July 17, 2006
I submit this comment on the NASD's proposed Subpoena rule. My comments to the original proposal are already posted.
I write to relate an incident in a recent arbitration.
We represented a client who had an account with a young Merrill Lynch broker. The Merrill broker's father was also our client's accountant.
Four weeks before the hearing, Merrill's attorneys sent an attorney-signed discovery subpoena to the accountant/father seeking our client's personal financial records.
We objected immediately, writing to both Merrill's attorneyys and to the accountant. Nevertheless,
within 24 hours, the accountant - in obvious collusion with Merrill - turned over 343 pages of the client's documents without ever ever speaking to his/our client. The subpoena, returnable in the Merrill Lynch lawyer's office, was not "returnable" for another 2 weeks.
We protested to Merrill's attorneys, who responded by asserting, without authority, that they disagreed with our "interpretation" of the law, and that, since they already had the documents, it was too late.
Having fought this battle with Merrill in several different courts and arbitrations (and having always won), we retained George F. Pratt, retired Judge of the 2d Circuit Court of Appeals, to testify in the (Florida) arbitration as to the impropriety of the subpoena. He testified that the subpoena was indeed improper under federal law (Merrill having already litigated and lost that issue in federal court) and it was improper under NY law (Merrill having already litigated and lost that issue in NY state court). A transcript of Judge Pratt's testimony is attached.
We also showed the arbitrators a letter these same Merrill attorneys sent to a NY investor-attorney on behalf of Merrill in 2003 rejecting his (identical) subpoena. It is clear that Merrill seeks to have it both ways.
Merrill first objected to Judge Pratt's testimony. They then tried to dismiss the issue as a waste of time, even as they prepared to use the illegally-obtained records. They then tried to fool the arbitrators (2 of whom were not lawyers) into believing that the subpoena was valid under NY Law.
To their credit, the arbitrators didn't buy Merrill's sophistry. The award expressly says the subpoena was improper (a first). Unfortunately, no other consequence was attached.
Merrill and the other brokerage firms love to send out these phony subpoenas. There is no legal basis for doing so, and they know it. The subpoenas are often used for intimidation and, more often, for fishing. We have examples of subpoenas to accountants, savings banks, employers, insurers, etc. all seeking ridiculous documents. Many are from ML, but there are others from other firms as well. Even when challenged, and even when courts rule against them, the firms continue to send these subpoenas because there never seem to be adverse consequences.
NASD Enforcement is supposedly conducting an investigation, but this illegal process continues to issue from Merrill and the other firms. These firms honor eachother's subpoenas, but reject them from investors.
Such unfairness must be stopped.
Seth E. Lipner
Professor of Law
Zicklin School of Business, Baruch, CUNY
Garden City, New York