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NASD Considers Public Disclosure of Settlements : Securities: The change would affect agreements that customers and brokers reach outside of arbitration.

November 01, 1994|From Bloomberg Business News

WASHINGTON — The National Assn. of Securities Dealers announced Monday that it is considering disclosing to the public the settlements between brokers and their customers in securities arbitration cases.

The decision comes in response to pressure from the House subcommittee on telecommunications and finance, which has found shortcomings in the NASD's efforts to disclose brokers' disciplinary histories.

Currently, the NASD, a self-regulatory organization that oversees brokers and their employers, discloses awards made by arbitrators but doesn't tell the public about settlements that brokers and customers reach on their own.

The organization says disclosing such settlements could make brokerage firms less willing to settle. There may be business reasons to settle a dispute even when it isn't clear that a broker has done something wrong, the NASD says.

However, a week ago, the NASD's membership committee asked its regulatory subcommittee to review the NASD's disclosure policy. An Oct. 28 Securities and Exchange Commission staff memo says the SEC will continue to discuss the issue with the NASD while the organization performs its own review.

In a Sept. 28 letter to the General Accounting Office, Rep. Edward Markey (D-Mass.), chairman of the telecommunications and finance subcommittee, noted that the NASD's toll-free number set up for the public to receive disciplinary information on brokers failed to mention 13 financial settlements against Grand Rapids, Mich., broker Thomas Bandyk. Those settlements of arbitration complaints totaled almost $750,000.

"The Bandyk case is especially disturbing because of the large number of settled disputes and the amounts of money involved," said Jay Cummings, director of the membership department at the NASD.

The NASD staff is gathering information on the issue from the SEC and state securities regulators, said Jim O'Donnell, an executive vice president at the organization. The staff will present this information to the NASD's membership committee in January, he said.

Markey also found that the NASD records failed to mention that a federal court had granted a request by the SEC that Bandyk be permanently barred from further violations of federal securities laws. The NASD says it relies on the SEC to notify it of such actions. In this instance, the SEC said, a "technical defect" in the court's order caused a delay in the issuance of this notification.

The district court's action against Bandyk, which took place Aug. 1, was announced by the SEC on Monday, a full 91 days later. The SEC's complaint alleges that Bandyk conducted "excessive, unsuitable and unauthorized trading" in his customers' accounts while working as a broker for Prudential Bache Securities Inc. in 1989 and 1990.

The NASD's action follows the release in September of a GAO report that found shortcomings in regulators' efforts to detect and discipline stockbrokers who violate securities laws. The GAO concluded that the full number of unscrupulous brokers active in the securities industry is unknown because informal disciplinary actions aren't currently required to be reported and because there are flaws in the system used for reporting disciplinary actions regulators take.

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