WASHINGTON -- Municipal bond dealers who are worried that their deepest secrets will be revealed now that the National Association of Securities Dealers has beefed up its consumer hot line can stop biting their nails.

In studying how the hot line works, The Bond Buyer found that the average investor will have little difficulty getting the information, but a lot of trouble understanding it.

For the past two years, the NASD has offered information on the criminal convictions of securities dealers. On July 1, the association expanded its hot line service to include criminal indictments, civil judgments on securities matters, pending disciplinary proceedings, and NASD arbitration for the past three years.

Investors can get the information by calling a toll-free number on weekdays. Within two weeks, the association will send the investor a full list of the disciplinary actions taken against a brokerage firm.

In the first week that the association offered the additional information, it received about 1,600 requests, compared with 300 per week before the change, said Jim Spellman, the manager of NASD's media relations department. Calls are now running near 800 per week.

To give municipal bond dealers a look at the the sort of information that is being sent to investors, The Bond Buyer requested and received information on 10 randomly selected brokerage firms. As promised, the information arrived within two weeks.

What The Bond Buyer discovered was that the average investor would probably have great difficulty interpreting the information. For one thing, the NASD's reports are generally unclear about what kinds of securities are involved.

For example, in a three-page report on Goldman, Sachs & Co., the dealers group said it fined the firm $2,500 because Goldman "failed to enter volume reports for certain securities on three nonconsecutive trade dates." But the report does not say whether the securities were stocks, corporate bonds, municipal bonds, or some other instrument. The notation was one of seven listings on Goldman Sachs in the report.

In addition, most of the information was written in technical terms too complicated, arcane, or vague for ready understanding.

Consider the tortuous sentence in an NASD censure order against Clayton Brown and Associates Inc., which was contained in a one-page, two-item report. Clayton Brown "permitted securities carried by it for the accounts of customers to be hypothecated in that the securities were commingled with securities of the firm under a lien for a loan to the firm," the report says.

The reports examined by The Bond Buyer fail to explain market terms that the average investor would not normally know. For example, in an 11-page report on A.G. Edwards, the NASD said the firm was guilty of "churning," but the term was not defined. Overall, the majority of the 49 items in the Edwards report involved minor arbitration cases.

Many of the reports list violations of specific laws without explaining the laws. One firm was found to have violated "the books and records provisions of the Securities Exchange Act of 1934." The act created the Securities and Exchange Commission and barred a range of abusive practices in the securities industry. Without an explanation of the law, all but the most sophisticated investors are left in the dark.

Another unintelligible reference listed a violation of "Chicago Board Options Exchange Rules #4.2, #4.9, and #9.8," without describing the rules.

For an investor who does not understand the words on the page, the sheer volume of material may be enough to influence an investment decision, a fact that probably should worry some brokers.

The reports on some firms are dozens of pages long, while the reports on others are only one or two pages. The Bond Buyer found that the length of a report tended to reflect the size of a firm, not the significance of its disciplinary record -- a fact that may be lost on investors.

For example, the report on Prudential Securities Inc. is 51 pages long and contains more than 200 separate items, but deals mostly with minor arbitration cases. On the other hand, the report on Bagley Securities Inc. is only three pages long, but it includes notices of suspensions and eventual expulsion from the NASD.

The Bagley case demonstrates that in some instances, the information can be useful to investors by clearly warning them away from the most seriously troubled firms.

According to the report, Bagley "sold municipal securities to its retail customers at prices that were unfair and unreasonable with markups ranging from 5.8% to 46.6% over the prevailing market price and failed to inform such purchasers that it charged excessive markups."

Overall, the reports included many loaded terms, like "censure" or "cease and desist" without clarifying how serious the violations were.

For example, in several reports, firms were "censured" by a state or by the NASD. But in many cases no more information is given, so the investor does not know the reason for the censure, how serious the violation was, or even what "censuring" involves.

The dealers group is aware that investors are having trouble understanding the information the association is sending out, having receive a number of calls from investors with questions, said Spellman of NASD.

Spellman said the investors are being referred to the NASD attorney or enforcement official most familiar with the case.

To further help investors, NASD officials "are taking a look at the idea of having a brochure which would [contain] simple explanations of what phrases mean," Spellman said. The brochure would be included with each report requested by an investor, he said.

There is still more to come from the NASD hot line: The agency says it will expand again in September to offer records dating back to May 1989.

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