Wednesday, December 20, 2006

Is NASD Mending Its Ways?

One of the perennial insanities of Wall Street regulation is the "consent decree," in which a Wall Street firm agrees to a wrist-slap fine in return for agreeing to stop doing what it was accused of doing, without admitting or denying that it did that thing in the first place.

So I am pleased to report that NASD is suing Morgan Stanley for using a really sick excuse for not producing mails in arbitration cases. The Wall Street Journal (subscription required) reported that "NASD alleges that the brokerage arm of Morgan Stanley falsely claimed millions of its emails were destroyed in the Sept. 11, 2001, terrorist attacks on the World Trade Center, where Morgan Stanley had a large brokerage operation. The complaint alleges that the firm recovered most of those emails within days of the attacks."

Morgan Stanley called NASD's settlement demands "disproportionate and unprecedented." Sounds good to me.

I hope this isn't just showboating, and that NASD continues to take a hard line with Wall Street in the future. I also hope other regulators will follow suit with their own "disproportionate and unprecedented" settlement demands, and make the consent decree a thing of the past. All pretty slim hopes, I admit.

Incidentally, I hate to be picky, but I noticed that the Journal reported that the regulator taking this action was the "National Association of Securities Dealers." In fact, the NASD formally changed its name to just the initials "NASD" a few years ago. The New York Times account
didn't use the incorrect "National Association" nomenclature but incorrectly put the word "the" before NASD.

It was an ill-advised renaming, but if "NASD" wants to not be "the NASD," that is its affair.

© 2006 Gary Weiss. All rights reserved.


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Click here for its listing and here for more information on the book, from my web site.

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