In the olden days, if a broker failed to appear and testify before NASD or the NYSE due to a parallel investigation by the SEC, Justice, or other government agency, sanctions were swift and severe, resulting in the broker being barred from associating with any broker-dealer for a violation of NASD Rule 8210 or NYSE Rule 476. Though brokers have long claimed a 5th Amendment right against self-incrimination before these SROs, the claims fell on deaf ears, and brokers found no support from the SEC or the Courts. Times may changing, but not very fast, and its probably unwise to expect different results in the near future.
Since the Frank Quattrone matter (SEC Rel. No. 34-53547) it seems that the SEC, in deciding cases appealed to it from NASD & NYSE, is giving more attention to defendant's claims of state action by a SRO, and is remanding cases to NASD & NYSE to have them further consider these issues (see generally In re Justin Ficken, SEC Rel. No. 34-54699, November 3, 2006 (remanding NASD action) and the very recent NYSE case involving Gregg Heinze (SEC Rel. No. 34-56100, July 19, 2007)(remanding NYSE case for further consideration of Heinze's claim that NYSE was functioning as a state actor and that he was entitled to not testify before NYSE). The Commission carefully explains that defendants still have a very high bar to meet to prove state action by an SRO, but are not so quick to dismiss the theory. Ultimately, it seems that only the rarest set of circumstances may allow a defense based upon state action by an SRO. Worth watching...
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