by Bill Singer, Esq.

In recent years Wall Street has been blamed for virtually everything wrong about America. When the economy was booming, industry professionals were punks and con artists. Now that the economy is cooling off, the private and public sector expects those same maligned individuals to come to the rescue --- to raise the desperately needed cash, to sell the unsellable IPOs. Oh, and too bad that Schwab isn't paying for a full week or that Merrill is planning on layoffs.

Now, to add insult to injury, the NASD has apparently decided that it will force associated persons to fly at their own expense to whatever district office the Staff deems appropriate. Never mind that you haven't been charged with any wrongdoing. Never mind that you're out of work and short on cash. Never mind that you haven't worked at your former employer for two years. Show up or the NASD will bar you from the industry. Oh, and by the way, there's no appeal and no independent arbiter.

Read Singer Frumento LLP's Regulatory Partner Bill Singer's Application to the SEC. And when you're done, please contact the NASD and SEC with your thoughts. You may be next.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 IN THE MATTER OF THE APPLICATION OF JOHN DOE [NAME DELETED]

 APPLICATION FOR REVIEW
 of
 NASD  Demand that Applicant Travel to Remote Venue for Purposes of Giving an On-the-Record Interview
--- AND ---
APPLICATION FOR STAY
of 
NASD On-the-Record Interview 

January 25, 2001

Mr. JOHN DOE [NAME DELETED] ("Applicant" or "Mr. JOHN DOE [NAME DELETED]") by his attorneys, Singer Frumento LLP, states as follows: 

SUMMARY

Applicant has been demanded pursuant to National Association of Securities Dealers, Inc. ("NASD") Complaints, Investigations and Sanctions Rule 8210 ("Rule 8210") to appear on February 15, 2001 at the NASD's District Office in Atlanta, Georgia and give testimony during an on-the-record interview ("OTR"). Said NASD Atlanta office is approximately 900 miles from Applicant's present residence in New York. The conduct at issue occurred approximately two-years ago at a prior employer and Applicant's tenure was spent solely at a branch office in Westchester County, New York. The Atlanta office's District Director has issued a final decision denying Applicant's request for a change of venue. The NASD has no provisions for reimbursement of Applicant's round-trip travel or reasonable per diem. Further, there are no NASD procedures providing for an appeal of the arbitrary choice of venue; and, as a consequence, there are no available administrative remedies to exhaust. 

Accordingly, Applicant requests that the Commission review his application on an expedited basis and immediately stay the presently ordered February 15, 2001 OTR. Applicant reiterates his willingness to submit at his own expense to said interview at the NASD's District Office in New York without any conditions or to submit to the interview at the NASD's District Office in Georgia upon receipt of those travel and per diem fees customarily afforded to similarly situated participants in civil proceedings in the United States of America. 

NASDR Request for Document Production 

1. By letter dated December 12, 2000, ("First NASDR Letter") the National Association of Securities Dealers Regulation, Inc. ("NASDR") District #7 ("Atlanta Office") notified Mr. JOHN DOE [NAME DELETED] that the NASDR was conducting an examination of his former employer, XYZ [NAME DELETED] ("XYZ [NAME DELETED] ")." 

2. Mr. JOHN DOE [NAME DELETED] did not receive the First NASDR Letter until December 19, the Tuesday before Christmas. This delay was likely engendered by the NASDR Staff's decision to send the notice by Certified Mail during the Holiday Season. 

3. The First NASDR Letter stated that NASDR had reviewed conversations of Mr. JOHN DOE [NAME DELETED] allegedly tape-recorded by XYZ [NAME DELETED] two years earlier, from February 9, 1999 through February 17, 1999. 

4. The First NASDR Letter demanded pursuant to NASD Rule 8210 that Mr. JOHN DOE [NAME DELETED] provide by January 2, 2001, the day after New Year's Day, "detailed written response[s]" to five specified concerns. Such concerns purportedly related to alleged comments by Mr. JOHN DOE [NAME DELETED] on the tape recordings, but the NASDR Staff declined to provide him with either copies of the tapes or full transcripts. 

5. The First NASDR Letter effectively provided Mr. JOHN DOE [NAME DELETED] with eight business days during the Holiday Season to: a) locate and retain legal counsel, b) to consult with counsel, and c) to prepare and submit responses to the NASDR's demands. 

