The Sixth Circuit recently affirmed that failure-to-supervise claims against a brokerage firm over outside business activities it knew nothing about nevertheless were arbitrable under FINRA Rule 12200(2) as “arising in connection with the business activities of the member” firm.
The firm’s representative worked together with an outside financial advisor and others to divert a firm customer’s assets from an outside bank account to a fraudulent outside business activity. The customers’ funds transferred into the brokerage account, out to a bank account and from there to the fraudulent investment. The member firm’s alleged lack of supervision is arbitrable, even though the transactions did not transit or benefit the firm and – indeed, even though the firm was not aware of them.
The opinion is Wilson-Davis & Co., Inc. v. Mirgliotta, No. 17-3496 (6th Cir. Jan. 8, 2018).
Thomas K. Potter, III (firstname.lastname@example.org) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 32 years’ experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2018 by Thomas K. Potter, III (all rights reserved).
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