Lawsuit over NASD-NYSE merger revived

A federal appeals court yesterday kept alive a long-running lawsuit that challenged the National Association of Securities Dealers merger with the New York Stock Exchange's regulatory unit in 2007.

A federal appeals court yesterday kept alive a long-running lawsuit that challenged the proxy process used by the National Association of Securities Dealers in gaining its members’ approval to merge with the New York Stock Exchange’s regulatory unit in 2007.
The suit, filed two years ago against the NASD by Standard Investment Chartered Inc., a Costa Mesa, Calif.-based broker-dealer, claimed that NASD’s proxy statement was misleading and a violation of Delaware corporate law.
The NASD, now known as the Financial Industry Regulatory Authority Inc. of New York and Washington, is incorporated as a non-profit in Delaware.
A New York federal judge dismissed the case in May 2007, but yesterday the 2nd U.S. Circuit Court of Appeals in New York sent the case back to the lower court for a hearing on whether Finra had violated Delaware law.
A key issue in the case was whether Finra misled its members by claiming that the $35,000 it paid to each firm — in exchange for giving up significant voting rights under the new Finra corporate structure —was the maximum allowed by Internal Revenue Service rules governing non-profits.
“It will be nice to see how this plays out,” said Standard Chartered’s attorney, Richard Greenfield, a partner at Greenfield & Goodman LLC in Easton, Md.
“We’re still fighting for release of additional documents [relating to] the [$35,000],” he said.
Mr. Greenfield said the payment could have been as high as $135,000 per member.
Finra has been fighting to keep some evidence under court seal, but some of the relevant documents — including a March 2007 IRS opinion letter — were recently released by the Orlando, Fla.-based Securities Industry Professional Association.
The proposed merger and the $35,000 payment were announced on Nov. 28, 2006, before Finra received the opinion letter from the IRS.
The IRS letter approved a range of payments, but the specific amounts were redacted by the court.
“Finra will withhold comment while this case is being adjudicated,” said Finra spokesperson Herb Perone in a statement. “However, we will reiterate our oft-stated view that this case [is] without merit.”