Wachovia Bank v. VCG Special Opportunities Master Fund (Court Decision)

Wachovia Bank NA v. VCG Special Opportunities Master Fund, No. 10-1648-cv (2d Cir. Oct. 28, 2011)

October 28, 2011

In an opinion by Judge Kearse, the Second Circuit Court of Appeals held that a hedge fund that transacted with a banking affiliate of a broker-dealer in credit default swaps which were not "recommended" by the broker-dealer did not qualify as a "customer" for purposes of the FINRA arbitration rules. The court distinguished two recent precedents in which a "customer" relationship was found, noting the absence in this instance of a recommendation by the broker-dealer or a direct contractual relationship with the broker-dealer.

Cross References: FINRA Rule 12200; Citigroup Global Mkts v. VCG Special Opp. Master Fund, 598 F.3d 30 (2d Cir. 2010); UBS Fin. Serv. v. W. Va. Univ. Hosp., __ F.3d __ (2d Cir. 2011); Lofchie's Guide to Broker-Dealer Regulation: Chapter 5, Dealings with Customers