NASD Threatens Suit Over the Siedle Directory of Securities Dealers
The Siedle Directory of Securities Dealers, scheduled to be released in May, may never be published if the National Association of Securities Dealers has its way. At 10:12 p.m., Friday, February 22, 2002, we received a letter via facsimile from the NASD, the so-called "self-regulatory organization" representing brokerages, indicating that if we publish the Directory, "the NASD will pursue all legal remedies available to it." We were shocked to receive this letter because in July and August, 2001, we wrote several letters to the NASD and the SEC describing the Directory and inquiring whether they would oppose its publication.
On October 2, 2001, the NASD had responded that they would not object to the publication. Once we had collected all the data, written the book and were negotiating a publishing agreement, apparently the NASD changed its mind.
The two letters we received from the NASD, as well as a Wall Street Journal article describing the case, are available here: NASD October 2, 2001 Letter NASD February 22, 2002 Letter Wall Street Journal Article: A 'Tell All' Book On Brokers Gets NASD's Thumb
What in the Directory is so disturbing that it would lead the NASD to threaten litigation?
The Directory provides retail and institutional investors alike with critical information regarding the integrity of all brokerage firms registered with the National Association of Securities Dealers, Inc. We believe the information provided in the Directory will assist investors in their determination whether to conduct or continue to conduct business with an NASD member firm. For the general public, a review of brokerage firms prior to investing and on an ongoing basis, makes sound financial sense. For fiduciaries involved in brokerage decision-making, such as money managers, pensions, endowments and foundations, regular review of the brokerages they entrust with assets, is mandatory.
As of December, 2001, there are were approximately 5636 NASD member firms operating in the U.S. and 673,822 licensed brokers. Like banks in the past, today it is brokerage firms that are primarily responsible for handling the nation's wealth. Yet there is a dearth of information regarding these firms. The Directory was created to respond to the public's need for comprehensive information involving NASD member brokerage firms. The Directory provides investors with important publicly available data regarding certain criminal charges and convictions, regulatory actions, civil judicial actions, and certain financial actions, such as bankruptcies, unsatisfied judgements or liens. By providing this and other information pertaining to all NASD member firms in a single place, available for simultaneous viewing, investors are able to compare and contrast firms, as well as garner information about the industry generally.
Why would the NASD oppose publication of this Directory? The Directory serves a laudable public purpose of educating investors. Giving investors more information regarding brokerage firms can only be helpful. The core information in the Directory, the disciplinary histories of the nation's brokerages, is required to be disclosed to the public under the federal securities laws. No one owns this data, least of all the NASD. We certainly never sold the disciplinary data regarding this firm to the NASD, nor did any other brokerage firm. In addition to the disciplinary data, the Directory provides investors with an overview of the brokerage industry and a methodology for analyzing brokerages. The Directory will give investors far more information than the NASD's Public Disclosure Program.
In our opinion, the NASD's existing Public Disclosure Program is designed to keep investors largely in the dark about brokerage industry disciplinary norms. The NASD Program permits investors to only view information about one firm at a time. Furthermore, information regarding the largest brokerages is only provided via ordinary mail, too late for an investor to review prior to making an investment decision. There are many other questions involved with the NASD's Program that the NASD's staff is not trained to answer. In short, the Public Disclosure Program actually misleads investors into believing the risks related to doing business with brokerage firms are far less than they really are.
Who was the NASD speaking for when they threatened litigation against us? According to our analysis, the majority of the brokerage firms that are NASD members, such as this firm, have no adverse disciplinary disclosures. If the majority of NASD member firms have nothing to hide, how does the NASD know its membership opposes publication of the Directory? The NASD seems most concerned about exposure of those firms with the greatest disciplinary problems. We are not aware of any public benefit related to permitting these firms to hide their dirty laundry.
Should a self-regulatory organization be permitted to have the final word on what information about its membership is made public? We don't think so. Talk about letting the wolves guard the sheep! Self-regulation of institutions that handle the public's wealth is absurd. We don't let money managers regulate themselves. Are brokerages especially trustworthy and deserving of the right to self-regulate? We don't think so. The NASD should step aside and let those who are truly concerned about protecting investors get all the information about brokerages in the public's hands. By the way, what's the SEC, the government agency whose mandate is "the protection of investors" got to say about all this? Thus far, we haven't heard a peep.
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