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As States Back Court Confirmation Plan

Compliance Reporter

The North American Securities Administrators Association is supporting a National Association of Securities Dealers’ rule proposal requiring court confirmation of arbitration panel orders for expunging broker information from the Central Registration Depository. Customer complaint information are state records and only courts can order such expungement, according to NASAA. The letter, signed by NASAA President Joseph Borg, states, ANASD panel members are not judicial officers under the federal or state constitutions or laws, and have no legal authority to direct a state officials to expunge state records. Borg did not return calls.

The states note that alteration of state public records requires an order by a court based on law not on a non-judicial NASD arbitration’s declaration, citing that panels simply declare a winner and perhaps share observations on the issue at hand.

NASAA, the state umbrella group, noted in the letter that it believes Aallowing arbitrators to order expungement without objective standards violates [its] public records laws and is bad for investors. NASAA also supports the proposal’s requirement that the NASD be a party in court confirmations, noting the states may choose to be a part of such proceedings, because a party interested in the record would have an opportunity to protect the CRD record before the court.

John Veator, a NASAA associate counsel, said NASAA’s Dec. 31 comment letter backs the proposal because it lists standards for where arbitration panels can consider expungement. The states were expected to write the letter supporting the proposal (CR, 12/17). The Securities Industry Association believes the proposed court confirmation of an expungement order requirement would undermine the arbitration process (see story above).

The Public Investors Bar Association in a Dec. 26 comment letter said it agrees that NASD should be a party to expungement court proceedings. The letter noted, however, that PIABA is not aware of any state or federal laws requiring that the NASD be a party to or be given notice of confirmation or any other court proceedings between two private parties. Philip Aidikoff, PIABA president and partner at Aidikoff & Uhl in Beverly Hills, Calif., said it is appropriate that the NASD be a party to confirmation court proceedings, but as a practical matter the enforceability of that requirement has to be looked at. The court could issue an order of expungement whether the NASD was a party to the proceedings and legally the self-regulatory organization would have to abide by the court’s decision.