Credit Suisse's going-away present to the brokerage industry.

Posted by on Feb 3, 2016 in arbitration, Marc's Blog | Comments(0)

So I’ve been in the securities business for over 30 years now.  For as long as I can remember, disputes between brokers and their firms went to NASD, then FINRA, arbitration.  The U-4 says it.  The FINRA Manual says it.  But Credit Suisse has a different view and, in a bizarro ruling, the Second Circuit agreed.  If you want to read the opinion, here it is..

I’m going to try to explain what happened in simple terms.  The employees had an internal beef with Credit Suisse.  The firm has an internal dispute resolution program that is informal, then mediated, then formal.  The employees went through the first two steps not to their satisfaction so, not surprisingly, they took their marbles and client list and left for Merrill Lynch.  Both firms are members of the Protocol for Broker Recruiting.

Credit Suisse then filed an arbitration against the brokers with JAMS, a mediation and arbitration service, regarding their alleged improper solicitation after leaving the firm’s employ.  Eventually, the brokers and Merrill Lynch filed a FINRA arbitration alleging that Credit Suisse violated the Protocol.  Credit Suisse said “oh no, we have to go to JAMS” and went to court to stop the FINRA arbitration, at least with the brokers.

The brokers told the court that they agreed to arbitrate in FINRA under the U-4 and FINRA Constitution and Rules.  Credit Suisse argued, incredibly, that Rule 13200 only requires arbitration, not an arbitration at FINRA.  Huh?  Worse yet, that argument prevailed, both at the trial level and the Second Circuit.  This makes my head hurt.

Did I forget to mention, Credit Suisse is pulling out of the US retail business?  So this will be the firm’s legacy.

The result left me wondering about FINRA’s actions against Merrill Lynch for making retention loans from a non-FINRA entity.  In that situation, Merrill paid a $1,000,000 fine.  I’m trying to reconcile these two situations and it makes my head hurt – again.

I’m thinking, just like the manner in which FINRA keeps sticking its finger in the expungement dike, that FINRA will be making pronouncements about how arbitration means FINRA arbitration.  If not, then it will confirm some of the suspicions held about the agency’s bias.

That’s the sporadic view of one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.

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