IRVINE, Calif. — A federal judge last week ordered NASD and the
New York Stock Exchange to supply an initial batch of documents to a broker-dealer that sued to stop the proposed merger of the organizations’ regulatory units.
Judge Debra Freeman of the U.S. District Court for the Southern District of New York also suggested that the parties work out possible dates for depositions of NASD parties named in the suit, according to Richard Greenfield of Greenfield & Goodman LLC in Easton, Md., one of the attorneys who filed the claim.
Those parties are Mary Schapiro, chief executive of Washington-based NASD; NASD board member Richard Brueckner, chief executive of Pershing LLC of Jersey City, N.J.; and Barbara Sweeney, NASD’s corporate secretary.
The court hasn’t yet ordered depositions to be taken.
Standard Investment Chartered Inc. of Costa Mesa, Calif., filed the class action last month. The claim alleges that NASD’s proxy statement, which was sent to member firms encouraging them to vote for bylaw changes needed to complete the merger, was incomplete and misleading.
NASD firms voted to approve the changes in January.
The court’s order came in response to a Standard Investment Chartered request for expedited discovery.
In her order, Ms. Freeman said it wasn’t clear whether motions to dismiss the case would be successful. As a result, she said, Standard Investment Chartered would be “unfairly prejudiced” if it wasn’t allowed limited discovery for the purpose of seeking an injunction to stop the merger.
Ms. Freeman ordered the defendants to supply documents to Standard Investment Chartered by April 11, adding that the defendants “have not made any showing” that the company’s document requests are “unduly burdensome.”
But by press time late last week, Mr. Greenfield was complaining that the SROs’ lawyers were dragging their heels. In a letter to Ms. Freeman last Wednesday following a conference call with defense lawyers, he said that “defense counsel rejected our proposal” to limit discovery to documents in the possession of Ms. Schapiro and other officials.
Lawyers for the defense “indicated that they had not even begun reviewing the documents in the files of the individual defendants,” Mr. Greenfield said.
Standard Investment Chartered requested documents from NASD and the NYSE related to the
consolidation, including drafts of NASD’s proxy statement, communications with the Securities and Exchange Commission, and documents related to the financial terms and benefits of the deal.
Mr. Greenfield also told the court last week that the defendants “did not respond [to] or propose any dates” for depositions. He is seeking another conference with the judge.
Mr. Greenfield also has served
a subpoena on Georgeson Shareholder Communications Inc.
of New York, which is NASD’s proxy-solicitation firm, seeking documents.
“We will comply with any order the judge issues,” said NASD spokesman Herb Perone.
NASD’s lawyer, Douglas Cox of Los Angeles-based Gibson Dunn & Crutcher LLP, didn’t return phone calls seeking comment.
Douglas Henkin, a lawyer with Milbank Tweed Hadley & McCloy LLP in New York, who represents the NYSE, and NYSE spokesman Scott Peterson, both declined to comment.
Meanwhile, NASD’s proposed by-law changes were published for comment last week in the Federal Register. Comments are due to the SEC by April 16.
Girding for a fight
NASD and NYSE ast week file motions to dismiss the lawsuit.
They argued that as regulators, they are immune from lawsuits and that Standard Investment Chartered in any event must wait to see if the SEC approves the merger before taking legal action.
Mr. Greenfield said in an interview that if the merger is allowed to proceed, NASD members would be harmed irreparably.
The SEC’s approval process “doesn’t deal with all the issues in our complaint — not by a long shot,” he said.
“Nobody is opposing a deal,” Mr. Greenfield added.
Standard Investment Chartered and other NASD members are opposed to the proposed form of the merger, he said, which eliminates member firms’ existing right to nominate and vote for most board members.
Potential class plaintiffs also are concerned about “the economic circumstances surrounding the deal, which smelled to high heaven, and the whole way [the merger] was rammed through during the holiday period,” Mr. Greenfield said.
Those are all issues for the SEC to consider, NASD said in a court
filing.
Mr. Greenfield said he is getting help from “hundreds” of broker-dealers who are giving him information to support the case.
The suit has received “resounding support” among brokerage firms concerned about how the merger has been handled, said Richard Goble, president of the Financial Industry Association of Longwood, Fla., which has fought the merger as proposed.
