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NASD Sued for Stalling Disputes

The Daily Journal

A Southern California law firm representing two elderly investors has filed suit against a stock market group, seeking to force it to appoint arbitrators to hear their clients’ claim that a stockbroker caused them to lose their retirement savings.

The suit, filed Monday in Los Angeles Superior Court by the Beverly Hills firm of Aidikoff & Uhl, claims breach of contract by the National Association of Securities Dealers Dispute Resolution Inc. for refusing to appoint arbitrators to handle their clients’ investment dispute. Fish v NASD Dispute Resolution Inc., BC279873.

The action widens the dispute over California’s new ethical standards for arbitrators. Last month, the New York Stock Exchange and the NASD sued the state Judicial Council to challenge the new standards.

The rules, requiring detailed disclosure of financial relationships with parties involved in a dispute, are too burdensome and are preempted by federal law, the stock market groups contend.

The two organizations, which handle investor complaints against stockbrokers, want an exemption from the disclosure rules, claiming they are federally recognized self-regulatory bodies and that their own, less stringent rules are sufficient to protect the public from conflicts of interest.

Since the 1980s, public customers of brokerage firms have been required to sign customer agreements which mandate the arbitration of disputes with their broker and brokerage firms. The NASD and NYSE are the primary forums for the resolution of customer arbitration claims.

The plaintiffs – Elizabeth Fish, a 79-year-old terminally ill widow suffering from end-stage Alzheimer’s disease, and Margaret Shores, 84, who has advanced pulmonary disease – filed arbitration claims with the NASD June 12. They allege that their broker, Sentra Securities Corp. & Co. of San Diego, mismanaged their portfolios, resulting in their loss of a total of at least $315,000.

Fish and Shores have been diagnosed as having less than six months to live, according to Philip M. Aidikoff, an investors’ attorney who is president of the Public Investors Arbitration Bar Association.

The suit also requests a temporary restraining order against the NASD to force it to appoint arbitrators in the widows’ dispute.

After the elderly women sent their complaint to the NASD requesting a hearing of their claim with a $1,450 filing fee, the organization assigned them a case number and told them an arbitration hearing would be held in Los Angeles. The NASD attorney assigned to handle the claim, Anthanette Fields, subsequently sent them a letter saying she “looked forward to working” with them on the case, the suit says.

But after California’s new ethical standards took effect July 1, the NASD notified the widows they would not appoint an arbitration panel to hear the matter.

“Thereafter, NASD Dispute Resolution refused, and continues to refuse, to perform the conditions of the contract in their part in that they will not appoint an arbitration panel in Plaintiffs’ arbitration claim and have since suspended its administration of Plaintiffs’ claim,” the suit states.

Since the groups stopped appointing arbitrators July 1, a backlog has formed of as many as 2,000 cases of investors who have charged their brokers with wrongdoing.

“It’s hard for me to understand how the NASD can rely upon their violating the law of the state of California as a defense to their breaching their agreement to administer my clients’ arbitration claim, including the appointment of arbitrators,” partner Robert A. Uhl said.
But NASD spokeswoman Nancy Condon said an exception will be made for the elderly widows to resolve their dispute.

“Under these very extreme circumstances we’ve offered their clients the opportunity to arbitrate under our existing rules. In this situation, it’s the best way to expedite the matter.”