hundred million.

Forbes 2007 Wealth Builder Guide

More for our investor readers than our brokers, Forbes has published its 2007 Wealth Guide. It is a collection of articles and commentary from leading investment authors on investments and other financial matters.

NYSE Member Suits Move Forward

The WSJ reports today that New York State Supreme Court Justice Ramos has ruled that former NYSE members can continue their suit over what they contend were misleading statements made by the Exchange and Mr. Thain in the months leading up to the announcement of the merger with Archipelago.

There was some interesting speculation in the industry about those disclosures, and the profits made by some seat holders prior to the merger - we commented on some of those rumors here and here.

Can Small Firms Handle Big, Complex Cases?

The Wall Street Journal Law Blog asks the question, and provides an analysis - the answer is yes. Having spent my entire career at small firms, it is no surprise that my answer to this question is "of course, and we do it more efficiently." The real surprise however, came from the comments in the WSJ blog's post on the topic.

Certainly, large firms have an advantage. In a case where 60 depositions need to be taken in 60 days, a 10 attorney boutique cannot handle the matter by itself. That statement begs the question - when was the last time there was such a case? In 25 years of practicing law, I have never seen such a case, nor have I ever heard of such a case. Does that mean they do not exist? I am sure that they must, but I cannot imagine the senario where an experienced litigator would allow himself to be placed in such a position.

When that case comes along, I will refer it to a mega firm. However, the fact is, litigation is going to be handled by a small group of attorneys, typically two or three with some support, and it does not matter whether the law firm has 10 attorneys or 1,000.

If you have the right attorney, who has the right experience and skill, the size of the firm is irrelevant.

Canadian Attempt to Regulate Hedge Funds

While the SEC is having trouble with the concept, Canadian authorities are taking the plunge into hedge fund registration. From Jim Hamilton's blog.

Considering Switching to an RIA Registration - Talk to Chuck

According to InvestmentNews.com Charles Schwab is offering loans to stockbrokers who want to become independent financial advisers. Schwab intends to offer loans of up to $100,000 to finance office furniture, technology purchases and working capital, to advisors who have at least $75 million in assets under management.

Deals for office space and support services by broker-dealers to Advisors have been in existence for years. A loan to pay for such services is new. Is it a reaction to the Massachusetts probe of UBS's deals with hedge fund advisors that was widely reported earlier this year?

Ryan Beck Sold to Stifel

We mentioned the rumor at the end of the year, and now the deal has been announced. Stifel has agreed to purchase Ryan Beck for $91 million.

SEC Comments on Issuer Filings Now Online

The Internet is a constantly evolving source of information, making research easier and easier. We learned today from the Corporate and Securities Law Blog, that the SEC is placing its comments letters on issuer filings online through EDGAR.

That should make for some interesting reading for all of those IPO class action lawyers.

SEC Correspondence May Come Back to Bite You

Please do not buy hedge funds

An interesting article in Slate Magazine. Interesting because of the topic - don't buy hedge funds; and the author - none other than Henry Blodget.