NASD arbitration solution : five black-belt principles to protect and grow your financial services practice

316 Pages·2007·1.58 MB·English

by  Thomas J Hine

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NASD ARBITRATION
SOLUTION:
FIVE BLACK-BELT PRINCIPLES
TO PROTECT AND GROW
YOUR FINANCIAL
SERVICES PRACTICE
Thomas J. Hine, CFP®, CFS, MBA,
and
John K. Brubaker
John Wiley & Sons, Inc.
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Copyright © 2007 by Thomas J. Hine and John K. Brubaker. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Hine, Thomas J. 1961-
NASD arbitration solution : five black belt principles to protect and grow
your financial services practice / Thomas J. Hine and John K. Brubaker.
p. cm.
Includes bibliographical references.
ISBN 978-0-470-12632-5 (cloth)
1. National Association of Securities Dealers. 2. Securities—United
States. 3. Arbitration and award—United States. I. Brubaker, John K.,
1953- II. Title.
KF1070.H56 2007
346.73'09220269--dc22
2007007065
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Why I Wrote This Book vii
Acknowledgments xi
Introduction xv
Part One My NASD Arbitration from Start to Finish
Chapter 1 Sweating Bullets 3
Chapter 2 24:The Day That Almost Never Ended 25
Chapter 3 Expert Witness Unmasked:An Offer to Settle—
I Finally Get to Testify 53
Chapter 4 Cross-Examination—It Was War 81
Chapter 5 Closing Arguments—And a Decision 105
Part Two Five Black-Belt Principles to Protect and
Grow Your Financial Services Practice
Chapter 6 The Cycle of Life 131
Chapter 7 To Protect and Grow 141
Chapter 8 Humility:The White-Belt Attitude 147
Chapter 9 Integrity:Look in the Mirror 157
Chapter 10 Duality:Yin and Yang 165
Chapter 11 Awareness:The Third Eye 177
Chapter 12 Dedication:Kaizen 189
v
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vi CONTENTS
Part Three How to Prevail in an NASD
Arbitration Hearing
Chapter 13 What’s the Cost? 199
Chapter 14 Case Studies 207
Chapter 15 The Lawyer’s Perspective:How to Prepare
and Try an NASD Arbitration Case—
by James W.Weller,Esq. 219
Chapter 16 How to Prepare for NASD Arbitration 251
Chapter 17 Preparing to Testify and Managing Your
Case to Conclusion 267
Appendices
Appendix A NASD Arbitration Case Flow 283
Appendix B NASD Arbitration Trends 291
Appendix C Errors-and-Omissions Insurance 295
Appendix D Technology Tools 299
Index 303
About the Authors 309
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WHY I WROTE THIS BOOK
A
fter more than 10 years as a registered representative, with-
out warning, in September 2002, I became the subject of an
investor complaint to the NASD. Over the following 21 months,
I went through an NASD arbitration to resolve this dispute. It
was one of the most powerful experiences of my professional
life. The story of the dispute and its resolution is described in de-
tail in Part One.
After my NASD process was completed, I went to work
strengthening my practice, based on the knowledge I had
gained. I learned that many reps who have been through NASD
arbitration used their experience in a similar, positive manner. I
began sharing some of my experiences with fellow registered
representatives and found that they were fascinated by many of
the details I shared about the process. I started to realize that
NASD arbitration is, to a great extent, shrouded in mystery for
many reps. Those who go through it are reluctant to discuss it,
preferring to put the experience behind them and move on.
I accepted some speaking opportunities and spoke about it
some more, to increasingly enthusiastic response. It was clear
that this topic hit a chord with many reps. In the summer of 2004,
I gave an address at a national broker-dealer convention on
NASD compliance, sharing what I had learned from my experi-
ence. The response was fantastic. At least a dozen people told me
that it was the best talk they had ever heard on the subject. After
some more thought, I decided to try and write a book.
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viii Why I Wrote This Book
This was a dilemma for me, as I did not possess the writing
background, knowledge of the publishing industry, or time nec-
essary. I began to tap into my network to see if I could find a col-
laborator. I was fortunate to be introduced to John Brubaker,
who became my co-author.
To the best of my knowledge, this represents the first time that
an entire NASD arbitration process has been described in print
at this level of detail by a registered representative. I made the
decision to subject myself to this level of scrutiny because I
strongly believe that the information the story contains will be of
use to my fellow registered representatives, as well as to anyone
who has interest in the securities industry.
Despite the fact that NASD arbitration can become a career-
defining event, many reps are woefully ignorant about how
the system actually works. As part of the work on this book, we
interviewed a number of reps who have been through the
process. One constant refrain was the lack of solid, clear, and
helpful information by which the rep can guide him- or herself
through the process. By providing this never-before-seen
glimpse into NASD arbitration, we offer a teaching tool to any-
one who is interested.
No system of dispute resolution will be perfect. My experi-
ence has taught me that balance is necessary. There must be a
forum so that investors who are the victims of the unethical or
prohibited business practices of registered representatives can
