NASD Arbitration Solution: Five Black Belt Principles to Protect and Grow Your Financial Services Practice

338 Pages·2007·1.92 MB·English

by  Thomas J. Hine

ffirs.qxd 5/16/07 6:15 PM Page i
NASD ARBITRATION
SOLUTION:
FIVE BLACK-BELT PRINCIPLES
TO PROTECT AND GROW
YOUR FINANCIAL
SERVICES PRACTICE
Thomas J. Hine, CFP®, CFS, MBA,
and
John K. Brubaker
John Wiley & Sons, Inc.
ffirs.qxd 5/16/07 6:15 PM Page iv
ffirs.qxd 5/16/07 6:15 PM Page i
NASD ARBITRATION
SOLUTION:
FIVE BLACK-BELT PRINCIPLES
TO PROTECT AND GROW
YOUR FINANCIAL
SERVICES PRACTICE
Thomas J. Hine, CFP®, CFS, MBA,
and
John K. Brubaker
John Wiley & Sons, Inc.
ffirs.qxd 5/16/07 6:15 PM Page ii
Copyright © 2007 by Thomas J. Hine and John K. Brubaker. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
Wiley Bicentennial Logo:Richard J. Pacifico
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopy-
ing, recording, scanning, or otherwise, except as permitted under Section 107
or 108 of the 1976 United States Copyright Act, without either the prior written
permission of the Publisher, or authorization through payment of the appro-
priate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood
Drive, Danvers, MA01923, [phone], fax [phone], or on the web at
www.copyright.com. Requests to the Publisher for permission should be ad-
dressed to the Permissions Department, John Wiley & Sons, Inc., 111 River
Street, Hoboken, NJ 07030, [phone], fax [phone], or online at
http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author
have used their best efforts in preparing this book, they make no representa-
tions or warranties with respect to the accuracy or completeness of the con-
tents of this book and specifically disclaim any implied warranties of
merchantability or fitness for a particular purpose. No warranty may be cre-
ated or extended by sales representatives or written sales materials. The advice
and strategies contained herein may not be suitable for your situation. You
should consult with a professional where appropriate. Neither the publisher
nor author shall be liable for any loss of profit or any other commercial dam-
ages, including but not limited to special, incidental, consequential, or other
damages.
For general information on our other products and services or for technical
support, please contact our Customer Care Department within the United
States at [phone], outside the United States at [phone], or fax (317)
572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content
that appears in print may not be available in electronic books. For more infor-
mation about Wiley products, visit our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Hine, Thomas J. 1961-
NASD arbitration solution : five black belt principles to protect and grow
your financial services practice / Thomas J. Hine and John K. Brubaker.
p. cm.
Includes bibliographical references.
ISBN 978-0-470-12632-5 (cloth)
1. National Association of Securities Dealers. 2. Securities—United
States. 3. Arbitration and award—United States. I. Brubaker, John K.,
1953- II. Title.
KF1070.H56 2007
346.73'09220269--dc22
2007007065
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
ffirs.qxd 5/16/07 6:15 PM Page iii
To Henry H. Hine, my wonderful father,
who died February 18, 2006: soldier, statesman,
leader, and mentor. I am grateful for all the great
years we had together. If I can become half the
father for my children that you were for me, that
would be the accomplishment of a lifetime.
As you taught me, “When you aim high, you hit high.”
Thomas J. Hine
In loving memory of my parents,
John and Joyce Brubaker,
this is dedicated to Angel, Eric, Mark,
Meg, Melissa, Crystal, and the future
generations of our family.
John K. Brubaker
ffirs.qxd 5/16/07 6:15 PM Page iv
ftoc.qxd 4/26/07 7:54 PM Page v
CONTENTS
Why I Wrote This Book vii
Acknowledgments xi
Introduction xv
Part One My NASD Arbitration from Start to Finish
Chapter 1 Sweating Bullets 3
Chapter 2 24:The Day That Almost Never Ended 25
Chapter 3 Expert Witness Unmasked:An Offer to Settle—
I Finally Get to Testify 53
Chapter 4 Cross-Examination—It Was War 81
Chapter 5 Closing Arguments—And a Decision 105
Part Two Five Black-Belt Principles to Protect and
Grow Your Financial Services Practice
Chapter 6 The Cycle of Life 131
Chapter 7 To Protect and Grow 141
Chapter 8 Humility:The White-Belt Attitude 147
Chapter 9 Integrity:Look in the Mirror 157
