Second Circuit Adopts A Definition Of "Customer" Under The FINRA Arbitration Rules

Perceiving advantages in the arbitration process offered by the Financial Industry Regulatory Authority ("FINRA") for customer disputes, claimants have increasingly tried to take advantage of that forum by characterizing themselves as "customers" of a FINRA member, even when they did not transact directly with a FINRA member. This tactic has resulted in a surge of litigation over the meaning of "customer" under the FINRA rules. On Friday, in Citigroup Global Markets Inc. v. Abbar et al. (No. 13-2172) (2d Cir. Aug. 1, 2014) ("CGMI v. Abbar"), the Second Circuit adopted a bright-line definition of "customer" under the FINRA arbitration code, holding that a "customer" is "one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member." Id. at 17. This decision brings much needed clarity to what it means to be a customer under the FINRA rules and will affect the manner in which these cases will