[Federal Register Volume 74, Number 224 (Monday, November 23, 2009)]
[Notices]
[Pages 61193-61197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27997]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61002; File No. SR-FINRA-2009-050]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change Relating to
Availability of Information Pursuant to FINRA Rule 8312 (FINRA
BrokerCheck Disclosure)
November 13, 2009.
I. Introduction
On July 24, 2009, the Financial Industry Regulatory Authority, Inc.
[[Page 61194]]
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to make available in BrokerCheck information about
former associated persons of a FINRA member who were the subject of a
final regulatory action as defined in Form U4 that has been reported to
the Central Registration Depository (``CRD[supreg]'' or ``CRD
System''). The proposal was published for comment in the Federal
Register on August 7, 2009.\3\ The Commission received fifty-two
comments on the proposal.\4\ FINRA responded to the comments on October
15, 2009.\5\ This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 60462 (August 7,
2009), 74 FR 41470 (August 17, 2009 ``Notice'').
\4\ See Exhibit A for a list of comment letters.
\5\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Richard E. Pullano, Associate Vice President and Chief Counsel,
FINRA, dated October 15, 2009 (``Response Letter'').
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II. Description of the Proposal
Pursuant to FINRA Rule 8312, BrokerCheck allows the public to
obtain information regarding current and former members, as well as
associated persons and persons who were associated with a member within
the preceding two years. Formerly registered persons, although no
longer in the securities industry in a registered capacity, may,
however, work in other investment-related industries or attain
positions of trust. FINRA thus proposed to expand the information
available via BrokerCheck to certain information with respect to
persons who were associated with a member but who have not been
associated with a member in the preceding two years (``formerly
associated persons''), if those persons were the subject of any final
regulatory action, as defined in Form U4, that has been reported to CRD
via a uniform registration form.\6\
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\6\ See proposed FINRA Rule 8312(c).
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``Final regulatory action'' includes any final action of the
Commission, Commodity Futures Trading Commission, a Federal banking
agency, the National Credit Union Administration, another Federal
regulatory agency, a State regulatory agency, a foreign financial
regulatory authority, or a self-regulatory organization, including
actions that have been appealed.\7\ FINRA staff will review the
information on Forms U4 and U5 (including predecessor questions), as
well as information filed on Form U6, to determine whether a formerly
associated person is subject to a final regulatory action and should be
included in BrokerCheck pursuant to the proposed rule.\8\
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\7\ See Form U4 questions 14C, 14D, and 14E, as well as Question
7D of Form U5. See also Section 3(a)(39) of the Act.
\8\ Under the proposed rule change, FINRA may disclose a final
action that is reported by a regulator on a Form U6 even if that
action has not been reported by an individual on a Form U4 because,
for example, the individual was not registered at the time the final
regulatory action was reported.
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For such formerly associated persons,\9\ FINRA will disclose: (i)
Information concerning any final regulatory action; (ii) administrative
information, such as employment and registration history as reported on
a registration form; (iii) the most recently submitted comment, if any,
provided by the person, if the comment is relevant and in accordance
with the procedures established by FINRA; and (iv) dates and names of
qualification examinations passed by the formerly associated person, if
available.\10\
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\9\ Certain information about some formerly associated persons
who have not been associated with a member since January 1, 1999,
may not be available through BrokerCheck. As discussed more fully in
the Notice, two conditions apply to a small percentage of
individuals who were no longer registered at the time Web CRD was
established in 1999. First, not all of these individuals' records
are available in the Web CRD format; instead, their records exist in
the Legacy CRD format. Second, for a very small percentage of
individuals, certain administrative information is unavailable in
either the Web or Legacy CRD format.
\10\ See proposed FINRA Rule 8312(c).
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The proposed rule change would not expand access to other
information that is included in the CRD System, such as customer
complaints, bankruptcies, liens, criminal events or arbitration claims.
In addition, a final regulatory action would not include any action
limited to the revocation or suspension of an individual's
authorization to act as an attorney, accountant or Federal contractor
(Form U4, Question 14F).
If FINRA receives a request regarding a formerly associated person
for which it has data in a different format, FINRA's staff will
manually prepare the BrokerCheck report, convert the report to an
electronic format, and make the report available through BrokerCheck.
