Court Compels Arbitration by Firm in Selling Away Case

 Court Compels Arbitration in Selling Away Case 

Customer is “customer” of broker, therefore he is a customer of the firm?

Summit Brokerage Services, Inc. v. Cooksley, Case No.: CA 02-11137 AO (Fla. Cir. Ct., 15Dist., 11/1/02).

Agreement to Arbitrate * SRO Rules (NASD Rule 10301) * Statutory Definitions (“Customer”) * Arbitration Agreement * Selling Away.

That an investor never had a brokerage account with a broker-dealer does not preclude his being a “customer,” for purposes of the NASD Arbitration Code. Michael Cooksley initiated arbitration before the NASD, alleging that SBS’s broker sold him fraudulent, unsuitable, and unregistered promissory notes issued by 21st Century Satellite Communications. At the time, the broker was an “associated person” of SBS, but SBS claims that Mr. Cooksley never had a brokerage account with the firm and never signed an arbitration agreement.

NASD Rules can supply the basis for a contract to arbitrate, even in the absence of a bilateral agreement. Moreover, NASD Rule 10301 requires SBS to arbitrate with any “customer” who demands arbitration. No doubt exists that Mr. Cooksley was a “customer” of the broker, reasons the Court, and “by dealing with Petitioner’s registered representative, Cooksley became a customer of that firm for purposes of NASD arbitration obligations…. Therefore, based upon the foregoing, the Petition to Stay Arbitration is denied and the Motion to Compel Arbitration is granted.” (SLA Ref. No. 2002-44-03)

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Mark J. Astarita is a veteran securities attorney representing investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at mja@sallahlaw.com, call his office at 212-509-6544, or visit The Securities Lawyer.