Bloomberg News

Credit Suisse Securities Sues to Block Arbitration by Finra (2)

April 23, 2013

Credit Suisse Securities LLC sued to block a Financial Industry Regulatory Authority arbitration, arguing that the investors who initiated the claim don’t fit the Finra definition of “customer” required for the dispute- resolution process.

The 29 investors named in the complaint bought exchange traded notes, or ETNs, underwritten by Credit Suisse called TVIX, on the secondary market, “through accounts or advisers unaffiliated with Credit Suisse,” the company said in a complaint filed yesterday in federal court in Baltimore.

Finra rules act “as an agreement to arbitrate only between Finra members and their ‘customers’” and defendants “have never been customers of Credit Suisse,” according to the complaint.

VLS Securities LLC, of Darien, Connecticut, a marketing agent for TVIX, also is a plaintiff in the suit and a respondent, with Credit Suisse, in the arbitration claim.

The complaint was accompanied by a request for a preliminary injunction.

“The individual investors sued by Credit Suisse and VLS have already received a Finra ruling denying a motion to move their cases outside of Finra,” said Cynthia Moulton, of Moulton & Arney LLP, an attorney for the investors. “We intend to contest Credit Suisse and VLS’s efforts to obtain a different result in federal court.”

Baltimore Venue

The suit was filed in Baltimore because that was the venue selected for arbitration by the investors. Two other Finra arbitrations involving TVIX are under way in Texas and California, according to Moulton.

TVIX is geared to investors seeking to trade volatility and is supposed to track the daily performance of the S&P 500 VIX Short-Term Futures Index, according to the investors’ Finra arbitration claim, which was included in the suit filing.

“TVIX failed to track the VIX Futures Index and, therefore, failed to perform as represented, resulting in millions of dollars in losses to investors, including claimants,” according to the Finra claim.

Drew Benson, a Credit Suisse spokesman in New York, declined to comment on the Finra claim.

The court case is Credit Suisse Securities LLC v. Fesenko, 13-cv-1187, U.S. District Court, District of Maryland (Baltimore).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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