April 17, 2009
I am an attorney in Atlanta, Georgia, and my practice areas include the representation of public customers in securities litigation and arbitration. I write in support of the proposed rule relating to changes in Forms U4 and U5.
This proposal would close a significant loophole in reporting requirements, which do not require the reporting of a claim on the CDR because the broker was not named in an arbitration or court filing, even though the entire claim related to the brokers misconduct. For strategic and practical reasons, it is sometimes appropriate to name only the employing broker-dealer as the sole respondent or defendant. Indeed, under statutory control person liability, as well as state law respondeat superior doctrine, one need not name the broker responsible for the misconduct to hold the broker-dealer liable.
The federal securities laws and regulatory scheme reject the concept of "caveat emptor" and, instead, as a matter of public policy, require full disclosure and a high standard of business ethics in the securities industry. In the words of the Supreme Court, the goal is to substitute a philosophy of full disclosure for the philosophy of caveat emptor. Affiliated Ute Citizens v. United States, 406 U.S. 128, 151 (1972), quoting SEC v. Capital Gains Research Bureau, 375 U.S. 180, 186 (1963). A broker's involvement in misconduct is exactly the type of information for which full disclosure is necessary. Having a system which does not require the disclosure of that information runs counter to that fundamental public policy decision.
Broker-dealers and brokers strongly encourage their clients to place complete faith and trust in them. In return, the investor/client ought to have full, unadulterated disclosure of the broker's background, including any possible misconduct. Allowing the broker-dealer and the broker to avoid disclosing this information is contrary to the spirit of the federal securities laws, and does little to encourage investor faith and confidence in the financial industry.
Robert C. Port, Esq.
Cohen Goldstein Port Gottlieb, LLP
One Lakeside Commons
990 Hammond Drive, Suite 900
Atlanta, GA 30328-5529
(770) 393-0990 Telephone
(770) 901-9417 Facsimile