Weissman v. National Association of Securities Dealers

The National Association of Securities Dealers, Inc. owned the NASDAQ stock market (collectively, NASDAQ) (collectively, defendants). NASDAQ was a self-regulatory organization (SRO) pursuant to authority delegated to it by the Securities and Exchange Commission (SEC), meaning that NASDAQ, among other things, regulated trading on its exchange. However, NASDAQ also was a for-profit entity that benefitted financially from robust trading on its exchange. In support of its commercial goals, NASDAQ advertised heavily (spending more than $100 million) in newspapers and television. For example, after the revelation of massive accounting fraud relating to Enron, NASDAQ sought to soothe the markets with a two-page advertisement in the Wall Street Journal, in which NASDAQ proclaimed its support for proper accounting controls and touted the “good companies” that traded on NASDAQ. One of these purported good companies was WorldCom, Inc. Steven Weissman (plaintiff) purchased more than 80,000 WorldCom shares between December 2000 and June 2002, including on the day after NASDAQ’s Wall Street Journal advertisement. Weissman lost virtually his entire investment when WorldCom collapsed. Weissman sued NASDAQ for allegedly violating Florida law by marketing and promoting WorldCom stock to the public without disclosing that increased trading in WorldCom shares would increase NASDAQ’s revenue and for failing to register as a securities broker. Weissman also alleged that NASDAQ’s advertisements constituted fraud and negligent misrepresentation. Weissman acknowledged that as an SRO, NASDAQ was absolutely immune from suit for how it performed its quasi-governmental regulatory role. However, Weissman asserted that NASDAQ was not immune from his suit because his claims exclusively related to NASDAQ’s business-related advertisements. NASDAQ responded that it was absolutely immune regarding all conduct that was consistent with its regulatory powers, even if the challenged conduct was not itself regulatory related. Thus, per NASDAQ, even its purely business-related advertisements were covered by absolute immunity because the advertisements were consistent with its role as a regulator. The district court denied NASDAQ’s absolute-immunity claim. NASDAQ appealed. The court of appeals considered NASDAQ’s appeal en banc.