Once the information has been converted to the Web CRD format it will
be available in Web CRD from that point forward.\11\
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\11\ FINRA stated that if it identifies or becomes aware of
potentially inappropriate information, including customer names,
confidential account information or possibly offensive or
potentially defamatory language in a BrokerCheck report, FINRA would
balance the value of the language in controversy for regulatory and
investor protection purposes against the objector's asserted privacy
rights and/or potential defamation claims. Based on this balancing,
FINRA may determine to redact language from BrokerCheck reports on a
case-by-case basis. See the Notice, citing, e.g., Securities
Exchange Act Release No. 42402 (February 7, 2000), 65 FR 7582
(February 15, 2000) (Order Approving SR-NASD-99-45).
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III. Summary of Comments and FINRA's Response
The Commission received fifty-two comment letters on the proposed
rule change.\12\ Most comments focus on two issues. First, commenters
address the provision of FINRA Rule 8312 that provides for the release
of certain information regarding an individual who is a current or
former member or current associated person of a member of FINRA, or a
person who has been an associated person of a member of FINRA within
the past two preceding years. FINRA is not making a substantive change
to this provision.\13\ Second, commenters take issue with the limited
nature of the information to be disclosed regarding formerly associated
persons.
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\12\ See supra, note 4.
\13\ Current FINRA Rule 8312(a); proposed to be re-numbered to
FINRA Rule 8312(b).
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A. General Two-Year BrokerCheck Disclosure Period
Most information available through BrokerCheck is only available
with respect to current or former members, or associated persons of
members, or persons who were associated persons of FINRA members within
the preceding two years.\14\ Forty commenters argue that, for investor
protection purposes, this two-year time frame should be increased so
that information remains available to the public via BrokerCheck for a
longer period of time--anywhere from five years to forever.\15\ Twelve
commenters \16\ advised a six-year disclosure period, which corresponds
to the time limit in FINRA's rule for the submission of arbitration
claims involving public customers (``eligibility
[[Page 61195]]
rule'').\17\ FINRA believes that these comments are outside the scope
of the rule proposal, since it is not proposing to change the two-year
disclosure period currently set forth in Rule 8312; rather, the
proposed rule change expands BrokerCheck only with respect to formerly
associated persons who are subject to a final regulatory action.\18\
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\14\ Id. FINRA stated that some commenters incorrectly mentioned
that information regarding an individual is ``purged'' from
BrokerCheck once that individual ceases to be registered with FINRA
for a period of two years. See, e.g., comment letters from Lipner,
Van Kampen, Sigler, Speyer, and Claxton. FINRA stated that the
information is retained in the CRD system even though it is not
displayed through BrokerCheck and would be available for display
through BrokerCheck should the individual reregister with FINRA or
otherwise become covered by BrokerCheck. See Response Letter at 2.
\15\ See comment letters from Lipner, Van Kampen, Sigler,
Pounds, Steiner, Neuman, Bleecher, Estell, Layne, PIABA, Schultz 1,
Shewan, Port, Graham, Speyer, AARP, Griffin, Sherman, Cornell,
Evans/Edmiston, St. John's, Rosenfield, Ilgenfritz, Buchwalter,
Miller, Rosca, Guiliano, Greco, Sonn, Haigney, Sutherland, Davis,
Mougey, Claxton, DeVita, Ledbetter, Gladden, McCauley, Malarney, and
Willcutts.
\16\ See comment letters from Pounds, Steiner, Estell, PIABA,
Schultz 1, Graham, Rosenfield, Ilgenfritz, Miller, Greco, Sonn, and
Haigney.
\17\ See FINRA Rule 12206.
\18\ See Response Letter at 3. FINRA clarifies that four
commenters (Lipner, Neuman, AARP, and Malarney) erroneously state
that the proposal will limit the time frame during which information
on former registered persons will be available through BrokerCheck.
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Nevertheless, FINRA notes that the two-year disclosure period
coincides with the period in which an individual can return to the
industry without being required to requalify by examination and the
initial period in which an individual remains subject to FINRA's
jurisdiction.\19\ FINRA states that when the two-year time frame was
proposed, FINRA believed that the two-year time frame struck the
appropriate balance between an investor's interest in being easily able
to obtain information about a former registered person and a person's
desire for privacy once he has left the securities industry,\20\ and it
continues to believe that is the proper balance today.\21\
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\19\ See Response Letter at 3, citing Securities Exchange Act
Release No. 42240 (December 16, 1999), 64 FR 72125 (December 23,
1999) (Notice of Filing SR-NASD-99-45).
\20\ Id. FINRA also notes that the Commission received no
comments when FINRA proposed establishing the two-year disclosure
period for BrokerCheck.
\21\ See Response Letter at 3.
