Grandstanding on Wall Street: Regulators Play to the Crowd

June 10, 2005

The American Conference Institute (ACI) annually runs some 500 legal seminars worldwide featuring leading experts and lawyers. Among the more titillating conferences ACI will be running in 2005 are: Preparing for the Future of Finite and Structured Risk (Re)Insurance and Drafting Successful Patent Applications for Biotechnology Related Inventions. As you can tell from the titles, ACI conferences are the real McCoy, often costing nearly $2,000, lasting for two eight-hour days, and qualifying for state continuing legal education credits. These aren't your excuses for a golf or tennis junket.

On May 24 and 25 of this year, the Broker Dealer Defense Forum held its second annual conference in New York City; this one was entitled: Prevailing Against Customer Claims: Strategies for Discovery, Arbitration Hearing and Proceedings. My former law partner, Aegis Frumento, now one of the country's top defense lawyers at the law firm of Duane Morris, put in a tremendous amount of time to prepare an informative program filled with the top attorneys and consultants. Without question this is a defense lawyer's seminar --- you sort of get that idea from the name of the forum and from the panel topics. At least that's what a reasonably intelligent person would have inferred.

Practicing law on Wall Street involves three factions: the defense bar (the industry's interest), the plaintiff's bar (the public customer and industry employees), and the regulators (state, SRO, and federal). It's a fact of the securities industry that you're often here today and there tomorrow . . . former regulators become customer or industry attorneys, in-house lawyers become regulators or plaintiff's lawyers, and the permutations go on and on. And while we don't all like each other, we all tend to understand that everything is intertwined among the three interest groups --- frankly, we all depend on each other . . . for business as well as the fair resolution of disputes. Moreover, there are many lawyers such as myself who represent both the industry and public customers; so the lines are often further blurred.

ACI invited representatives from the New York State Attorney General's Office, the Securities and Exchange Commission, the New York Stock Exchange, and the NASD to speak on this year's Broker Dealer Defense Forum panels. There's nothing unusual about that. It happens numerous times each year at different seminars run by many interest groups. It's a healthy and important aspect of these seminars. We debate each other, we criticize certain regulatory initiatives, the regulators criticize industry trends, and the folks attending the seminar benefit from the debate and learn valuable lessons. No one on either side of the table benefits from uninformed lawyers or poorly represented clients.

A few weeks before the scheduled May 24th kick-off of the ACI BD Defense Forum, the SEC, the NYSE, and the NASD withdrew from the conference --- after the brochures were printed, after folks had paid to hear them speak, after they had previously agreed to attend. In the NASD's March 16th letter, that organization conceded that the regulator had "agreed to participate [in January 2005]" but was "disturbed to receive the brochure for the program . . . the title and content presents a pure anti-consumer tone." In the NYSE's April 7th email, the organization said that the withdrawal was "due to the anti-investor tone of the program's brochure. It would be inappropriate for me, or any of my colleagues, to be associated with the conference. I regret any inconvenience that my withdrawal from the program may cause you."

Without questions the organizers, panelists, and attendees of the ACI conference were shocked and disappointed with the SEC, NASD, and NYSE's actions --- personally, I found them childish and disgraceful. Yet another sad example as to how everything in this country has become so polarized that professional men and women of good will and intent can't even sit down and civilly discuss and debate the law. Oddly, the New York State Attorney General's Office had the courage to send a speaker --- and she was warmly greeted and her remarks well noted by those in attendance. But, of course, the AG's office really seems to have been the only regulator doing a meaningful job these past few years. Maybe they simply understand the dynamic of Wall Street far better than their peers.

What bothers me most about the SEC and the SROs' withdrawals is that they were done after those principled folks had already agreed to participate. Bad form. Atrocious behavior. Silly posturing. Moreover, those industry speakers whose names were prominently featured in the brochure are all well known to the regulatory community --- those panel members are among the leading practitioners in the industry and from many prominent brokerage and law firms. We all deal with our regulatory counterparts everyday. Did the SEC and the SROs suddenly think we had all become monsters? Couldn't our regulatory colleagues have simply stated their disapproval about the alleged bias of the seminar during their prepared remarks? Is slamming the door in the industry's face the only clever resolution these folks could think of? What the regulators seem not to have understood is a basic fact about Wall Street --- your word is your bond on the Street . . . you agree to a trade and you're bound to it (sorry, doesn't matter if you like me or not).

I don't buy the explanations from the NYSE and the NASD. Those regulators don't seem to have much problem attending far flung conferences at resorts where tennis and golf are in abundance. When the NYSE and NASD were under attack by the SEC and the United States Department of Justice, those SROs didn't seem to have any problem going out and hiring major law firms to help them prevail against the pending claims --- in some cases they even dragged their feet when it came to timely producing information. Of course, I've never heard those same SROs voice any objection about appearing at plaintiffs' bar seminars where the panels consider the mirror image: How to beat the BDs and their employees. Personally, I have no problem with the regulators speaking at such functions. Regulators are supposed to be referrees or umpires. They are supposed to call the game fairly, regardless of whether the industry or the public customer is ready to score. Similarly, while the regulators prime mission is to protect the public, I never thought that was supposed to come at the expense of fairplay. Or so I thought.

I don't know what irks me more. The sheer stupidity of a regulator not willing to appear at a defense bar seminar or the hypocriscy of the decision. I'm still trying to understand the alleged ethics of the decision. Did these high-minded folks fail to recall that the NASD is marketing the following seminar on June 20 and 21, 2005: NASD Nuts and Bolts Compliance Conference: Understanding Regulatory and Ethical Fundamentals . Let's see, my oh my, the NASD is charging nearly a $1,000 a person for the privilege of attending. You think that maybe the NASD will manage a tidy profit? They couldn't possibly have decided to withdraw from the ACI conference because it was being run about one month before theirs? Oops, look at what else I uncovered . . . on June 20th at 11:45 AM to 1 PM the NASD panel is entitled: Dealing Effectively with Customer Complaints. What do they mean "dealing effectively"? Shouldn't it be called Immediately Paying Any and All Customer Complaints Because That's What Regulators Believe You Must Do? Isn't there something anti-consumer about suggesting that the industry "deal" with customer complaints --- I mean, gee, that's like a gambling term for card players, no? I also notice that the NASD is promoting two "Networking Lunches." Is that really appropriate for an industry regulator? Isn't there a chance that participants at this conference will use the networking lunch as an opportunity to locate effective defense counsel or to exchange information on how to prevail against customer complaints?

I'm not attending the NASD's conference. I'm boycotting it. More importantly, does the NASD really think it's sensible to schedule such an important two-day training conference all the way off in New York City? I mean, can smaller BDs really afford the cost of such a trip for their staff? I mean, should a regulator be facilitating the absence of such folks for two full days when they could be back at the home office writing checks for the full amounts of every customer complaint?

Given that the industry is so disgusting and unsavory to the regulators, how about this for another ethical decision --- let's prevent any SEC or SRO employee from accepting any job with any broker dealer for three years after they leave the regulator. It seems to me as very unprincipled for a regulator to take all those valuable skills acquired on the job protecting the public and then using them on behalf of firms that, omigod!!!, might want to prevail against frivolous customer complaints. Maybe the SEC, NYSE, and NASD ought to sue those departing regulators for training fees, just like the practice on Wall Street. Now that's an inspired idea. Mayabe I'll ask ACI to run a program on ethical lapses in Wall Street regulation and invite the regulators to speak too.

The NASD's conference is somewhat aptly named: Nuts and Bolts Compliance Conference.. Nuts . . . indeed.