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An NASD business associate does not have to be acting as an agent or representative of the member organization when taking actions that give rise to a dispute for the dispute to be subject to arbitration, the United States District Court for the Southern District of New York held.
In Beer v. Nutt, No. 06 Civ.9424 HB, 2006 WL 13100 (S.D.N.Y. Jan. 3, 2007), Nutt brought misrepresentation and breach of fiduciary duty claims against Beer individually and alter ego corporation Pinnacle Group Securities in an arbitration claim filed with the National Association of Securities Dealers (NASD).
In 2000, Beer convinced Nutt to invest in a fund, and Beer lost large amounts of money as a result. Pinnacle, which managed the fund, was a NASD member. Beer was an associated member of NASD through his relationship with Pinnacle.
Beer asked the Court to issue an injunction to stay the arbitration, arguing that he should not be forced to arbitrate under NASD rules because none of his correspondence with Nutt regarding the fund came from Beer acting in his capacity as a Pinnacle employee.
The NASD Code provides that disputes between a customer and a NASD member or associated person are to be arbitrated upon customer demand. However, as the Court pointed out, nothing in the NASD rules requires that the associated person be acting as an agent or representative of the member organization when taking actions that lead to a dispute.
Therefore, the Court held that Beer's actions were sufficiently related to his role as a NASD associated person to require him to submit to arbitration at Nutt's request.
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