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Finally, FINRA disagrees with the commenters who represent
investors in securities litigation or other matters who suggest a six-
year disclosure period, which FINRA believes is in order to make it
easier to conduct research on former registered persons.\22\ FINRA
states that the BrokerCheck system was established principally to help
members of the public determine whether to conduct or continue to
conduct business with a FINRA member or any of the member's associated
persons and not for the purpose suggested by these commenters.\23\
FINRA believes that the commenters' attempt to link the time limitation
on the submission of claims provided for under the eligibility rule and
the time frame for BrokerCheck disclosure is misplaced, since the time
limitation under the eligibility rule is determined by the date of the
occurrence or event giving rise to the claim and has no relationship
whatsoever to the termination of an individual's registration with
FINRA.\24\ Therefore, in FINRA's opinion, the commenters' suggested
change is outside the scope of the rule proposal and also would not
necessarily address the commenters' concerns.\25\
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\22\ See Response Letter at 4, citing e.g., comment letters from
PIABA, Rosca, Greco, Sonn, and Haigney.
\23\ See Response Letter at 4.
\24\ Id.
\25\ Id.
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B. Expanding Access to Disclosure Information, Other Than Final
Regulatory Actions, Pertaining to Individuals Not Registered With FINRA
for More Than Two Years
Eighteen commenters express concern that FINRA's proposal may be
too limiting in that it only expands BrokerCheck with respect to those
formerly associated persons who are the subject of a final regulatory
action, and for those persons, only with respect to certain
information.\26\ Many of these commenters suggest that BrokerCheck
should include additional information, such as arbitration claims,
criminal proceedings, and bankruptcies and liens, contending that these
other categories are just as valuable to investors as final regulatory
actions.\27\ FINRA believes that these comments are outside the scope
of the rule proposal because they pertain to categories of disclosure
that are not the subject of the current rule proposal.\28\
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\26\ See comment letters from Caruso, Bleecher, PIABA, Schultz
1, Feldman, Sherman, Lewins, Cornell, Bakhtiari, Evans/Edmiston, St.
John's, Rosenfield, NASAA, Guiliano, Sonn, Meyer, Haigney, and
Amato. Two commenters stated that FINRA's proposed rule change would
apply only to those formerly associated persons who are the subject
of a final regulatory action and who work in other investment-
related industries or positions of trust. See comment letters from
Schultz 1 and Sonn. FINRA clarified that the proposal will, in fact,
apply to all former registered persons who are the subject of a
final regulatory action regardless of their current occupation, if
any. See Response Letter at 4.
\27\ See, e.g., comment letters from PIABA, Schultz 1, Cornell,
Evans/Edmiston, St. John's, and Rosenfield.
\28\ See Response Letter at 4.
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Notwithstanding that, FINRA states these other categories of
information are more relevant when the individual is registered or was
recently registered (i.e., within two years) and reiterates that it
believes the proposal strikes a balance between personal privacy and
investor protection concerns.\29\ FINRA justifies one distinction by
noting that while final regulatory actions are subject to procedures
that allow an opportunity for the person to present arguments to a
fact-finder about the allegations before the final disposition of the
matter,\30\ arbitration claims may not be subject to procedures that
allow an opportunity for the person to present arguments to a fact-
finder about the allegations before final disposition. Further, FINRA
notes, a firm may choose to settle an arbitration claim regardless of
whether the person wishes to contest the claim (e.g., for business
reasons). With respect to criminal charges and convictions, FINRA
states that these claims that are reported subsequently may have a
different disposition, which may significantly change the meaning of
the matter as originally reported (for example, such charges or
convictions may have been dismissed or expunged). Finally, FINRA does
not think that reportable financial matters have the same degree of
materiality as final regulatory actions such that they warrant
disclosure on a permanent basis.
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\29\ See Response Letter at 5.
\30\ The formerly associated person has the opportunity to
submit a comment for publication in BrokerCheck in response to
information provided through BrokerCheck if the comment is in the
form and in accordance with the procedures established by FINRA and
relates to the information provided through BrokerCheck.
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IV. Discussion and Commission Findings
After carefully reviewing the proposed rule change, the comment
letters, and the Response Letter, the Commission finds that the
proposal is consistent with the requirements of the Act and the rules
and regulations thereunder applicable to a national securities
association.\31\ In particular, the Commission finds that the proposal
is consistent with Section 15A(b)(6) of the Act,\32\ which requires,
among other things, that FINRA's rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\31\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\32\ 15 U.S.C. 78o-3(b)(6).
