Wednesday, September 26, 2007

Chipping Away at SRO Immunity

An interesting decision from the 11th Circuit is making its way into the press. Apparently an investor has decided to sue NASDAQ in an attempt to recover his losses in Worldcom.

I have not reviewed the complaint, but it appears that he has raised two basic claims - one that NASDAQ is liable to him because it continued to list Worldcom, and two, that NASDAQ's advertising was false and misleading, and caused him to buy Worldcom.

While the merits of those claims will be decided later, the interesting part of the caselore is the NASDAQ immunity issues. NASDAQ claimed that the immunity they enjoy for handling government-like regulatory duties should be extended to the claims over the ads. The 11th Circuit ruled that "governmental" immunity did not apply, since the ads did not serve a regulatory, adjudicatory or prosecutorial function.

While NASDAQ is not the NASD, or FINRA, and the decision is perhaps limited by its facts, the chipping away of absolute immunity for private entities acting as government regulators might cause some thought to be put into some of the more extreme regulatory actions.
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