Applicant Responds Fully and One-Week Early 

6. Nevertheless, by letter dated December 26, 2000 ("First JOHN DOE [NAME DELETED] Letter"), Mr. JOHN DOE [NAME DELETED] responded in full to the demands contained within the First NASDR Letter --- nearly one week prior to the due date. NASDR Demands Atlanta Venue for Two-Day OTR Interview 

7. Following receipt of Mr. JOHN DOE [NAME DELETED]'s submission, the Staff and this law firm engaged in telephone discussions during which the Staff indicated its intention to conduct at least a two-day on-the-record interview ("OTR") within six to eight weeks at the Atlanta Office. Mr. JOHN DOE [NAME DELETED] promptly agreed to be available for testimony on several dates in January and February amenable to the Staff, and the Staff ultimately selected the period of February 15-16, 2001. However, Mr. JOHN DOE's objections to the Staff's arbitrary selection of the OTR's venue at the Atlanta Office were clearly conveyed. 

JOHN DOE [NAME DELETED]'s Objection to Venue in Atlanta 

8. According to the records maintained by the Central Registration Depository system, Mr. JOHN DOE [NAME DELETED] was employed from May 26, 1998 through March 29, 1999 solely at XYZ [NAME DELETED]'s New York office in Westchester County. Mr. JOHN DOE [NAME DELETED], a New York resident, is presently employed full-time in New Jersey. Mr. JOHN DOE [NAME DELETED] was never employed during the relevant time period in Atlanta and none of the conduct at issue occurred in Atlanta. 

9. Subsequently, by letter dated January 8, 2001 (Second JOHN DOE [NAME DELETED] Letter attached hereto as Exhibit "A") this law firm advised the NASDR that "it is unfair for the Staff to require that Mr. JOHN DOE [NAME DELETED] incur the expense for himself and counsel to travel to the Atlanta Office," and respectfully requested that the OTR be conducted at the NASDR's District #10 office in New York City's lower Manhattan ("New York Office"). Additionally, the NASDR was requested to "…indicate in writing the appeal process available to our client to respond in a formal manner to denial for change of venue." 

10. By letter dated January 11, 2001 ("Third JOHN DOE [NAME DELETED] Letter" attached hereto as Exhibit "B"), we reiterated our venue objection and request for a written delineation of any available administrative appeal process. 

11. In the Staff's letter dated January 9, 2001 ("Second NASDR Letter" attached hereto as Exhibit "C"), received by this law firm on January 12th, the NASDR scheduled an OTR in the Atlanta Office for two days, February 15 and 16, each day's examination to begin at 9:00 a.m. The NASDR ignored the objection and request noted above in paragraphs 9 and 10 respectively. 

12. By letter dated January 16, 2001 ("Fourth JOHN DOE [NAME DELETED] Letter" attached hereto as Exhibit "D") this law firm continued to seek the NASDR's responses to our venue objection and request for delineation of any available administrative appeal process. 

13. Subsequent to the transmission of the Fourth JOHN DOE [NAME DELETED] Letter, the Staff informed us during a telephone conversation that the Atlanta Office District Director Alan Wolper ("Director Wolper") would likely deny Mr. JOHN DOE [NAME DELETED]'s request for a change of the OTR venue. 

14. Following that conversation, we telephoned the NASD's Office of the Ombudsman and requested advice on possible avenues of appeal regarding our venue objection. The Office of the Ombudsman recommended that we contact Director Wolper directly. 

15. By letter dated January 16, 2001 ("Fifth JOHN DOE [NAME DELETED] Letter" attached hereto as Exhibit "E"), this law firm wrote directly to Director Wolper and objected to the Atlanta Office venue for the OTR. Specifically, we noted that Mr. JOHN DOE [NAME DELETED] and counsel would need to arise at approximately 4 a.m. on the morning of February 15, 2001in order to timely arrive at the Atlanta Office for the 9:00 a.m. interview. Either the NASDR is indifferent to the debilitating impact such a schedule will likely have on Mr. JOHN DOE [NAME DELETED]'s mental acuity during the OTR, or the Staff is calculating on just such a deleterious effect. The alternative to those travel arrangements would be for Mr. JOHN DOE and counsel to depart the prior day, thus incurring additional lodging and per diem costs. We reiterated Mr. JOHN DOE [NAME DELETED]'s willingness to be interrogated through some viable alternate means, e.g. via teleconference or videoconference from the New York Office --- or directly by the Atlanta Office NASDR Staff in New York. 

