SEC Approves Injunctive Relief Rule

New Mechanism for Resolution of Raiding Disputes Approved

Rule 10335 makes permanent, with some significant modifications, a formal mechanism for the resolution of raiding disputes, under a NASD Rule approved by the Securities and Exchange Commission.

Former Rule 10335, designed as a one-year pilot in 1996 and taken out of service with this change six years later, allows Arbitrators to make temporary injunctive orders pending a full merits hearing.

The main change in the new Rule, as approved by the SEC in the January 16 Federal Register (67 Fed. Reg. 11, p. 2258), will eliminate the option of seeking such relief within the arbitration process, leaving that function solely to the courts. To assure the main dispute will be arbitrated, industry parties seeking temporary relief are required to file simultaneously an arbitration claim with NASD and to pursue an expedited merits hearing that will decide permanent injunctive or other relief.

Arbitrators will be selected on an expedited basis and nominated from a “national roster of arbitrators.” The Chair will likely be an attorney with experience litigating cases involving injunctive relief and, to secure that prospect, the list of Panel nominees will be comprised of a minority of candidates with that credential.

The new Rule also specifies the applicable legal standard to guide arbitrators in deciding permanent relief as the laws of “the state where the events upon which the request is based occurred” and it establishes that court-ordered relief, while in effect, trumps the orders of the arbitrators. Absent authority from the ordering court, a Panel may order parties to seek modifications to the court’s order or wait for the temporary relief to expire.

While the original proposal would not let the arbitrators allocate travel-related costs and expenses, the Panel will now be able to shift the burden of such expenses as it sees fit and allocate their fees among the parties. (ed: This proposal received active comment and the Release announcing approval (SEC Rel. 34-45261, 1/9/02) of the rule filing (SR-NASD-00-02) indicates that the final rule reflects NASD responses to many of those comments. We did not see an implementation date, but the pilot does not expire until July 1, 2002. Thus, we expect NASD will announce an effective date in an upcoming Notice to Members.) (SAC Ref. No. 02-04-01)

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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.

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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.

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