Chapter 10 Duality:Yin and Yang 165
Chapter 11 Awareness:The Third Eye 177
Chapter 12 Dedication:Kaizen 189
v
ftoc.qxd 4/26/07 7:54 PM Page vi
vi CONTENTS
Part Three How to Prevail in an NASD
Arbitration Hearing
Chapter 13 What’s the Cost? 199
Chapter 14 Case Studies 207
Chapter 15 The Lawyer’s Perspective:How to Prepare
and Try an NASD Arbitration Case—
by James W.Weller,Esq. 219
Chapter 16 How to Prepare for NASD Arbitration 251
Chapter 17 Preparing to Testify and Managing Your
Case to Conclusion 267
Appendices
Appendix A NASD Arbitration Case Flow 283
Appendix B NASD Arbitration Trends 291
Appendix C Errors-and-Omissions Insurance 295
Appendix D Technology Tools 299
Index 303
About the Authors 309
flast.qxd 4/26/07 7:55 PM Page vii
WHY I WROTE THIS BOOK
A
fter more than 10 years as a registered representative, with-
out warning, in September 2002, I became the subject of an
investor complaint to the NASD. Over the following 21 months,
I went through an NASD arbitration to resolve this dispute. It
was one of the most powerful experiences of my professional
life. The story of the dispute and its resolution is described in de-
tail in Part One.
After my NASD process was completed, I went to work
strengthening my practice, based on the knowledge I had
gained. I learned that many reps who have been through NASD
arbitration used their experience in a similar, positive manner. I
began sharing some of my experiences with fellow registered
representatives and found that they were fascinated by many of
the details I shared about the process. I started to realize that
NASD arbitration is, to a great extent, shrouded in mystery for
many reps. Those who go through it are reluctant to discuss it,
preferring to put the experience behind them and move on.
I accepted some speaking opportunities and spoke about it
some more, to increasingly enthusiastic response. It was clear
that this topic hit a chord with many reps. In the summer of 2004,
I gave an address at a national broker-dealer convention on
NASD compliance, sharing what I had learned from my experi-
ence. The response was fantastic. At least a dozen people told me
that it was the best talk they had ever heard on the subject. After
some more thought, I decided to try and write a book.
vii
flast.qxd 4/26/07 7:55 PM Page viii
viii Why I Wrote This Book
This was a dilemma for me, as I did not possess the writing
background, knowledge of the publishing industry, or time nec-
essary. I began to tap into my network to see if I could find a col-
laborator. I was fortunate to be introduced to John Brubaker,
who became my co-author.
To the best of my knowledge, this represents the first time that
an entire NASD arbitration process has been described in print
at this level of detail by a registered representative. I made the
decision to subject myself to this level of scrutiny because I
strongly believe that the information the story contains will be of
use to my fellow registered representatives, as well as to anyone
who has interest in the securities industry.
Despite the fact that NASD arbitration can become a career-
defining event, many reps are woefully ignorant about how
the system actually works. As part of the work on this book, we
interviewed a number of reps who have been through the
process. One constant refrain was the lack of solid, clear, and
helpful information by which the rep can guide him- or herself
through the process. By providing this never-before-seen
glimpse into NASD arbitration, we offer a teaching tool to any-
one who is interested.
No system of dispute resolution will be perfect. My experi-
ence has taught me that balance is necessary. There must be a
forum so that investors who are the victims of the unethical or
prohibited business practices of registered representatives can
have their claims examined, and can receive compensation for
provable economic loss. Registered representatives who them-
selves are the victim of baseless charges should not have their ca-
reers damaged. The current system lacks a clear method for
filtering out those claims with merit from those that do not. This
book is aimed at providing the registered representative with
certain tools to help defend against those claims that he or she
believes are unfounded.
I look to the future in the hopes that the current system can
evolve into one that provides investors with the forum they de-