The Eleventh Circuit has decided to review en banc a ruling refusing to grant immunity to the NASD on the grounds that it was a self-regulating agency.  A Florida lawyer named Steven Weissman purchased a substantial amount of Worldcom stock in trust for his minor children.  That stock is now virtually worthless.  Rather than suing the now-defunct accounting firm of record, Arthur Anderson, or Worldcom’s former CEO Bernard Ebbers and the other directors, Weissman sued the National Association of Securities Dealers and NASDAQ Stock Market, Inc., the latter of which became a for profit enterprise prior to the events in question.  In his diversity complaint, filed in Federal District Court in the Southern District of Florida, Weissman asserted claims for false advertising, fraud, and other deceptive practices under Florida law.  He contended that his complaint was limited to the defendants’ commercial activities in promoting and vouching for Worldcom, for which the defendants received indirect profits.  The District Court rejected the defendants’ argument that as self-regulatory agencies they were immune from suit.  On appeal, a three-judge panel of the Eleventh Circuit ruled that this immunity does not apply to commercial for profit activity such as advertising.  Weissman v. National Ass’n of Securities Dealers, 468 F.3d 1306 (11th Cir. 2006), vacated, 481 F.3d 1295 (11th Cir. 2007).  One judge dissented, concluding that the acts of alleged misconduct by defendants were closely related to core regulatory functions and should not be actionable.   The panel’s opinion is available here: http://www.ca11.uscourts.gov/opinions/ops/200413575.pdf

The Eleventh Circuit has agreed to rehear the matter en banc, reflecting the Court’s recognition of the extraordinary impact of the panel opinion. Weissman v. National Ass’n of Securities Dealers,  481 F.3d 1295 (11th Cir. 2007). If the majority opinion prevails and is adopted by other Circuits, for-profit stock exchanges not only face the specter of significant new liabilities in relation to investments solicited in member companies but the added uncertainty because the theory of liability may derive from a myriad of laws that vary from state to state.  Stay tuned . . .