From: Madelaine Eppenstein [MEPPENSTEIN@eppenstein.com] Sent: Friday, October 03, 2003 6:51 PM To: 'rule-comments@sec.gov' Cc: Theodore G. Eppenstein; Madelaine Eppenstein Subject: SEC File No. SR-NASD-98-74, NASD Proposal to Amend Rule 3110(f), Governing Use of Pre-dispute Arbitration Agreements with Customers Dear Secretary Katz: Following is our comment on Release No. 34-48444, which proposes to amend that portion of the NASD "Books and Records" Rule 3110(f), governing use of pre-dispute arbitration agreements with public customers. We are sending this electronic message with the full text of our letter reprinted below, and will be sending by Fedex delivery a hard copy of this letter comment with the exhibit thereto for your receipt on Monday, October 6, 2003. Thank you for the opportunity for us to comment on these issues that are so vital to the investing public. October 3, 2003 Via Electronic Mail and Fedex Jonathan G. Katz, Secretary U.S. Securities and Exchange Commission 450 Fifth Street NW Washington, D.C. 20549-0609 RE: SEC File No. SR-NASD-98-74, NASD Proposal to Amend Rule 3110(f), Governing Use of Pre-dispute Arbitration Agreements with Customers Dear Secretary Katz: We appreciate the opportunity to comment on Release No. 34-48444, which proposes to amend that portion of the NASD "Books and Records" Rule 3110(f), governing use of pre-dispute arbitration agreements with public customers. As the attorneys who argued the landmark case involving public customers and pre-dispute arbitration clauses in Shearson v. McMahon, 482 U.S. 220 (1987), the day has finally dawned when the NASD is able to concede that arbitration agreements are non-negotiated. Since 1987, when the consequence of the McMahon case was to force public customers to give up their right to go to court with their federal statutory disputes with their brokers, our firm has been in contact with your office from time to time to point out the need for certain reforms in the process to level the playing field for the investor in the arbitration of disputes, so that the rights that investors would be entitled to in court are not abrogated in arbitration. The NASD's choice of law provision, for example, may in fact have this unwarranted effect. A fundamentally unfair consequence to the investor, since the SEC changed course by backing the industry in McMahon, has been the lack of choice for the customer. Missing from the NASD's proposal, and from action by the SEC, is a provision returning to the public customer the right to choose to elect court or arbitration in securities fraud matters. An additional omission is an initiative to remove the "non-public" or industry arbitrator from panels in the larger, non-simplified cases as required by NASD Rule 10308. We respectfully request that the SEC return to the public customer the ability to choose court or arbitration at the election of the customer, and that the SEC consider the abolition of the requirement that a member of the industry sit in judgment of their brethren brokers. The appearance of grave impropriety continues to pervade the arbitration process as a result of these fundamentally unfair procedures. Forwarded to you under separate cover is our office copy of our congressional testimony: Securities Law Reform: Restoring Public Customers' Freedom of Choice of Federal Court Adjudication for Investor/Broker-Dealer Fraud Claims," Before the Subcomm. on Telecommunications and Finance, of the House Comm. on Energy and Commerce, 100th Cong., 2nd Sess., 134 Cong. Rec. D375-01 (Mar. 31, 1988) (statement of Theodore G. Eppenstein, Esq.). We respectfully direct your attention to the exhibit attached to the aforesaid testimony, Letter of Theodore G. Eppenstein to Richard G. Ketchum, Director, Division of Market Regulation, SEC, dated December 23, 1987, which addresses many of these and other issues of interest to the investing public, whose confidence in the integrity of the markets and the arbitration of disputes continues to be of concern. We appreciate the NASD's and the SEC's consideration of these views. Sincerely, S/ Madelaine Eppenstein S/ Theodore G. Eppenstein ME/TGE:salw enclosures under separate cover cc.: Representatives John Markey and John Dingell, U.S. House of Representatives -------------------------------------------------- Madelaine Eppenstein and Theodore G. Eppenstein Eppenstein and Eppenstein 767 Third Avenue 23rd Floor New York, New York 10023 meppenstein@eppenstein.com phone: 212-679-6000 fax: 212-759-3122 ------------------------------------------------- NOTE: The information contained in this e-mail may be confidential and attorney-privileged information intended only for the use of the individual or entity named above. If the reader of this message is not the intended recipient, or the employee or agent responsible for delivering it to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify us by telephone or reply e-mail, and delete it from your system without copying or forwarding it. Thank you. ------------------------------------------------- CPLR 2103(b)(5) NOTICE: NOTWITHSTANDING THE FACT THAT REFERENCE TO THIS FIRM'S E-MAIL/FACSIMILE/TELECOPIER NUMBERS MAY APPEAR IN THE ADDRESS BLOCK OF ANY PAPER, CORRESPONDENCE OR NOTICE SERVED BY THIS OFFICE, SUCH REFERENCE SHALL NOT BE DEEMED OR CONSTRUED AS A DESIGNATION BY THIS FIRM OF SUCH NUMBER FOR A MEANS OF SERVICE OF PAPERS IN A PENDING ACTION. THIS FIRM EXPRESSLY WITHHOLDS CONSENT TO SERVICE OF PAPERS IN A PENDING ACTION BY ELECTRONIC TRANSMISSION PURSUANT TO N.Y. CPLR 2103(b)(5).