Federal Court Refuses Government Request to Stay FINRA Arbitration

U.S. v. FINRA, a recently issued opinion from the federal district court (E.D.N.Y. Apr. 9, 2009), presents an interesting issue stemming from the collapse of Bear Stearns hedge funds.  The U.S. sought to enjoin FINRA from conducting arbitration proceedings brought by a customer pending completion of a related criminal case against the hedge fund managers.  Although the defendants in the criminal case were not parties to the arbitration, both proceedings involved the same subject matter --whether the criminal defendants' conduct was securities fraud.  The court denied the government's petition.  It concluded that the only "prejudice" to the government in allowing the arbitration to proceed was that the criminal defendants would have more information than they would otherwise be entitled to under the Federal Rules of Criminal Procedure and that "this loss of the government's usual tactical advantage is insufficient to justify enjoining the arbitration."  (Thanks to Jill Gross for calling this to my attention.)