Revised Letter Sent to NASD on Behalf PRU RRs
March 13, 2003 

Bill Singer
Attorney at Law

phone: 917-520-2836
e-mail: bsinger@rrbdlaw.com
website: http://rrbdlaw.com

March 13, 2003

Ms. Mary Schapiro,
Vice Chairman and President, Regulatory Policy & Oversight, NASD
National Association of Securities Dealers, Inc.
By e-mail only: mary.schapiro@nasd.com

T. Grant Callery, Esq.
Senior Vice President and General Counsel, NASD
By e-mail only: calleryg@nasd.com

Dear Ms. Schapiro and Mr. Callery :

Yesterday, I forwarded to your attention a letter concerning an issue pertaining to Prudential Securities, Inc. ("PSI"). As a result of additional information brought to my attention since, I now provide you with the following clarifications. Although I am an attorney at law practicing as a partner with the New York City law firm of Gusrae, Kaplan & Bruno PLLC, this letter is again transmitted only in my personal capacity and pursuant to my functioning as legal counsel pro bono publico. Given the urgency of the matter, I have been asked to expedite this communication and am forwarding it to you by e-mail only.

Numerous PSI registered representatives are informing me that they are required to annually update an on-line form described as an "Employee Reporting Statement" ("ERS"). The opening statement on the ERS allegedly states:

In order to comply with various industry and firm reporting guidelines, Prudential Securities (hereinafter "PSI" or the "Firm) must review certain information relating to outside activities and affiliations of all PSI employees. In this regard, we would appreciate your completion of this Reporting Statement.

It is the understanding of the vast majority of individuals corresponding with me that PSI implies the ERS is a regulatory document that is mandated by law and industry regulation. Accordingly, there is a sense of "outrage" that PSI is allegedly using this ERS to obtain what many employees deem to be a non-solicit, non-compete clause. Further, it is apparently a widespread belief among PSI registered representatives that the failure to agree to this objectionable clause will result in termination. Consequently, many PSI registered representatives are now viewing the ERS as tantamount to either an employment agreement or an effort to amend pre-existing one.

Below please find what has been represented to me as the clause at issue:

Please note that all records of PSI, whether original, duplicated, computerized, memorized, handwritten, or in any other firm, and all information contained in those records, whether generated by PSI, on its behalf by a third party, or me, including, but not limited to, the names, addresses and phone numbers of any account, customer, client, prospect or employee (current or retired) are and shall remain the sole and exclusive property of PSI at all times during my employment with PSI and after the termination of my employment, notwithstanding any prior agreements or other commitment to the contrary. I further agree not to divulge or disclose any of the above information or any other information that would be deemed Confidential or Proprietary to PSI to any unauthorized third party, either during my employment or any time there after.

Preliminarily, a number of PSI employees are complaining that the member firm is effectively demanding that they execute the annual ERS renewal with the above language. These employees state that they have been told that they cannot negotiate the language and any ERS submitted with the provision redacted or qualified will not be accepted. These employees believe that a failure to so execute will likely result in their termination. The consequence of such a cessation of employment may trigger so-called Employee Forgivable Loans (EFLs), which might essentially require the employees to repay unaccrued loan balances to PSI despite the circumstances of their termination. Further, many employees believe that they had been hired in accordance with written and/or oral understandings contrary to the provision above, and that PSI now seeks to unilaterally nullify such prior understandings.

Among the criticisms that have been presented to me of the provision set forth above are the following. What is a "memorized" record? Is one's memory amenable to being described as information in a record? How can one's memory be the sole and exclusive property of PSI. Why does PSI now seek to claim a right to "all" accounts, notwithstanding that those of "family members" and "pre-existing, pre-employment clients" are often excluded from such coverage. What is PSI's definition of a prospect and how does it not encompass the known world? In the case of those who allege they have previous employment agreements containing provisions in conflict with that cited above, why should PSI have the right to arbitrarily demand (upon threat of termination) that this year's provision takes precedence "notwithstanding any prior agreements or other commitment to the contrary"? Finally, it is alleged that non-compete/solicitation clauses typically are geographically and temporally finite, i.e., they apply to a limited geographic area for a specified limited period of time. PSI seeks to impose the revised provisions to "any time there after."

The PSI employees who have contacted me believe they are being forced to enter into what they deem to be an unfair and one-sided employment relationship. Further, they feel that PSI is using a subterfuge of purported regulatory reporting obligations in order to gain the upper hand. They have expressed facts and circumstances that would seem to indicate that there is no freely-bargained contractual relationship involved in PSI's unprecedented demand for their executed agreement. Further, the employees set forth allegations that could indicate contractual over-reaching, the creation of a contract of adhesion, and, at a minimum, heavy-handed maneuvering during a time of dire economic circumstances in the industry and the national workplace. Additionally, there are sincere concerns as to whether such a provision rightfully belongs within a doctrine whose responses are allegedly being required under the guise of mandatory regulatory reporting. Finally, there seems to be a general consensus that PSI's tactics do not seem appropriate when targeted at a group of financial professionals.

The NASD's Restated Certificate Of Incorporation states that the organization was formed, inter alia,

(1) To promote through cooperative effort the investment banking and securities business, to standardize its principles and practices, to promote therein high standards of commercial honor, and to encourage and promote among members observance of Federal and state securities laws;
. . .
(4) To promote self-discipline among members, and to investigate and adjust grievances between the public and members and between members;

Similarly, NASD GENERAL PROVISION 0113: Interpretation states that

The Rules shall be interpreted in such manner as will aid in effectuating the purposes and business of the Association, and so as to require that all practices in connection with the investment banking and securities business shall be just, reasonable and not unfairly discriminatory

Finally, NASD CONDUCT RULE 2110: Standards of Commercial Honor and Principles of Trade requires that

A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.

The PSI employees who have contacted me, have suggested that I submit this letter to NASD in order to request that the self-regulatory organization investigate the facts set forth and consider the filing of charges, if appropriate. It is respectfully requested that NASD consider whether a member firm's effort to impose non-negotiated, material changes in the terms of a registered representative's employment agreement (or similarly styled document) in the manner in which PSI has attempted does not comport with high standards of commercial honor and just and equitable principles of trade. The allegations presented strongly suggest unfair efforts to force vulnerable registered persons to capitulate in the face of what they infer to be a threat of termination. Additionally, such a threat, when coupled with the economic pressures noted above, seems especially inappropriate.

Given that NASD is frequently the sole self-regulatory organization regulating many registered persons, it should respond to this type of grievance with heightened sensitivity. Registered person likely account for some 700,000 jobs among NASD member firms; however, the NASD denies those individuals any vote on any matter that is routinely presented to its membership (which is solely composed of employer/member firms). As such, the salespersons of Wall Street have been effectively disenfranchised. Consequently, it is imperative that this matter is promptly investigated and that if any wrongdoing is determined, PSI is held to the same standard of commercial honor and just and equitable principles of trade as are hundreds of thousands of less influential registered persons. Finally, even should PSI eventually rescind what appears to be an ill-conceived provision, NASD should still investigate the matter. NASD often advises registered persons that once a violation occurs, subsequent remedial measures do not excuse the misconduct.

Sincerely,

Bill Singer
Legal Counsel pro bono publico