FINRA Arbitration Halted, in a Case of First Impression

We obtained a permanent stay of a FINRA arbitration commenced against our client, an individual formerly registered with FINRA (and hence an “associated person” under FINRA rules), by another individual associated with another , unrelated FINRA member. The claimant alleged that our client had fraudulently induced him to leave his employment to join a new company owned by our client. Since the new company was not a FINRA member and both parties’ associations with a different FINRA members were unrelated to the claims, we asked the New York court to halt the arbitration. In an issue of apparent first impression in New York, the court agreed with our argument that despite broad language in FINRA’s regulations mandating arbitration of any disputes between associated persons of FINRA members, the FINRA regulations must be read to require arbitration only of those disputes between individuals associated with FINRA members that are related to the associated persons’ business on behalf of the FINRA member(s). The court granted our client’s petition and permanently stayed the arbitration. Litigation partner Jeffrey S. Boxer, corporate counsel Faith Colish and litigation associate Jasmin J. Farhangian worked on this matter.

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