Madoff Elected to NASD Advisory Council
[Madoff] serves on the council for four years; he also sits on numerous NASD committees and task forces, chairing several.
Several sources later tell Trader's Magazine that Madoff actively pursued a presence on the regulatory body. One former NASD committee member and former head of trading at a New York firm recalls: "Bernie's strategy was to get actively involved in all aspects of the industry. He had a much bigger presence than the size of his firm would naturally warrant."
The NASD operates the nation's largest arbitration forum for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms. Virtually all agreements between investors and their stockbrokers include mandatory arbitration agreements, whereby investors (and the brokerage firms) waive their right to trial in a court of law. Although the fairness of such mandatory arbitration clauses has been called into question, U.S. courts have consistently found them to be lawful.
As of June 2005, the pool of arbitrators consisted of 2,700 individuals classified by the NASD as industry panelists and 3,700 individuals classified as non-industry panelists.
In 1987, in Shearson/American Express v. McMahon, the United States Supreme Court ruled that account forms signed by customers requiring arbitration for disputes were enforceable contracts. Brokerage firms now require all customers to sign such documents, requiring binding arbitration.
For disputes between customers and member firms, the panel that decides the case consists of three arbitrators, one industry panelist and two non-industry panelists. For disputes between an employee and member firms, all three arbitrators are industry panelists. For a given case, the two sides are provided separate lists by NASD of local, available arbitrators, from which they chose. If one side rejects all listed arbitrators, NASD names the arbitrators who will serve; these can be rejected only for biases, misclassification, conflicts, or undisclosed material information, and biases or conflicts must be identified prior to the beginning of hearings. For an overview of the Securities Arbitration process, see Introduction to Securities Arbitration.
According to NASD, there were 6,074 cases for arbitration filed in 2005, a decrease from the peak of 8,945 cases filed in 2003. The average time to complete a case has risen from 10.5 months in 1995 to 14.3 months in 2005, a decrease from 2004 when it was 15.4 months. The percentage of cases where customers are awarded damages has fallen from slightly above 50% in the 2000-2002 period to slightly above 40% in 2005. The NASD rates any positive award to a customer as a win for the customer regardless of the magnitude of losses or legal fees.
NASD rules do not require parties to be represented by attorneys. A party may appear pro se, or be represented by a non-attorney in arbitration. However, representation by a non-attorney is not advised since this may be the unauthorized practice of law. Brokerage firms routinely hire attorneys, so a customer who does not can be at a serious disadvantage. One organization whose members specialize in representing customers against brokerage firms in NASD and NYSE arbitration is the Public Investors Arbitration Bar Association ("PIABA").
In June 2006, Lewis D. Lowenfels, one of two partners at the New York law firm of Tolins & Lowenfels, and co-author of the looseleaf treatise Bromberg and Lowenfels on Securities Fraud and Commodities Fraud, 2d said of the NASD arbitration process: "What started out as a relatively swift and economical process for a public customer claimant to seek justice has evolved into a costly extended adversarial proceeding dominated by trial lawyers and the usual litigation tactics."