An allegedly defrauded investor may not compel a broker-dealer to arbitrate claims over his allegedly unsuitable investments.  See Berthel Fisher & Co. Financial Services Inc. v. Frandino, D. Ariz., No. DV-12-02165-PHX-NVW, 5/14/13.  The investor was not a “customer” of the firm’s registered representative for purposes of the FINRA arbitration code since the registered representative was at another broker-dealer, and later became a registered representative of the plaintiff in this matter.

The investors commenced arbitration proceedings against the registered representative, claiming they improperly made numerous unsuitable and risky investments on his behalf.  The new broker-dealer countered with a lawsuit to enjoin the arbitration, saying it had  no relationship with the firm or any person associated with it that would require its participation in the arbitration. The district court agreed.  According to the court, there were two relevant inquiries in assessing customer status:  the nature of the dealings between the associated person and the investors; and if the associated person represented that he or she was acting on the firm’s behalf if the investor perceived it.   No such event occurred in this case.

In sum, such outside business activities may not be covered by FINRA arbitration.