More Americans than ever before are investing in the stock market. The industry's NASD Board of Governors approved a proposal Thursday that would give regulators the authority to issue a temporary order to immediately halt suspected fraudulent activity at an offending firm. The proposal, which must go before the SEC for approval, is intended to mitigate the effects of lengthy investigations and litigation, said Roger Sherman, vice president of enforcement for NASD Regulation. NASD's enforcement department would be able halt a firm's activities if the violations would cause significant harm to investors while disciplinary actions proceed. Also, in 1997 NASD Regulation and the SEC approved a taping rule that requires brokerage firms to tape brokers' phone calls with investors if a percentage of brokers came from a firm expelled in the last two years.
Proponents say the taping rule aims to attack a key problem for regulators.
That is, when a fraudulent firm gets shut down, the brokers migrate and set up a new shop and continue the fraudulent schemes. Brokers who are taped are less likely to break securities laws, regulators say. So far, no firms have triggered the rule. Mark Astarita, a New York City attorney who represents brokers, said regulators have become too aggressive in recent years, and the taping rule stigmatizes legitimate brokers. The rules will go before the SEC later this year for approval.