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Independent Broker Dealer Consortium

IBDC-RIAC Alliance Member, Ed Barkel of Lewis Roca Rothgerber & Christie’s, Successful Motion to Dismiss Against Non-Customer Under FINRA Rules 12200 and 12504

The arbitration was filed by an extremely wealthy individual through his offshore creditor protection trust and its asset protection sub-entities. The claimants sought to recover $650,000 related to a bad loan that one of the sub-entities made to an approved OBA insurance agency owned by an independent contractor registered representative. The claimants alleged that the broker-dealer failed to supervise the loan transaction between the asset protection entity and the OBA entity. The asset protection trust and its sub-entities tried to bootstrap “customer status” based upon a variable annuity transaction the wealthy individual directed between yet another asset protection trust (not a claimant) and the firm several years prior.

We were able to untangle the spiderweb of entities. We proved that the trustee, the trust and the sub- entities did not have an agreement to arbitrate, did not have an account, contracted only with the outside OBA entity not associated with the firm and the OBA insurance activity was not the business of the broker-dealer. As a result, claimants did not meet the very broad definition of a “customer” eligible to compel arbitration under FINRA Rule 12200 and, FINRA therefore lacked jurisdiction to arbitrate the case. We also argued on the merits that, under FINRA Rule 12504(a)(6)(B), the firm had no involvement in the transaction at issue because it was not in the OBA insurance business that was the subject of the claims and it undertook no obligations in connection with the loan transaction. The panel agreed with both arguments, dismissed the claims and ordered claimants to pay the forum fees.

Ed Barkel
602.262.5377 office
602.262.5747 fax
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