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Specifically, the Commission believes that making information
available through BrokerCheck about formerly associated persons who
were the subject of a final regulatory action will help members of the
public to protect themselves from unscrupulous people and thus the
proposed rule change should help prevent fraudulent and manipulative
acts and practices, and protect investors and the public interest. One
commenter suggests the disclosure of this additional information may
serve
[[Page 61196]]
as a deterrent to fraudulent activity.\33\ The Commission believes that
the information FINRA proposes to disclose is relevant to investors and
members of the public who wish to educate themselves with respect to
the professional history of a formerly associated person. It is
possible that a formerly associated person could become a financial
planner or work in another related field where his securities record
would help members of the public decide if they should accept his
financial advice or rely on his advice or expertise. One commenter
suggested a formerly associated person could serve as a non-public
arbitrator.\34\ Clearly, in any of these circumstances, the formerly
associated person's BrokerCheck information would be relevant in
determining whether to do business with him, or, in the case of a
claimant, in deciding whether to challenge a potential arbitrator.
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\33\ See Cornell letter.
\34\ See Estell letter.
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The Commission agrees that the concerns raised by commenters who
believe that the time frame for general disclosure should be increased
are outside the scope of this proposal. However, the categories of
information that should be disclosed for formerly associated persons is
within the scope of the instant proposal and the commenters make a
number of legitimate arguments with respect to the usefulness of the
additional information they seek to have disclosed. The Commission
understands that certain commenters, as well as other members of the
public, may utilize information in BrokerCheck in considering whether
to bring action against a formerly associated person for potentially
actionable deeds \35\ and believes that this is a legitimate use for
BrokerCheck. The Commission recognizes that the public's ability to
access information, whether to inquire about a registered person or to
obtain information in connection with an alleged wrongdoing of a
formerly associated person may serve to protect investors, the
integrity of the marketplace, and the public interest. The Commission
urges the public to utilize all sources of information, particularly
the databases of the State regulators, as well as legal search engines
and records searches, in conducting a thorough search of any associated
person's activities.
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\35\ See supra, note 22.
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The Commission notes that FINRA stated it would continue to
evaluate all aspects of the BrokerCheck program to determine whether
future circumstances should lead to greater disclosure through
BrokerCheck.\36\ FINRA has a statutory obligation to make information
available to the public and,\37\ as stated in the past, the Commission
believes that FINRA should continuously strive to improve BrokerCheck
because it is a valuable tool for the public in deciding whether to
work with an industry member.\38\ The changes proposed in this filing
will enhance BrokerCheck by including more information that should
prove useful to the general public.
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\36\ See Response Letter at 5.
\37\ See Section 15A(i) of the Act.
\38\ See, e.g., Securities Exchange Act Release No. 59916 (May
13, 2009), 74 FR 23750 (May 20, 2009).
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For the reasons discussed above, the Commission finds that the rule
change is consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\39\ that the proposed rule change (SR-FINRA-2009-050), be, and
hereby is, approved.
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\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
Exhibit A--List of Comment Letters Received for FINRA-2009-050
1. Daniel W. Roberts, President/CEO, Roberts & Ryan Investments
Inc., dated August 21, 2009 (``Roberts'').
2. Seth E. Lipner, Professor of Law, Zicklin School of Business,
Baruch College, CUNY, dated August 27, 2009 (``Lipner'').
3. Al Van Kampen, Attorney at Law, dated August 31, 2009 (``Van
Kampen'').
4. James A. Sigler, Esq., dated August 31, 2009 (``Sigler'').
5. Herb Pounds, dated August 31, 2009 (``Pounds'').
6. Leonard Steiner, Lawyer, dated August 31, 2009 (``Steiner'').
7. David P. Neuman, Stoltmann Law Offices, PC, dated August 31,
2009 (``Neuman'').
8. Steven B. Caruso, Esq., Maddox Hargett & Caruso, P.C., dated
September 1, 2009 (``Caruso'').
9. Rob Bleecher, Attorney, dated September 1, 2009 (``Bleecher'').
10. Barry D. Estell, Esq., dated September 1, 2009 (``Estell'').
11. Richard M. Layne, Esq., Law Office of Richard M. Layne, dated
September 1, 2009 (``Layne'').
12. Brian N. Smiley, President, Public Investors Arbitration Bar
Association, dated September 4, 2009 (``PIABA'').
13. Laurence S. Schultz, Driggers, Schultz & Herbst, P.C., dated
September 4, 2009 (``Schultz 1'').
14. Scott R. Shewan, Pape Shewan LLP, dated September 4, 2009
(``Shewan'').
15. Robert C. Port, Esq., dated September 4, 2009 (``Port'').
16. Jan Graham, Graham Law Offices, dated September 4, 2009
(``Graham'').
