A Chicago federal judge has refused to halt arbitration proceedings brought by investment firm UBS Financial Services against a former clerk, whom UBS has alleged helped steal company information with which to lure away customers.
Alexander Freund worked as a part-time clerk for UBS in Chicago from Nov. 7, 2011, to Feb. 15, 2012, when he left to work for Wells Fargo. Freund's manager and two other UBS employees also departed to Wells Fargo the same day.
UBS responded by lodging an arbitration claim with the Financial Industry Regulatory Authority (FINRA) against Freund and the other former employees, alleging they stole “thousands of confidential UBS client and business records and other proprietary information” in the months before their resignations. UBS claimed the alleged thefts were done with an eye to poaching customers from UBS to Wells Fargo.
UBS offers investment and asset management services, with offices in 50 countries and throughout the United States. FINRA is a private corporation that regulates firms doing business in securities. The U.S. Securities and Exchange Commission is the ultimate overseer of the securities industry, as well as of FINRA.
Freund objected to FINRA’s jurisdiction over him, as his employment agreement with UBS had no provision for arbitration. Given this position, Freund balked at UBS’ discovery request.
On Sept. 8, 2015, Freund was informed he was set for a two-week hearing, beginning Oct. 26 at FINRA’s Chicago office. This news prompted Freund to ask Federal Judge Robert M. Dow Jr. to declare FINRA had no authority over him and to issue a preliminary injunction that barred FINRA from taking any action against him. With the FINRA hearing closing in, Dow agreed to Freund’s request to expedite the matter.
UBS argued for FINRA’s jurisdiction over Freund by pointing out that two months after Freund left UBS, he signed a Uniform Application for Securities Industry Registration or Transfer. In this application, called a “U-4,” applicants, who deal in securities and investments, agree to subject themselves to the power of a self-regulatory organization, such as FINRA.
Dow found UBS’ point about the U-4 persuasive, and found backing for that position in the 2000 New York federal district court opinion in Marcus v. Masucci.
Quoting from the New York case, Dow said the U-4 obligates Freund to submit to FINRA arbitration in a dispute with “any other person, if the dispute arises from a business activity involving a FINRA member” and “associated persons.” Dow said FINRA is a member and UBS’ arbitration claims derived from UBS and Freund’s business affairs. Further, Freund qualified as an associated person, “at the latest,” when he filled out his U-4.
Besides, neither the U-4 nor FINRA’s rules prohibit arbitration of disputes that came about before a party resisting arbitration signed a U-4, according to Dow. As a result, Dow refused to issue an injunction prohibiting FINRA from going ahead with arbitration proceedings, adding that Freund will not suffer irreparable harm from the proceedings, as Freund alleged, because remedy is available.
UBS also advanced two other arguments for FINRA's jurisdiction, both of which fell flat with Dow.
UBS said Freund signed a letter, when he started working for UBS, in which he agreed to “adhere to all federal laws and rules and regulations” of various bodies, including “self-regulatory organizations.” UBS maintained FINRA was a self-regulatory organization, but Dow said the agreement letter was not specific enough for Freund to have known FINRA would apply to him as a consequence of his signing the letter.
UBS’ other contention was Freund was an agent of UBS and, as an agent, was subject to UBS’ agreement with FINRA to be bound by FINRA’s rules. Dow described this position as “strained,” because UBS had no written arbitration agreement with Freund.
Chicago firms are representing the parties: Greiman, Rome & Griesmeyer for Freund, and Schulyer Roche & Crisham for UBS.