NY Judge Blocks $40M FINRA Claim Against UBS

     (CN) – A federal judge in Manhattan blocked eight Swiss citizens from pursuing a $40 million arbitration claim against UBS Securities in front of the Financial Industry Regulatory Authority.




     U.S. District Judge Denise Cote ruled that the Swiss residents didn’t enter into an agreement directly with UBS, and they could not force the company to arbitrate against its will.
     Fridolin Voegeli, Marcel Grubenmann, Hans-Felix Voegeli, Thomas Bachmann, Felix Scherrer, Primus Fellman, Marco Gemma and Ernesto Surbeck were “seed investors” in a company called HealtheTech.
     UBS Securities, in which Swiss-corporation UBS AG holds a minority interest, served as a financial advisor and underwriter in connection with HealtheTech’s initial public offering.
     The investors claim that in exchange for serving as underwriter, UBS required HealtheTech investors to execute “lockup” agreements promising that they would not sell any shares for 180 days following the IPO.
     But the defendants said HealtheTech’s stock underperformed, and almost seven years later, filed a statement of claim to commence a FINRA arbitration proceeding.
     They sought $13 million in compensatory damages and $27 million in punitive damages, alleging they were fraudulently induced into signing the iron-clad deal.
     UBS refused to submit to arbitration, contending that the defendants have never been its customers, and that they “have no other direct relationship with UBS Securities whatsoever,” the company said.
     Judge Cote agreed, calling the assertion that they should be considered customers of UBS “absurd.”
     “Defendants cite no legal authority to support their novel interpretation of the meaning of ‘customer’ in the FINRA rules.”
     She permanently restrained the investors from pursuing their claims in the FINRA arbitration.
     “It is beyond dispute that irreparable harm would result if UBS Securities were compelled to arbitrate defendants’ claims without having agreed to arbitration,” she wrote.
     “Furthermore, it is not merely expense that underlies the prohibition against forcing a party to arbitrate a dispute it did not agree to arbitrate. UBS Securities would also lose its right to have defendants’ claims adjudicated in a court of law, rather than in an arbitral forum to whose jurisdiction it has not consented.”

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