August 10, 2007
Nancy M. Morris, Secretary
U.S. Securities and Exchange Commission
100 F Street NE
Washington, D.C. 20549-9303
Dear Ms Morris:
Having represented investors in arbitration since 1989, almost 20 years, I am cognizant of the decline in the intergrity of the “public arbitrator” pool. One of the major flaws in the NASD arbitration system is condoning conflicted public arbitrators, particularly where NASD rules require that a “non public” arbitrator serve on every three person arbitration panel. The prospect of having conflicted arbitrators with a bias effectively destroys the prospect of getting a fair hearing. Since the pool of “non-public” arbitrators includes all sorts of branch office managers and other salespersons with no understanding of industry compliance requirements, I strongly oppose the requirement of the industry arbitrator and, while the NASD proposed amendment to Rule 12100(u) is a step in the right direction, even that proposal falls short of resolving the conflicted public arbitrator problem.
The NASD proposal to amend Rule 12100(u) will disqualify as public arbitrators professionals who for the last two years receive industry fees in excess of $50,000 annually from matters involving investor accounts or transactions. The NASD proposal must be revised in the interest of investor protection to apply the disqualification regardless of the nature of the industry engagement. One who receives substantial fees from the securities industry should not serve as a public arbitrator regardless of the nature of the work performed. It is the receipt of fees from the securities industry that creates the conflict and the appearance of bias.
The difficulty in auditing the receipt of these fees as defense fees is an added reason that this proposal will not serve as the proper deterrent to prevent improper arbitrator classifications. I am confident that zero tolerance for monetary conflicts is the proper solution to assure public arbitrators truly represent the public interest.
Law Offices of Howard Rosenfield