It’s sometimes hard being a lawyer and being skeptical about the justice system. But beliefs and opinions are formed by experience. It is with great difficulty that I relay the following true story supplemented by actual witness testimony from the court reporter:

I represented some individuals and companies who filed an arbitration claim against a brokerage firm and several principals of the firm. The brokerage firm MFI Investments is a small one based in Ohio. It was an unusual claim in that my clients had hired a registered investment advisor to handle their funds, and the advisor ran the transactions through this brokerage firm. The advisor grossly mishandled my clients’ funds. Unfortunately, the advisor had shut down his business, lost most of his assets, and was diagnosed with aids. My clients likely would not be collecting any money judgments against the investment advisor.

Our argument against the brokerage firm and its principals was that they had a duty to supervise my clients’ accounts. This was a hotly disputed issue in the case; the brokerage firm and principals argued that they merely executed the orders of the advisor and since they never had any contact with my clients, they had no such duty to supervise.

To my surprise, and I suppose to the surprise of his attorneys, the manager who we had sued, Mr. Russell Clark, testified that he believed he did have a duty to supervise my clients’ accounts. He testified that on a monthly basis he or another principal in his office reviewed my clients’ monthly statements for excessive trading and to ensure the investment were suitable based upon my clients’ investment objectives. The follow-up question to this testimony was:

Q. And my question to you is when you did that, did you make a written record evidencing such review?
A. None other than perhaps a signature notation on them, on the statement.

This was odd, because I had requested that the brokerage firm produce any and all documents evidencing that the firm performed any supervisory review of my clients’ accounts. Nothing responsive had been produced. So I inquired as to the whereabouts of the monthly statements:

Q. Where are they?
A. The -- I thought I explained that. We sent them back to Ohio…The statements were sent back all together, all the various months. So whoever reviewed them that particular month would have that person's initial on them…

Q. Do you know, Mr. Clark, why we don't have those documents today?
A. I don't know.

Q. You are aware that those documents are required to be maintained, correct?
A. Yes.

Q. And have you had any conversations with anyone at [the brokerage firm] regarding the whereabouts of those documents?
A. No.

Two days later, Mr. Clark walked into the arbitration hearing with an armful of my clients’ monthly statements. He testified that he had received the statements at lunch time from Debbi Smythe, another supervisory manager at the brokerage firm. Scattered throughout the monthly statements were the original initials and a few notations of Russell Clark.

I was suspicious. I requested permission to take the monthly statements for the purpose of having a handwriting analysis performed to determine when the initials were placed on the documents - several years earlier, when they should have been or in the last week after I had begun asking Mr. Clark questions about them. The Panel granted my request. I noticed Mr. Clark squirming. I called him back to the stand to question him some more about when the initials were put on the paper. I asked him outright:

Q. Do you know if it was done in the last week?
A. No.

Either Mr. Clark didn’t know if the initials were placed on the documents in the last week or he knew they were not. Either interpretation pinned Mr. Clark down regarding the initials.

The next morning, Mr. Clark’s attorney entered the hearing room with a grave and concerned face. He advised the Panel and the parties that he had called Ms. Debbie Smythe and she had admitted that Russell Clark telephoned her in the last week and asked her to take my clients’ monthly statements and randomly place Russell Clark’s initials throughout. Ms. Smythe went further than that, however. She used different colored pens - sometime blue and sometimes black . And occasionally she circled things and drew arrows to make it look like some sort of analysis had been done.

Two wrongs had been committed. Not only did Mr. Clark and Ms. Smythe, together, manufacture critical evidence for the arbitration - evidence that went to the very heart of the case - but Mr. Clark lied about it under oath. He perjured himself. The defense counsel hung their heads and offered no defense for the misconduct. I requested that the Panel make a disciplinary referral to the NASD to sanction these two licensed, supervisory individuals. This was the only avenue for punishment available. The NASD, in turn, could investigate the matter and either fine Mr. Clark and Ms. Smythe, suspend them for a period of time, or, better yet, yank their licenses, thereby prohibiting them from working in the securities industry. The Panel responded that any such referral would be made in the written decision of the Panel.

When I reviewed the arbitrators’ decision, some months later, I almost became physically ill. The Panel not only failed to make a disciplinary referral, it did not even comment upon the charade described above - not one word. What is it that propelled these arbitrators - Stephen Nagy, Simeon Trotter, and Edmund R. Yates - to silence? What is it that caused them to close their eyes in the face of such egregious conduct?