17. Jeffrey A. Feldman, dated September 7, 2009 (``Feldman'').
18. Debra G. Speyer, Esq., Law Offices of Debra G. Speyer, dated
September 7, 2009 (``Speyer'').
19. Tim Canning, Law Offices of Timothy A. Canning, dated September
8, 2009 (``Canning'').
20. David Certner, Legislative Counsel and Legislative Policy
Director, AARP, dated September 8, 2009 (``AARP'').
21. Keith L. Griffin, Griffin Law Firm, LLC, dated September 8,
2009 (``Griffin'').
22. Steven M. Sherman, Sherman Business Law, received September 8,
2009 (``Sherman'').
23. Richard A. Lewins, Esq., dated September 8, 2009 (``Lewins'').
24. William A. Jacobson, Esq., Associate Clinical Professor of Law,
Director, Cornell Securities Law Clinic, dated September 8, 2009
(``Cornell'').
25. Ryan K. Bakhtiari, Aidikoff, Uhl and Bakhtiari, dated September
8, 2009 (``Bakhtiari'').
26. Jonathan W. Evans and Michael S. Edmiston, dated September 8,
2009 (``Evans/Edmiston'').
27. Christine Lazaro, Supervising Attorney, Lisa A. Catalano,
Director, Peter J. Harrington, Legal Intern, Securities Arbitration
Clinic, St. John's University School of Law, dated September 8, 2009
(``St. John's'').
28. William S. Shepherd, Managing Partner, Shepherd Smith Edwards
Kantas, LLP, dated September 8, 2009 (``Shepherd'').
29. Howard Rosenfield, Law Offices of Howard Rosenfield, received
September 8, 2009 (``Rosenfield'').
30. Rex Staples, General Counsel, North American Securities
Administrators Association, dated September 8, 2009 (``NASAA'').
31. Scott C. Ilgenfritz, Johnson, Pope, Bokor, Ruppel & Burns, LLP,
dated September 8, 2009 (``Ilgenfritz'').
32. Steve A. Buchwalter, Esq., dated September 8, 2009
(``Buchwalter'').
33. John Miller, Attorney, Swanson Midgley, LLC, dated September 9,
2009 (``Miller'').
34. Alin L. Rosca, Attorney at Law, John S. Chapman & Associates,
LLC, received September 9, 2009 (``Rosca'').
35. Nicholas J. Guiliano, The Guiliano Law Firm, received September
9, 2009 (``Guiliano'').
36. W. Scott Greco, Greco Greco, P.C., dated September 9, 2009
(``Greco'').
[[Page 61197]]
37. Jeffrey Sonn, Esq., Sonn & Erez, PLC, dated September 9, 2009
(``Sonn'').
38. Stephen P. Meyer, Esq., Meyer, Ford & Glasser, dated September
10, 2009 (``Meyer'').
39. Dayton P. Haigney, III, Attorney at Law, dated September 10,
2009 (``Haigney'').
40. John E. Sutherland, Brickley, Sears & Sorett, P.A., dated
September 11, 2009 (``Sutherland'').
41. Theodore M. Davis, Esq., dated September 11, 2009 (``Davis'').
42. Peter J. Mougey, Esq., dated September 14, 2009 (``Mougey'').
43. Roger F. Claxton, Law Office of Roger F. Claxton, dated
September 15, 2009 (``Claxton'').
44. Richard D. DeVita, Esq., dated September 15, 2009 (``DeVita'').
45. Dale Ledbetter, Ledbetter & Associates, P.A., dated September
16, 2009 (``Ledbetter'').
46. William J. Gladden, JD, CFP, dated September 16, 2009
(``Gladden'').
47. Steven M. McCauley, Esq., dated September 16, 2009
(``McCauley'').
48. Michael W. Malarney, Esq., The Pearl Law Firm, P.A., dated
September 17, 2009 (``Malarney'').
49. Ronald M. Amato, Esq., Shaheen, Novoselsky, Staat, Filipowski
Eccleston, PC, dated September 18, 2009 (``Amato'').
50. Thomas P. Willcutts, Willcutts Law Group, LLC, dated September
21, 2009 (``Willcutts'').
51. Scot D. Bernstein, Law Offices of Scot D. Bernstein, dated
September 24, 2009 (``Bernstein'').
52. Laurence S. Schultz, Driggers, Schultz & Herbst, P.C., dated
September 30, 2009 (``Schultz 2'').
[FR Doc. E9-27997 Filed 11-20-09; 8:45 am]
BILLING CODE 8011-01-P