NASDR Director Cites Uneven Sound Reproduction and Need for Tape Recorder 

16. By letter dated January 17, 2001 ("Third NASDR Letter" attached hereto as Exhibit "F") and transmitted to this law firm by facsimile and first class mail, Director Wolper advised that the Staff intended: to play Mr. JOHN DOE [NAME DELETED] excerpts from the tapes of his telephone conversations with existing and prospective clients. Unfortunately, the equipment utilized by your client's former employer to record those conversations was something less than "high-fidelity," so the sound reproduction is uneven. Given that fact, I believe the only suitable setting for the interview is face-to-face. 

17. Director Wolper states in the Third NASDR Letter that the decision to conduct the OTR in Atlanta is solely based upon one fact; namely, that the tapes can only be played face-to-face. He then concludes that the only suitable venue for that face-to-face is the Atlanta office because there will be "three Staff members involved in the interview, who would otherwise have to travel to New York, along with the necessary equipment to play the tapes." 

18. There is no explanation as to why all three members must travel to the New York Office (as opposed to one traveling and the other two participating via tele- or video-conference). There is no assertion that Mr. JOHN DOE has engaged in any conduct that establishes legally cognizable contacts with the Atlanta Office, and that such conduct served as the basis for selecting venue. And there is no assertion that the NASDR has even considered the fairness of the venue from Mr. JOHN DOE's perspective. 

19. Although Director Wolper volunteered to limit the OTR to a single day to begin at 10 a.m., he cautioned that such meant an "increased possibility of the interview running later into the afternoon. . ." Notably, there is no representation that Mr. JOHN DOE will not be subjected to additional OTRs at the Atlanta Office (or other remote offices). 

20. On January 17, 2001, upon receipt of the Third NASDR Letter, this law firm faxed a response to Director Wolper ("Sixth JOHN DOE [NAME DELETED] Letter" attached hereto as Exhibit "G") wherein we specifically called the Director's attention to our prior requests for a written explanation of the appeal process available to our client concerning venue. 

NASDR Director's Determination "Final" and He Suggests Using Disciplinary Process for Appeal 

21. By facsimile transmission dated January 18, 2001, ("Fourth NASDR Letter attached hereto as Exhibit "H"), Director Wolper stated "our determination to set the venue for the interview in Atlanta is final." 

22. Additionally, Director Wolper stated that while I am unaware of any process available to your client to appeal this determination on an immediate basis that does not necessarily mean he is without any potential remedy. 

23. Director Wolper's suggested remedy is for Mr. JOHN DOE [NAME DELETED] to refuse to appear at the OTR, thus prompting NASDR "to bring a formal proceeding against him." Director Wolper further notes that if the District staff prevailed [at the Hearing], your client would potentially be facing a very severe sanction, i.e., he would be suspended indefinitely until he complied with the 8210 request. 

24. It is respectfully submitted that Director Wolper's proposal is not a meaningful avenue of administrative appeal. Rather it is a threat to resort to disciplinary action. In effect, Director Wolper is counseling Mr. JOHN DOE to engage in an act of civil disobedience as a means of exhausting his administrative remedies. Such an alternative is shocking to any traditional notion of fairplay. 

NASD Rules Lack Administrative Procedures by Which to Challenge Staff's Selection of OTR Venue 

25. Director Wolper's denial of Mr. JOHN DOE's request for a change of the OTR venue constitutes a final ruling (both in deed and by Director Wolper's own words that "our determination to set the venue for the interview in Atlanta is final." (See paragraph 21). Further, as Director Wolper concedes there is no known "process available to your client to appeal this determination on an immediate basis. . ." (See paragraph 22). Consequently, the administrative ruling is final and there are no administrative remedies within the NASD. 

26. The finality of the District Director's decision and the lack of an available administrative remedy are crucial for purposes of this application. This is not a case involving a non-final determination subject to further administrative remedies. Director Wolper has resolved that issue beyond dispute. "…there is no known process available to your client to appeal this determination on an immediate basis. . ." See paragraph 22. 

A Case of First Impression 

27. As such, this may well be a case of first impression before the Commission, one in which there is an admitted final determination and an admitted absence of any administrative remedy. Consequently there is no issue as to the need to first exhaust one's administrative remedies because the NASDR has admitted there are none! 

28. Section 15A(g)(3)(C) of the Securities Exchange Act of 1934 (the "34 Act") specifically permits the NASD to bar any person if they do not agree "to supply the association with such information with respect to its relationship and dealings with the member as may be specified in the rules . . .." However, Section 15A(7) of the '34 Act provides that the NASD's members "be appropriately disciplined," and Section 15A(8) of the Securities Exchange Act of 1934 requires that the NASD's rules "provide a fair procedure for the disciplining of members and persons associated . . ." It seems a compelling conclusion that when a registered person's only administrative remedy is to engage in an act of civil disobedience, then such does not comport with the obligations of either "appropriate" discipline or of a "fair procedure." 

