The fate of a lawsuit brought by two brokerage firms against NASD over its 2007 merger with the
New York Stock Exchange’s regulatory unit could be decided this month.
Judge Jed Rakoff of the U.S. District Court for the Southern District of New York has told the parties that he hopes to decide by the end of this month whether the suit against NASD can continue.
NASD is now the
Financial Industry Regulatory Authority Inc.
A key issue in the suit is whether Finra executives, including then-NASD chief Mary Schapiro, misled brokerage-firm members by claiming that $35,000 was the most that could be made to member firms.
Finra insisted at the time that the
Internal Revenue Service wouldn’t allow a higher payment because of the regulator's tax-exempt status. Ms. Schapiro is now chairman of the Securities and Exchange Commission
In March 2007, two months after member firms voted for bylaw changes that allowed the merger to go forward, Finra received an IRS opinion letter regarding the payout.
The letter, which was produced during the litigation, gave a range of permissible payments that Finra could make. The dollar amounts, however, have been redacted by the court.
Finra is fighting attempts by several news organizations to obtain the full IRS letter.
Mr. Rakoff plans to rule on whether to release the IRS letter by Feb. 15.
In a December court hearing, Jonathan Cuneo, founding member of Cuneo Gilbert & LaDuca LLP, who represents the plaintiff firms, claimed that NASD member firms could have received something like an additional $35,000 to $76,000.
He cited the IRS letter for those figures.
Mr. Cuneo declined to comment further.
“There is no way to know how those numbers were created, and they are inaccurate,” Finra spokesman Herb Perone said in a statement. He declined to comment further.
The original case against NASD was filed by Standard Investment Chartered Inc. in May 2007. In December 2008, Benchmark Financial Services Inc. filed a similar case.
The suits, which had been consolidated, also name a number of NASD executives, including Ms. Schapiro.
Meanwhile, some Finra critics wonder why the regulator removed records from its website related to the merger, including references to the $35,000 payment.
Some suspect that Finra might be trying to bury embarrassing documents.
The removal of merger-related information was “most likely about the lawsuits” that Finra faces, said John Busacca, owner of the Broker Dealer Exchange LLC, a longtime Finra critic and one of the founders of the Securities Industry Professional Association, which represents firms and registered representatives.
Mr. Perone said that the merger-related web pages were taken down in July 2007, when the two organizations were being consolidated and the new Finra website was being readied.
A search at archive.org, which catalogs historic websites, shows that the NASD web pages at the old nasd.com site were removed in August 2007.
The original documents and records are still available through archive.org, by searching for nasd.com on the “waybackmachine” function.
