August 21, 2014
August 20, 2014
August 19, 2014
Yet Another Reaffirmation That Financial Industry Regulatory Authority (FINRA) Is For Customers Only
If it was not clear from our March 6, 2013 post that courts in the Fourth Circuit really mean it when they say FINRA is "for customers only" then the Fourth Circuit's decision in Raymond James Financial Services, Inc. v. Cary, 709 F.3d 382 (4th Cir. 2013) will make the issue crystalline.
Raymond James involved the application of FINRA Rule 12200 which controls who has standing to arbitrate. Raymond James held that an investor cannot bring a FINRA arbitration under Rule 12200 if that investor only dealt with a business partner of a FINRA representative even if there was coordination among the partners and the sharing of referral fees. That type of partnership is "insufficient" to establish the relationship necessary for FINRA Rule 12200 to apply.
The holding of Raymond James may be limited because, in this case, the investors had “no personal contact” with the FINRA representative, did not hold “any accounts including trade accounts” with the actual FINRA member “at any time,” and the investors had no understanding that they were purchasing securities from the true FINRA member. In other words, there was no issue of agency as there would be where an investor believes that the investor is actually dealing with a FINRA member or if the FINRA member had given someone else actual or apparent authority to conduct business.
Nonetheless, if investors cannot compel a FINRA arbitration against a business partner who shares referral fees, one can conclude that the Fourth Circuit is serious when it states that FINRA arbitrations are FOR CUSTOMERS ONLY.
Read the whole opinion here. http://www.ca4.uscourts.gov/opinions/Published/121053.p.pdf
<span class="advertise"> Advertisement </span>
- Financial Services Legislative and Regulatory Update - December 23, 2013
- Ninth Circuit Remands “Say-on-Pay” Cases Back to State Court for Lack of Jurisdiction
- New York District Court Bars Discovery of SEC's Requests for Extension Under Dodd-Frank
- Is The Would-Be Arbitration Claimant A Brokerage Firm “Customer?” The Fourth Circuit Says Both “Yes” And “No”
- State AGs Challenge Legality of New Dodd-Frank Regulatory Group
- Does Your Firm's Standard Lien Language Create a Possibility that Your Customer IRAs May Lose Their Tax Exempt Status and Protection from Third-Party Creditors?