WealthManagement.com (September 1, 2000 ) — Just days after the NASD created a new dispute resolution subsidiary geared at improving the perception of its arbitration forums, the regulator was accused of “rigging” arbitration panels.

The allegation was made by the Public Investors Arbitration Bar Association (PIABA), based in Overland Park, Kan. PIABA members claim that the arbitrator list-selection method–used for both customer and employment cases–does not always rotate proposed panelists as promised.

PIABA officials say the revelation came in June at a Chicago demonstration of the list-selection method. When arbitrators with particular expertise were requested, proposed names were listed based on seniority. The system is supposed to function like a jury pool in which those who have been called are moved to the bottom of the list.

PIABA asked the NASD to look into the problem and respond by July 19.

The NASD did just that.

In an e-mail to PIABA President Mark Maddox, NASD Senior Vice President George Friedman said the NASD believed it had a successful “technology resolution” at hand. Friedman asked for more time to formally respond.

But the attorney group jumped the gun and issued a press release July 20 accusing the NASD of “rigging securities arbitration panels.”

NASD President Rick Ketchum responded the same day, saying the “perceived problem did not in fact exist.” He demanded that PIABA retract its “irresponsible” public statement.

Days later, Maddox told Ketchum that the lawyers’ group was “not in a position to determine the accuracy” of the NASD’s claim. Maddox asked that an independent consultant conduct an inquiry into the arbitrator selection system.

The NASD agreed, and said it will retain Ernst & Young to check the system. At press time in early August, an NASD spokesperson expected the accounting firm to be hired within a few weeks.

The NASD has launched a new subsidiary, NASD Dispute Resolution, to administer its arbitration program.

“We believe the creation of a separate subsidiary will further enhance the perception of neutrality,” says Linda Fienberg, president of NASD Dispute Resolution. Fienberg has been serving as the top exec of the arbitration division under NASD Regulation. The new subsidiary became operational July 9.

The arbitration unit has a six-person board that was expected to be announced by the end of August.