Nasdaq's troubles unpleasant burden for Joe Hardiman Investigators arrived during 'his watch' as NASD president

The man from Alex. Brown

One defender notes stellar preparation for surge in volume

Securities industry

August 18, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

The National Association of Securities Dealers Inc. couldn't have done better when it landed Joseph R. Hardiman as president nine years ago.

He was a hot shot at Alex. Brown Inc., the No. 2 man at the venerable Baltimore-based brokerage firm, a driven worker with a reputation as an excellent manager and team builder.

And he did nothing to disappoint his backers after he was named president and chief executive of NASD in June 1987.

At NASD, the umbrella organization that oversees the activities of more than 5,400 securities firms, 500,000 brokers and the Nasdaq stock market, Hardiman led the overhaul of the stock market's computer systems. He spent millions polishing Nasdaq's reputation, billing Nasdaq as the "stock market for the next 100 years." And he oversaw the exchange's explosive growth, making it the world's second largest exchange with annual dollar volume of $2.4 trillion in 1995.

"He was a major player," said Ian B. Davidson, chairman and chief executive of D. A. Davidson & Co., a large regional brokerage firm based in Great Falls, Mont. "He is very bright and very sharp. He is a very strong person. He runs the show."

But it was on Hardiman's watch that Nasdaq's image, so carefully varnished under him, may have suffered the most as sweeping investigations by the Justice Department and the Securities and Exchange Commission looked into whether brokers were cheating investors.

In a scathing report released 10 days ago, the SEC found that NASD officials had been sleeping while "market makers," firms that buy and sell Nasdaq stocks:

* Cheated investors by colluding with one another to keep the spread -- the difference between what a stock is offered at and actually sold for -- on stocks intentionally wide.

* Harassed brokers who didn't maintain those spreads.

* Failed to honor price quotations to customers.

* Manipulated stocks by reporting trades late so investors couldn't get accurate prices.

"Nasdaq market makers have engaged in a variety of abusive practices to suppress competition and mislead customers," the SEC's report issued on Aug. 8 stated. "To move forward the NASD must transform its attitudes and conduct and renew its commitment to the interest of investors and the public."

Hardiman declined numerous requests by The Sun to be interviewed.

NASD officials neither admitted nor denied the allegations in the SEC's 42-page report, and Hardiman's name never appears in the document, which is customary.

Yet, the investigations raise the question: How could such serious problems have occurred when a sophisticated executive with an impeccable reputation, was at the helm?

"This was all on his watch," said Jeffrey Citron, chief executive of New York-based brokerage firm Christian, Kline and Cogburn. "He should have stepped down from the NASD. They did so many things wrong."

But Gordon Macklin, president of the NASD from 1970 to 1987, disagrees.

"I think Joe has plenty to be proud of, bottom line," he said. "He has done a superb job of positioning the NASD for the future. You've got greatly improved markets, you've got outstanding people in places. We've never been better off."

Ironically, it was the SEC that gave birth to the Nasdaq Stock Market. In a 1963 study, it determined that the over-the-counter stock market could benefit from advances in technology and improved regulation. Over-the-counter stocks were quoted either over the telephone or on pink sheets, which listed each stock alphabetically with the name of the firm making a market in the stock and its phone number. The problem with the pink sheets was that by the time the investor got the price, it was stale information.

In the coming years, Nasdaq's technology exploded and market makers, who were linked by computer, could buy and sell stocks in seconds.

Hardiman became president of the NASD after serving as its chairman, a position that is rotated annually.

A native of Salisbury, Md., Hardiman holds a bachelor's degree and a law degree from the University of Maryland. When he arrived at Alex. Brown in 1975, he had spent time practicing law with Miles & Stockbridge and working in the securities business with Robert Garrett & Sons. At Alex. Brown, he became chief operating officer responsible for administration, accounting, human resources and information services.

At the NASD, one of Hardiman's biggest tasks was to improve the surveillance of brokers. The NASD was overseeing 459,000 brokers and 6,722 brokerage firms when he took over in September 1987. But Hardiman was soon thrown into solving glitches that occurred when the stock market crashed.

He also undertook projects to protect investors from penny stock scams through stricter enforcement, and led an effort to develop a new trading system to get investors the best possible prices available for their orders.

Davidson credits Hardiman for making a quick decision in early 1995 to launch a major overhaul of Nasdaq's computer system so it could handle 1 billion trades a day.

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