have their claims examined, and can receive compensation for
provable economic loss. Registered representatives who them-
selves are the victim of baseless charges should not have their ca-
reers damaged. The current system lacks a clear method for
filtering out those claims with merit from those that do not. This
book is aimed at providing the registered representative with
certain tools to help defend against those claims that he or she
believes are unfounded.
I look to the future in the hopes that the current system can
evolve into one that provides investors with the forum they de-
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Why I Wrote This Book ix
serve, but minimizes the involvement of registered representa-
tives who are not guilty of improper business practices.
The overwhelming majority of reps are hardworking, dedi-
cated, and ethical. Increased attention to client service, through
portfolio reviews, constant communication, and a high level of
documentation, benefits everyone. If registered representatives
who read this book come away with a better knowledge of
NASD arbitration, and an increased motivation to continuously
improve their financial services practices, this book will have
accomplished its objective. The end result would be a small
contribution toward improving the quality of the securities in-
dustry and a mutual benefit for the investor client and registered
representative.
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ACKNOWLEDGMENTS
T
his book was made possible by the contributions of many
people. We want to thank, first and foremost, our families—
immediate and extended. They represent all that is truly impor-
tant in the world, and their support is sustaining and inspiring.
We owe a great deal to Debra Englander, our editor. To work
with an executive editor of the preeminent publisher of business
books in the world is a dream come true for any aspiring author.
She can say more in two sentences than most people do in 20
pages. Our thanks to Greg Friedman and all the fine people at
John Wiley & Sons, Inc. We are honored and thrilled to be part of
the company’s 200th year in business.
To refer to Don Gastwirth as merely our “literary agent” is a
bit of a misnomer. He is so much more than that. Don’s willing-
ness to represent the project at its inception gave us the impetus
to prepare the proposal. It was on Don’s recommendation that
we made John Wiley & Sons, Inc. our first, and hopefully, only
choice to publish this book. Thanks to his effective advocacy, this
dream came to pass. Don is a brilliant strategist, skilled attorney,
shadow editor, irrepressible kibitzer, needed humorist, motiva-
tor of the best within us, and treasured friend.
Chris Gryzen, a compliance professional, was incredibly help-
ful in many aspects of this work. He provided us with great re-
search and valuable insight, often on short notice. He was a
delight to work with in every way. Bill Thomas did a wonderful
job in creating the initial cycle. Kim Riendeau took that and our
xi
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xii Acknowledgments
ideas and created the “Protect and Grow” logo, a perfect graphi-
cal representation of what was in our minds.
We want to thank all of the people whom we have trained
with in the martial arts over the years. Tom owes the deepest re-
spect and gratitude to Sensei Robert Jacobs, who is Tom’s in-
structor, and Master M. Mori, who is instructor to both of them.
Tom is grateful for Master Mori’s true commitment to the spirit
of karate-do. John is forever grateful for the wisdom, encourage-
ment, and living example of Master Michael Romano and
Grandmaster Ho Soo Hwang, who were John’s master and
grandmaster.
Tom would like to thank Ron Carson, Steve Sanduski, and Lee
Brower, who have been a positive influence through their coach-
ing programs. He would also like to thank Khouree Gale-Lemay,
Kristy Klein, and the rest of his staff at Capital Wealth Manage-
ment, LLC. David Spinar, the chief compliance officer of Securi-
ties America, provided valuable insight.
The authors would like to thank Gail Lebert, who introduced
them to each other, and to Chris Brubaker, who provided a
serene and supporting setting in Tampa, Florida, where the core
of the book concept and proposal was drafted. John would like
to thank John Bermon, Faith Manierre, Christine Pallotti, David
Roncari, and Jim Sullivan for their invaluable coaching and men-
toring.
Jim Weller, Esq., and Joan Herman of Nixon, Peabody, LLP,
played a prominent role in the events described in Part One, and
Jim did a great chapter in Part Three. Both were extremely help-
ful throughout the process of writing the manuscript, in a num-
ber of ways. Peter Evans of Rogin Nassau was especially helpful
in Part Three, and gave additional perspective that helped com-
plement Jim Weller’s material.
Anumber of people read various drafts of the manuscript and
gave us extremely helpful feedback. These include Beatrice Abi-
gail, Mark Blake, Fritz Brauner, Eric Brubaker, Jason Brubaker,
Carolyn Hine, John L. Carlson, Camille Gagliardi, Margaret
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Acknowledgments xiii
(Peg) Hine, John Horan, Jeff Lang, Scott LeClaire, Rochana
Norby, Don Patrick, JoAnne Riley, and Mallory Selfridge. Mitch
Zuckoff was tremendously helpful with his insights on our orig-
inal book proposal, as well as sharing his publishing experience.
If there is value in this book, these people share the credit. Any
mistakes are our own.
Thomas J. Hine
John K. Brubaker