29. By way of analogy, civil subpoenas are not self-enforcing. When a dispute arises as to a subpoena, the party demanding production or testimony is generally required to compel compliance through the courts, or alternatively, the subpoenaed party can petition the Court to quash the process. If such judicial intervention is needed, the subpoenaed party is entitled to raise the burden and inconvenience of submission, including objections to venue. In response to such objections, courts will frequently examine the due process aspects of the choice of venue for the production and/or appearance, and have the authority to modify the scope of the subpoena as well as the venue of any demanded testimony. 

30. Equally important for purposes of this application is that even in the case of Commission subpoenas requiring the witness to travel (generally in excess of 100 miles from their residence), the Commission is required to offer payment at the same fee and mileage rates that are paid to witnesses in other civil matters. In fact, the Commission routinely pre-pays such expenses or provides witnesses with a form for obtaining such reimbursement. Although, arguendo¸ Mr. JOHN DOE would concede that certain de minimus travel requirements might reasonably preclude the necessity for reimbursement (e.g. within 100 miles of residence), in Mr. JOHN DOE [NAME DELETED]'s case he is being asked to travel nearly 900 miles from his present state of residence to the Atlanta Office. 

31. Regrettably, the NASD seeks the worst of both worlds. The SRO's rules offer no administrative remedies for bona fide challenges to the venue of OTRs, nor are there any provisions for reimbursing witnesses in accordance with existing civil and criminal procedure. NASD associated persons such as Mr. JOHN DOE [NAME DELETED] are commanded to appear at whatever venue the NASDR deems appropriate and such witnesses are expected to finance the full cost of such travel and possible lodging. 

32. Hundreds of thousands of associated persons registered with NASD member firms often conduct their businesses at locations far flung from the District that is charged with over-seeing the member's principal place of business. As such, it often poses an insurmountable obstacle for a registered person who has spent her entire tenure at XYZ's San Francisco branch office to now solely bear the expense of traveling (with attorney) to the NASDR's Atlanta Office, which has oversight of XYZ's principal place of business in Miami. This burden is especially onerous when the witness has not been employed at the member firm for an extended period of time and is presently situated in yet another remote jurisdiction. And with the growing globalization of our stock markets, this issue will take on even more dramatic proportions 

33. Mr. JOHN DOE [NAME DELETED] seeks a fair consideration of the merits of his objection to the OTR's venue. He does not impose any conditions upon the conduct of that OTR. He merely argues that he had no substantive contacts with Atlanta and the OTR imposed an onerous travel schedule upon him. Mr. JOHN DOE believed that the NASDR had two equitable choices. One, select a venue where his conduct at issue occurred. Two, provide him with reasonable reimbursement for the cost of his travel and attendant per diem expenses. The NASDR has rejected both of these reasonable alternatives. 

34. The obligation to provide reasonable reimbursement under specific circumstances has a salutary effect upon regulation, as it does in civil and criminal litigation. When faced with the costs attendant to the subpoenaing of a remote witness, parties naturally engage in a cost-benefits analysis. Such contemplation often results in a determination to conduct an interview or deposition closer to the witness' home. Conversely, given the budgetary limitations imposed upon all institutions and individuals, greater care is exercised when there is some financial consequence to hauling the JOHN DOEs of the world from one locale to another. 

35. Quite clearly there has been no consideration of fairness to Mr. JOHN DOE [NAME DELETED]. The NASD's determination is solely premised upon the need for quality sound reproduction and the inconvenience and cost to the NASDR. Mr. JOHN DOE disagrees that the cost of transporting three NASDR examiners to the New York Office is a sufficient consideration to outweigh his due process rights. Clearly, Director Wolper has not advanced any explanation as to why the NASDR could not simply send one Staff member to the New York Office and have the other two participate through teleconference or videoconference. Similarly, Mr. JOHN DOE questions Director Wolper's additional claim that the Staff can not reasonably travel to the New York Office because it needs to transport equipment to play the tapes. Certainly, all commercial carriers provide overhead luggage compartments and check-in luggage facilities. Further, in the Gotham that is New York City there must be a tape recorder of the requisite type and quality available for use or rental within the confines of the island of Manhattan. 

