DYING WITH YOUR BOOTS ON:
STRATEGY AND TACTICS IN CONTESTING DISCIPLINARY PROCEEDINGS
Part I
by
Bill Singer, Esq.
When
is it
better to settle or contest disciplinary charges? How can you defend
against different customers alleging similar sales practice violations? Read the
analysis of a recent NASDR prosecution against an RR who refused to settle
allegations of customer fraud.
It is my peculiar approach to read a decision
three times: once to get a general idea as to what the facts of the case
were about, a second time to focus on the legal issues, and a third time
to glean whatever lessons may be learned.
Laypersons or practitioners inclined to speed read often miss a treasure
trove of information. So, why not join me as we analyze the many
layers of information in a recent, somewhat mundane NASDR Disciplinary
Proceeding decision . . . or so it seems at first blush.
The Last One Standing
In
the case of Department of Enforcement vs. Unidentified Registered
Representative(NASDR # CAF980031, Hearing Officer Jerome Nelson, February
11, 2000), the Department of Enforcement (DOE) initially had filed a complaint
against 12 individual respondents, alleging a host offraudulent practices.
Prior to the commencement of the hearing, motions to sever were denied
and shortly thereafter 7 of the respondents settled and an eighth purportedly
proposed a settlement, which at the time of the Decision was still under
consideration (in all probability that respondent has since settled).
Why Sever?
In all likelihood there were a
number of respondents in this case with prior regulatory histories or more
significant involvement in the alleged frauds. Those respondents with limited
(or none at all) histories or participation could suffer by comparison before
the same panel.  As a result, a defense counsel
often requests separate trials for his less guilty (or not guilty) client.
On the other hand, sometimes choir-boy clients benefit from
the contrast with more culpable respondents. Assuming
severance is granted and there is ongoing cooperation among respondents,
this approach may provide the second and subsequent respondents with a preview
of the prosecution’s strategy and tactics; and the resultant ability to better
prepare a defense. On
the other hand, an initial victory may embolden the prosecution as to its
subsequent likelihood of success and provide it with the opportunity to burnish
an already potent case. Yet another factor is that when
confronted with the prospect of trying twelve separate cases, a prosecutor may
be more amenable to offering more lenient settlements to avoid such protracted
litigation. Your move!
Seven Down, Five
to Go
In our actual NASDR case,
following the denial of the severance motion, seven respondents apparently
weighed the costs of proceeding and the likelihood of success and concluded they
were best served by settling before the hearing.
As the case proceeded towards a
hearing date, two additional respondents apparently failed to either submit
Answers or failed to appear during the hearings and default decisions were
entered against them. Why did they
default? Well, any number of
explanations are possible. They
didn’t have the money to pay for a lawyer.
They had left the securities industry and didn’t care.
They didn’t update their current address and never received notice.
The eleventh respondent presents
an interesting lesson. Frequently,
a prosecutor will believe he or she hasa case, but is uncomfortable with
the strength of the evidence or witnesses available. Nonetheless, the prosecutor files charges with the hope that
the named respondent will cave in and settle under the pressure of
the costs of undertaking a defense or in consideration of the likelihood of
losing at trial. This eleventh respondent appears
to have received excellent advice because by not settling in a panic he
apparently turned the tables on his ac
cusers and forced them to either raise or call.
Perhaps having been caught in a bit of a bluff, DOE reconsidered its case
and withdrew the charges.
And Then There
Was One
 Consequently,
a lone surviving respondent exercised his right to a day in court and proceeded
to defend himself during two days of contested hearings spread over a seven-week
period. Individuals who are usually
the last one standing in a multiple-respondent proceeding and who opt for
trial generally have one of two things in common.
Frequently, such clients are passionate
about their innocence and refuse every
opportunity to settle. The
proceeding quickly becomes a matter of
principle. However, just as often,such parties are guilty and facing severe sanctions
(significant fines, industry bars, etc.). This
proceeding quickly becomes a matter of delaying the inevitable imposition of
sanctions.
In economic terms it’s often a
fairly simple equation. By settling
today you agree to a bar from the securities industry; but your income is cut
off and you're out of work. By
fighting the case, you will delay the sanctions and possibly obtain a lesser
suspension/fine, but it's going to cost a pretty penny to retain a lawyer and
you run the risk of more severe sanctions than those offered during settlement.
In the second installment, learn
how the RR faired against the accusations of two clients and NASDR. Did he
make the right choice in demanding his day in court?
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