JOHNSON, POPE, BOKOR, RUPPEL & BURNS, P.A
ATTORNEYS AND COUNSELLORS AT LAW
PLEASE REPLY TO: TAMPA
FILE NO. 095380
October 16, 2003
Via E-mail: Ruleemail@example.com
Re: Comments in Opposition to Proposed Changes to NASD Rule 3110(f)
The purpose of this comment is to oppose the NASD's proposed amendment to Rule 3110(f). the amendment would include subsection (f)(4)(B), allowing enforcement of a choice of law provision in arbitration. I have represented investors in pursuit of claims for over 10 years and therefore have considerable appreciation as to the impact of this proposal.
The amendment allows brokerage firms, which are located in New York, which are defending claims arbitrated with the New York Stock Exchange, or which involve securities traded in New York, to potentially impose New York law on citizens of the other 49 states simply by including an apparently innocuous choice of law clause in a new account agreement.
This is a critical issue to investors with claims in arbitration. Unlike most states, the state of New York has not adopted the Uniform Securities Act. Thus, if the amendment is adopted, investors from other jurisdictions may be deprived of the protections afforded by their state laws. These include statutory claims for misrepresentation and omission against all sellers and control persons. While these claims may be available under federal law, the state laws generally have longer statutes of limitations and do not allow many of the defenses which can be raised in response to claims based on federal law. The state laws also provide for attorney fees which are not available under New York law or in federal statutes.
Not only does New York not have a securities law which can be enforced by investors, there is case law in New York which may limit investor remedies under the common law.
The point is that investors are entitled to the protections available under their state laws. National brokerage firms make the economic decision to operate in a given state. They should not then be allowed to sneak a choice of law clause into a customer agreement that deprives customers of their rights in their own jurisdiction.
The purported objective of the NASD is to protect investors. This proposal does the opposite. It protects the industry. The fact that the proposal makes the amendment retroactive confirms its anti-investor bias.
That this amendment is being proposed when investor confidence in the stock markets and in broker/dealers is extremely low after the revelations concerning research analyst conflicts of interest and mutual fund trading fraud is particularly troubling. At a time when these wrongs have just come to light investor's remedies should not be limited in any way.
I respectfully request that the rule be rejected.