July 19, 2005
July 19, 2005
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File Number SR-NASD 2005-079
Dear Mr. Katz:
The purpose of this letter is to provide the Securities and Exchange Commission with comments on the above referenced proposed rule change that was filed by the National Association of Securities Dealers, Inc. on June 17, 2005
As an attorney whose practice is exclusively devoted to the representation of public investors in their disputes with the securities industry, I agree with the NASD that the issuance of subpoenas in arbitration proceedings must be addressed.
Unfortunately, the proposed rule does not address the illegality of discovery subpoenas under the applicable provisions of either the Federal Arbitration Act or a majority of state statutes.
Similarly, the proposed rule does not mention the fact that a substantial majority of the subpoenas that are issued in arbitration proceedings are, in fact, issued by Respondents.
Notwithstanding the fact that these overt deficiencies must call into question whether the proposed rule will ever accomplish its stated purpose, there are a number of comments which I will submit to you on the proposed language for your consideration.
These comments will address each of the subsections of the proposed rule:
Subsection a: The intentional deletion of the word fullest from the existing language in the Code of Arbitration Procedure must be reinserted in the final rule that is considered. The reinsertion of this word will eliminate the ability of a party to avoid the discovery responsibilities and procedural safeguards that are otherwise applicable to the discovery phase of an arbitration proceeding;
Subsection b: The proposed language should be amended to provide that the ten day notification requirement is from the date of receipt of the proposed subpoena by opposing counsel instead of from the date of service. This will eliminate the litigation strategy of providing service of a subpoena by facsimile transmission to the subpoenaed party whereas service of the same on opposing counsel is effectuated by regular mail;
Subsection c: The proposed language should be amended to provide that service to both the entity receiving the subpoena and opposing counsel must be effectuated by the exact same method of service. Moreover, service of copies of the subpoena should also be made on the NASD staff attorney who has been assigned to administer the underlying arbitration proceeding;
Subsection e: The proposed language should be amended to provide that, if a party objects to the issuance of a subpoena, then the subpoena will not be served on the proposed subpoenaed party until a ruling is issued by the arbitrators who have been appointed to decide the controversy. However, in the event that the SEC should determine to usurp the authority of the arbitrators and permit the service of a contested subpoena, notwithstanding the assertion of an objection to the same, then the proposed notice to the subpoenaed party, to retain and not produce copies of the desired documents, should be in bold print, appear at the top of each page of both the cover letter to the subpoenaed party and the subpoena itself, and be of a sufficient font size as to render the same easily noticeable; and
Subsection g: The proposed language should be amended to provide that a court of law, which has appropriate jurisdiction, will also have the right to quash or limit the scope of any subpoena.
Finally, a new provision should be added to the proposed rule which would obligate the issuer of a subpoena to provide full and complete copies of any response that may be received from the subpoenaed party to opposing counsel within five days of the receipt of the same.
Thank you for the opportunity to comment on this matter and your careful consideration of the issues that I have addressed would be appreciated.
Very truly yours,
Steven B. Caruso
Maddox Hargett & Caruso, P.C.
80 Broad Street, 5th Floor
New York, N.Y. 10004