The California Court of Appeals has reversed a lower court's ruling in which the lower court ruled that a jilted investor did not have to arbitrate with a former associated person of a defunct FINRA member firm.
The claims were made by the Ronay Family Limited Partnership, who made a series of failed investments with the now-defunct FINRA firm CapWest Securities, Inc., based upon recommendations by the investment advisory firm Tweed Financial Services, Inc.
Before opening the account, Ronay and Tweed signed an account agreement with a clause that stated disputes or controversies arising out of CapWest transactions shall be settled by arbitration pursuant to FINRA rules ("the arbitration clause").
When Tweed made a motion to compel arbitration, Ronay opposed the motion on the grounds that because CapWest was defunct and therefore no longer a FINRA member firm, the arbitration clause was no longer enforceable.
The lower court agreed with Ronay, denying the petition on the grounds that the member firm CapWest was defunct.
The Court of Appeal's reversal found the lower court erred by denying the motion to compel arbitration. Because Tweed was an investment advisory firm—a third party—it could not be considered a FINRA member and therefore, the status of CapWest as a defunct firm has no bearing on the arbitration rights of third party, Tweed.
The decision is significant in that it holds an investment advisory firm and registered representative retain the rights to compel arbitration—or enforce the arbitration clause—under FINRA rules, even when the securities brokerage firm becomes defunct and loses its ability to enforce the clause.
If you have invested through or with the services of an investment advisory firm whose recommendations have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
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