Source: https://securitiesarbitrations.com/members-business-activities/
Timestamp: 2019-04-20 16:54:53+00:00

Document:
“A dispute that arises from a firm’s lack of supervision over its brokers arises in connection with its business activities.” Vestax Securities Corp. v. McWood, 280 F.3d 1078, 1082 (6th Cir. 2002)(quoting John Hancock, 254 F.3d at 58-59 (Therefore, having determined that the current dispute (i) is between customers and persons associated with Vestax, and (ii) arises in connection with Vestax’s alleged negligent supervision of its registered agents); John Hancock, 254 F.3d at 58-59 (same); MONY Secs. Corp. v. Bornstein, 250 F. Supp. 2d 1352, 1357 (M.D. Fla. 2003) (same); Hornor, Townsend & Kent, Inc. v. Hamilton, 218 F. Supp. 2d 1369, 1384 (N.D. Ga. 2002) (same); First Montauk Secs. Corp. v. Four Mile Ranch Dev. Co., Inc., 65 F. Supp. 2d 1371, 1379 (S.D. Fla. 1999) (same)(quoting, Thomas H. Oehmke, Commercial Arbitration § 28:14 (2003) (“A dispute that arises from a securities brokerage firm’s lack of supervision over its brokers arises in connection with its business”); Spear, Leeds & Kellogg v. Central Life Assurance Co., 85 F.3d 21, 29 (2d Cir.)(because Defendants’ claims arise in connection with the supervision of two of those representatives, they arise in connection with Plaintiff’s business)(applying analogous New York Stock Exchange rules), cert. denied, 519 U.S. 1040 (1996).
Business activities include the supervision of its registered representatives and the activities conducted at branch offices. Royal Alliance Associates, Inc. v. Wischmeyer, 897 F. Supp. 783 (S.D.N.Y. 1995); Royal Alliance Assoc. v. Davis, 897 F. Supp. 783, 788 (S.D.N.Y. 1995)(A dispute that arises from a firm’s lack of supervision over its brokers “arises in connection with its business activities”).
In May 1998, the NASD issues Notice to Members 98-39, reminding members of their Supervisory And Inspection Obligations, and suggesting that “Members should note the Royal Alliance” decision, which among other things “emphasized the need for close attention to supervision of small, dispersed offices.” NASD Notice to Members 98-38 at 274 (May 1998).
NASD Notice to Members 98-38 at 273 (May 1998).
names other than those of the members.
While the NASD does not encourage or discourage such arrangements, a large number of geographically diverse offices presents the potential that sales practice problems will not be as quickly identified as in larger, centralized branch offices. This increased potential must be taken into account when drafting supervisory procedures.
NASD issued Notice to Members 99-45 at 296 (June 1999)(Appendix “H”); See also, Sarah B. Estes, Supervision of Independent Broker Dealers: From Royal Alliance to NTM 99-45, North American Securities Administrator Assoc., Enforcement Law Reporter (2000)(supervision of non-traditional broker-dealer network offices).
Some broker-dealer firms have geographically dispersed offices staffed by only a few people, and many are not subject to onsite supervision. Their distance from compliance and supervisory personnel can make it easier for registered representatives (representatives) and other employees in these offices to carry out and conceal violations of the securities laws. Staff Legal Bulletin No 17. (March 19, 2004).
Accordingly, a dispute that arises from a firm’s lack of supervision over its brokers arises in connection with its business, and these claims, pursuant to FINRA Rules are required to be submitted to arbitration.

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