It's (Never) Too Late
Criminal felons accused of sexual abuse know that if the prosecuting authorities delay too long, the charges could be time barred by applicable statutes of limitations. Similarly, civil defendants accused of egregious commercial fraud involving Ponzi schemes with numerous victims can rely on a statue of limitations defense if the victims wait too long to commence a lawsuit. Notions of fair play, concerns over faded memories, the reasonable expectation that legitimate claims will be pursued in a timely manner and the public policy discouraging the pursuit of stale claims, all support the enforceability of bright line statutes of limitations for criminal and civil charges.
According to the NASD, however, NASD members have no such protection when the Department of Enforcement brings disciplinary action. Instead of the safeguard of bright line limitations, periods enjoyed by accused criminals and civil litigants, the NASD contends that when looking at the delay in bringing enforcement action, it is appropriate to consider the entire fairness of the proceeding based on the entire record.
For example, in Department of Enforcement vs. J.D.K., Disciplinary Proceeding No. C07040042, Hearing Panel Decision (Feb. 10, 2006), the NASD Department of Enforcement commenced a disciplinary proceeding by issuing a Complaint on April 20, 2004. The alleged wrongdoing related to an offering of preferred stock in February 1998 - 6 years and 2 months prior to the commencement of the disciplinary proceeding. The respondent claimed that because of the delay between the alleged misconduct and the date of the Complaint, the Complaint was untimely and should be dismissed. The Panel determined that there was no bright line rule requiring the dismissal of a disciplinary proceeding based solely on the time period between the misconduct and the commencement of the disciplinary proceeding.
The time period is only one factor to consider in determining whether the proceeding was fundamentally fair. The crucial consideration, the Panel reasoned, is whether the delay harmed the respondent's "ability to mount an adequate defense." Because there was no allegation that any documentary evidence or material witness was missing or unavailable as a result of the delay, the Panel found no prejudice to the respondent, and denied the motion to dismiss on that ground.
So, how long can the NASD wait before commencing disciplinary proceedings? When can an NASD member reasonably believe that the time has passed for bring such a proceeding? According to the NASD, it may never be too late.
Yikes.