Ernst & Young Reports No NLSS Bias

 Ernst & Young Reports No NLSS Bias 

Study Finds PIABA Charges Inaccurate

Last year around this time, a controversy was smoldering over charges of bias in the NASD-DR Neutral List Selection System — so we did a follow-up.

We can best recall for readers the dialogue between NASD and the Public Investors Arbitration Bar Association (PIABA) by excerpting passages from 11 SAC 7(8).

There, we reported that then-NASD President Richard Ketchum had written a letter, dated August 1, 2000, to then-PIABA President Mark Maddox, in which he stated that accounting firm Ernst & Young was being retained, at NASD-DR’s expense, to examine the Association’s NLSS processes. This undertaking came in response to Mr. Maddox’s demand for third-party verification (SAA 00-31) of NASD denials after PIABA publicly charged foul play. According to our report, “PIABA had accused NASD of ‘rigging securities arbitration panels,’ on the basis of information that the expertise factor, built into NLSS under NASD Rule 10308(b)(4)(B), was constructed with a bias toward seniority. NASD quickly issued a denial and Mr. Ketchum wrote to the PIABA Board, demanding a retraction (SAA Spec. Del., 7/21/00). He c

ategorically stated that ‘our system … does not choose arbitrators based on seniority when specific expertise is requested.'” Subsequently, Seth Lipner, the incoming President of PIABA, wrote an article (“The NLSS ‘Expertise’ Function Should Go,” 11 SAC 8(1)), enlarging upon the issue.

Ernst & Young has now issued its report and findings, we understand from NASD-DR Senior Vice President George H. Friedman. E&Y’s independent verification study, he observed, found, “that NLSS operated as NASD said and as provided for in the rule filing and approved order.”


Copyright 2000-2002 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at


Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article. 


Need help with a securities law issue? Call New York Securities Lawyer at 212-509-6544 or visit the website. Representing investors and advisers across the country for over 30 years.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.