The Supreme Court last week declined to hear an appeal of a lawsuit filed in 2007 by a broker-dealer against NASD.
The firm, Standard Investment Chartered Inc., sued NASD over its merger with the regulatory unit of the New York Stock Exchange, claiming that the proxy used by NASD in soliciting member approval for the merger was fraudulent.
NASD since has been renamed the Financial Industry Regulatory Authority Inc.
In 2010, a New York federal court dismissed the claim, and last year, the 2nd U.S. Circuit Court of Appeals upheld that decision.
“We are pleased that the Supreme Court determined not to take the case. We believed the 2nd Circuit Court's opinion was consistent with rulings of other courts that have addressed the issue of immunity for SROs,” Finra spokeswoman Nancy Condon said in a statement.
NO DAY IN COURT
“Members of Finra will never have their day in federal court to prove that Wall Street's regulators themselves committed a significant financial fraud,” William Anderson, one of Standard Investment's attorneys at Cuneo Gilbert & LaDuca LLP, wrote in an e-mail.
Jack Norberg, chairman of the firm, did not return a call seeking comment.
NASD was able to get the merger approved by member firms with the help of a $35,000 payment. Standard Investment claimed that the self-regulator and its officials lied in the proxy and other communications when they claimed that $35,000 was the most that could be paid under Internal Revenue Service rules.
Government entities, including private organizations with government-delegated authority, generally enjoy absolute legal immunity in performing official duties. Court cases have granted protection specifically to securities self-regulatory organizations.
Standard Investment argued that the merger wasn't a legally protected regulatory function of Finra.
The brokerage firm wanted the Supreme Court justices to hear that case because it claimed that lower courts have issued conflicting opinions on immunity for SROs and other state actors.
Securities and Exchange Commission Chairman Mary Schapiro, former head of NASD, was one of the officials named in the lawsuit.
A number of outside organizations filed friend-of-the-court briefs for Standard Investment, urging the Supreme Court to take up the case and address the limits of legal immunity for SROs.LEGALLY PROTECTED
In dismissing the case, lower courts found that NASD's proxy and merger were part of its regulatory activities and thus legally protected.
That SROs are immune from lawsuits “doesn't seem equitable to me, but it is an issue that is too big for most of us [member firms] to fight,” said Jim Biddle, founder of The Securities Center Inc.
Securities Industry and Financial Markets Association Inc. spokesman Andrew DeSouza declined to comment.
djamieson@investmentnews.com
