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Recent Cases:
Andrew Beer and Pinnacle Group Securities LLC v. David Nutt,
U.S. District Court for the Southern District of New York Case No. 06-Civ-9424 (HB)

Federal court denies Investment Firm’s motion to stay an NASD arbitration and grants Investor’s cross-motion to compel arbitration.

In October 2006, David Nutt filed an NASD arbitration claim against Andrew Beer and Pinnacle Group Securities alleging fraud and breach of fiduciary duty with respect to his investment in Fiesta Partners Fund, a tax-advantaged investment which was organized, sold and managed by Beer (through a myriad of entities that he owned and controlled). Beer and Pinnacle filed motions to stay the arbitration and Mr. Nutt filed a cross-motion to compel arbitration.

Beer and Pinnacle argued that the claims arose at the time of the initial investment in 2000. Pinnacle was formed in 2001 and Beer became an associated person of Pinnacle in 2002. Thus, Beer and Pinnacle argued that they were not NASD members at the time the claims arose. However, the federal court rejected this argument, noting that the claims involved a continuing fraud from 2000 through 2005 that spanned the formation of Pinnacle and Beer’s association with Pinnacle. Thus, Beer and Pinnacle could be compelled to arbitrate because the claims arose, at least in part, while they were NASD members.

Pinnacle also argued that it had nothing to do with the management of Fiesta and therefore, the claims did not arise in connection with its business. Again, the federal court disagreed. Under NASD Rule 10301, claims are arbitrable if they arise in connection with the business of a member firm or in connection with the activities of an associated person. Here, the claims clearly arose in connection with the activities of Beer, Pinnacle’s associated person, and therefore Pinnacle could also be compelled to arbitrate.

Finally, Pinnacle argued that Beer was not acting in his capacity as an associated person of Pinnacle. However, the court held that there is nothing in the NASD Code that requires that the associated person was acting in his capacity as an employee or agent of the member firm. Indeed, even tenuous connections among the customer, associated person and NASD member are sufficient to compel the member firm to arbitrate if the claim arises out of the activities of the member firm’s associated person. The case was handled by Ed Dovin and Allison Ficken.