March 11, 2013 Articles

Litigating Customer Claims Outside the Firm-Client Relationship

Courts analyze FINRA rules in arbitration between firms and clients

By Sandra D. Grannum and Joshua D. Jones

Arbitration is a creature of contract. However, by virtue of being a member of the Self-Regulatory Authority now known as the Financial Industry Regulatory Authority (FINRA), broker-dealers, upon the request of a customer, are required to arbitrate complaints from their customers whether or not there is a written arbitration agreement. This mandate is contained in both the FINRA By-Laws Article IV and in the Code of Arbitration Procedure for Customer Disputes, Rule 12200. The typical customer dispute in a FINRA arbitration involves a client of a brokerage firm alleging wrongdoing by the firm and/or a broker of a member firm relating to their securities account with the firm. On occasion, however, individuals who are not clients of a particular firm or broker may assert claims against the firm or broker based on purported wrongdoing that falls outside of the traditional firm-client relationship.

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