NASD REGULATION, INC.

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NASD CONDUCT RULES:

2110
8210

Respondent denied having been granted immunity.  DMR produced a Cooperation Agreement and sought sanctions for the allegedly false testimony.  Because of DMR's imprecise questioning and the possibility of ambiguity inherent in a layperson's understanding of the legal definition of "immunity," the Panel dismissed case.

Respondent appeared without counsel to give on-the-record (OTR) testimony during Department investigation and was asked whether he had ever been granted immunity.  Although he had entered into a Cooperation Agreement with a U.S. Attorney's office, he answered, "Never. Never. No. Everything I've ever done was voluntary. I have no immunity from anybody for any reason."  The Department produced a copy of a letter agreement dated May 17, 1995, between Respondent and the United States Attorney for the Southern District of California entitled "Cooperation Agreement," which contained the following language:

Believing that the Cooperation Agreement was an unequivocal manifestation of an immunity agreement, and deeming Respondent's denial of having ever been granted immunity as a lie,  the Department charged him with violations of  NASD Conduct Rule 2110 and NASD Procedural Rule 8210 for knowingly providing false testimony at the OTR.  The Hearing Panel framed its task as one of whether the Department met its burden of proof by showing beyond a preponderance of the evidence that the Cooperation Agreement granted "immunity" as that term was used and understood by Respondent during his OTR questioning.

At the hearing, Respondent and his former court-appointed counsel testified that he had volunteered to help with a federal fraud investigation.  In 1995 at a debriefing session, an Assistant United States Attorney presented the Cooperation Agreement; which Respondent's court-appointed counsel briefly reviewed  urged him to sign it, which he did. There was no further discussion  about the contents of the Cooperation Agreement at that meeting or since. Once the Cooperation Agreement was signed, the AUSA took it and continued with the debriefing session. Respondent did not receive a copy of the Cooperation Agreement until five years later, after the Department commenced this proceeding. 

Respondent and his former counsel testified that the AUSA stressed repeatedly that he did not have a "deal" of any kind regarding the crimes being investigated and could be charged at any time regardless of his cooperation.  It was not until three years after the AUSA counter-signed the Cooperation Agreement that  the United States Attorney's Office informed Respondent it would not pursue  him.

• "Transactional immunity" grants an individual immunity from prosecution for offenses to which his compelled testimony relates. Kastigar v. United States, 406 U.S. 441, 443 (1972).
  

• "Use immunity," merely grants an individual immunity from the government's use of the individual's compelled testimony.  It does not provide immunity from prosecution.

It would appear that The Cooperation Agreement "informally" extended only "testimonial immunity," meaning that although the Government could not use his statements against him if it chose to prosecute him for the criminal activity it was investigating,  it could still prosecute him using other evidence.  Not only is immunity a technical legal concept that is beyond the common understanding of laymen , but also the Department should not be permitted to take advantage of either the ambiguity of its own questions or the respondent's confusion to punish the respondent. At a minimum,  the Department must ask clear questions and follow up on vague responses. Consequently, substantial ambiguity caused directly by the Department's imprecise questioning must be resolved in the respondent's favor.  Accordingly, the Hearing Panel dismissed the proceeding. 

In a surprisingly forthright decision laced with not so subtle criticism of the Department's handling of the OTR, the Panel chided the Staff for not better defining in its questioning.  It was suggested that something as simple as what was meant by "immunity agreement," would have been helpful.  Further, the Panel seemed disturbed that the Staff seemed satisfied to accept Respondent's problematic answers (which, yes, even appeared rambling) without more forceful probing and clarification.  Ultimately, the Panel seemed trouble that the likely sanction for false testimony is a bar, but that Respondent's testimony may simply have been the misunderstanding of a layperson.  The harsh penalty for such a mistake did not seem appropriate --- particularly in light of the Staff's less-than-thorough interrogation.