In the Absence of an Agreement to Arbitrate, Officer of Non-FINRA Company Not Required to Arbitrate


The Northern District of California recently issued a non-published decision enjoining FINRA arbitration proceedings against the officer of a brokerage firm’s parent company, where neither the CEO nor the parent company were FINRA members. The ruling was based on a construction of Rule 12200 of the FINRA Code of Arbitration Procedure.

The former clients of the brokerage had brought FINRA arbitration claims against the brokerage and others, alleging negligent management of their investments. Later, they amended their claims to add as a respondent the CEO of the brokerage firm’s parent company. Against the CEO they alleged claims of negligent supervision and a breach of section 25400 of California Corporations Code. In response, the CEO asked the District Court to enjoin further arbitration proceedings on the ground that he was not a proper party to arbitration because he was not a FINRA member and he was not a party to an agreement to arbitrate.

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