Nov. 3 (Bloomberg) -- After an eight-year career marketing mutual funds, Linda Cutler says, she felt like a failure when her score came back as a 68 on the Series 7 broker qualifying exam on Feb. 7, 2005.

NASD, one of the U.S. brokerage industry's main regulators, requires a person to receive at least a 70 to be a registered representative who can sell stocks, bonds and other securities.

Cutler got the bad news immediately after she took the online test. Two days later, Ryan Beck & Co., a Florham Park, New Jersey-based investment firm, asked her to resign.

``I was devastated,'' says Cutler, 35, who worked out of a midtown Manhattan office. ``My employment was contingent on that test.''

Because she marketed mutual funds, and not stocks or bonds, NASD, formerly the National Association of Securities Dealers, didn't require Cutler to take the Series 7. Even so, Ryan Beck, which is a unit of Fort Lauderdale, Florida-based BankAtlantic Bancorp Inc., mandates that anyone who dispenses investment advice, including its almost 500 brokers, pass the exam.

And Cutler, a senior associate who'd joined the firm in May 2004 after stints at Bank of America Corp. and Morgan Stanley, had spent months studying.

`I Lost It All'

It took Cutler five months to find another job, this time at New York-based wealth management firm Rochdale Investment Management. She worked as a marketing specialist while she prepared for a retest of the Series 7.

In January 2006, 11 months after being told she'd failed, NASD announced that it had mistakenly flunked 1,882 of the 60,500 Series 7 test takers from October 2004 to December 2005. Cutler was among the wrongly failed.

The error cost Cutler her job, months of salary and her employer's retirement plan contributions. ``Plus my reputation,'' Cutler says. She's suing NASD and the company that scored the exam, Plano, Texas-based Electronic Data Systems Corp., in federal court in Washington. ``I lost it all because of that scoring error.''

NASD said in a Jan. 6 statement that the 250 questions on each exam are pulled from a large pool of possible items. A scoring program adjusts for difficulties in each question and assigns them a proper weight.

The error occurred in the weighting process on as many as 213 questions, the agency said. NASD spokeswoman Nancy Condon declined further comment. Travis Jacobsen, a spokesman for Electronic Data, the world's No. 2 seller of computer services, says it has fixed the problem.

`Crushing Blow'

Another test taker, Timothy Wallin, was mistakenly flunked as well. ``This was my big dream,'' says Wallin of Springfield, Illinois. ``When I took the test and failed, it was a crushing blow.''

After getting his score, Wallin went to his 2001 Chevrolet Cavalier and spent 15 minutes alone outside the test center. What the hell am I going to do? the 25-year-old asked himself.

Wallin's employer at the time, GCG Financial, a financial services firm based in Bannockburn, Illinois, gave him a second chance to take the test.

On Dec. 29, 2004, Wallin passed. Still, he says he was humiliated by the failure. ``They should be held accountable,'' says Wallin, who, like Cutler, is suing NASD and Electronic Data in Washington federal court. NASD and Electronic Data declined to comment on the suits.

Cutler and other plaintiffs are seeking an as yet undetermined amount of money and attorneys fees in the lawsuit, which seeks class-action, or group, status. NASD and Electronic Data haven't yet filed their responses.

`Accuracy'

Cutler says the grading error is still hurting her. On April 28, she was among the recently hired employees who lost their jobs at Rochdale Investment.

She took temporary work before landing a job in September as a project manager for a global financial services firm in New York that she asked not be identified.

``If you're in the business to provide test results for people, there should be a level of accuracy,'' Cutler says.

To contact the reporters for this story: David Glovin in New York at dglovin@bloomberg.net or David Evans in Los Angeles davidevans@bloomberg.net

Last Updated: November 3, 2006 13:54 EST