36. The Commission, on occasion, has processed applications for review where the agency's jurisdiction to consider the application is not clear, including, for example, instances where the normal administrative process at the NASDR has not yet been exhausted. See, e.g., letter of Margaret H. McFarland to Bill T. Singer, dated March 31, 1995, and letter of Margaret H. McFarland to David M. Lewis, dated October 25, 1993; See also In the Matter of Domestic Securities (April 26, 1995), wherein the Commission issued an Order requiring preliminary briefing, and wherein the Commission stated that the existence of a "futility exception" to the exhaustion of administrative remedies requirement is an "open question." 

37. Mr. JOHN DOE [NAME DELETED]'s application alleges that there are no administrative remedies for him to exhaust. As such, although the Commission might characterize this application as citing a "futility exception," in fact, the circumstances presented here are beyond futile. Consequently, Mr. JOHN DOE [NAME DELETED] is absolutely unable to cure the NASDR's improprieties through the usual appeal process. 

WHEREFORE, JOHN DOE [NAME DELETED] respectfully submits for the Commission's consideration that the NASD's procedures (or lack thereof) for addressing the venue issues detailed herein in paragraphs 1 -37 do not constitute the appropriate disciplining of an associated person and are not tantamount to the requisite fair procedure. Further, such deficient procedures when coupled with the NASDR's policy of not providing customary and reasonable reimbursement of travel and attendant per diem expenses incurred by associated persons subject to NASD Rule 8210 OTR demands, elevates such practices to a violation of an individual's due process rights. 

WHEREFORE, JOHN DOE [NAME DELETED] further respectfully requests the Commission stay any attempt to demand Mr. JOHN DOE [NAME DELETED]'s compliance with the present Rule 8210 for an OTR in any District Office other than that in New York City; or, in the alternative, issue an Order directing the NASDR to reimburse Mr. JOHN DOE for the travel and attendant per diem expenses incurred by him. 

WHEREFORE, JOHN DOE [NAME DELETED] further respectfully requests that under the extreme circumstances detailed above that the Commission provide expedited consideration of this application for review of the NASD's lack of procedures. Should the Commission not act prior to the presently scheduled OTR, such action could be viewed as a lack of a meaningful administrative remedy and necessitate application to a court of appropriate jurisdiction. 

Dated: New York, New York January 25, 2001 

Bill T. Singer, Esq., Partner S
Sheryl Anne Zuckerman, Esq. 
John Fahey, Esq. 
Singer Frumento LLP 40 Exchange Place; 20th Floor New York, NY 10005 212-809-8550

Shocked by what you've just read?  Want to express your opinion?  

To send a prefabricated petition highlight the following Petition and enter Control and C [or hit Copy icon].  Click on the links below and place cursor in Message field of NASD/NASDR e-mail.  Enter Control and V [or hit Paste icon].  Then hit the Send bar on the NASD/NASDR e-mail.

PETITION TO REFORM NASD RULE 8210

I have recently read an article in the Securities Industry CommentatorTM entitled "Outer Limits" at the NASD: We Control the Vertical, Horizontal, Time and Place!http://www.singerfru.com/SIC/2001/q1/NASDOTR.htm .  I wish to voice my support for efforts to reform NASD Rule 8210, which does not ensure the rights of over 500,000 registered persons.  As demonstrated in the above article, associated persons are not afforded fair consideration when the NASD Staff arbitrarily determines the date and place of on-the-record interviews.  Worse, there are no fair procedures by which appeals from such associated persons concerning the time and place of OTRs are processed.

Consequently, I urge NASD/NASDR to reform its policies and to protect the due process rights of the more than one-half million registered persons who constitute this industry.  At a minimum, following the Staff's selection of an OTR location and time, associated persons should be permitted a reasonable period of time to suggest alternative locations and times, and to have such requests impartially reviewed.  Further, there should be a protocol that provides for the conduct of OTRs (if an associated person so requests) at a location within 100 miles of

1. the location of the branch office where they were employed during the relevant times;

2. their present residence; or

3. their present place of employment.

Contact:

NASD General E-Mail Feedback: http://www.nasd.com/feedback.html

NASD Member Comment:
mailto:member.comment@nasd.com

NASD Regulation Office of the President:
mailto:waltere@nasd.com

Or Contact
NASD President Robert Glauber 
NASDR President Mary Schapiro
at

1735 K Street, NW
Washington, DC 20006-1500
Telephone: (202) 728-8000
Inquiries: (301) 590-6500
FAX: (202) 293-6260

1801 K Street, NW
Washington, DC 20006
Telephone: (301) 590-6500