I want to file a lawsuit for sexual harassment against my employer. My attorney says it has to go to FINRA arbitration, but that's the last place I want to be. Can't I file my case in court?

— Anonymous, via email

FINRA Rule 13201 provides that a claim alleging employment discrimination, including sexual harassment, in violation of a statute, is not required to be arbitrated. However, the rule further states that "such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose." The first question, then, is whether your employment agreement contains a pre-dispute arbitration clause specifically providing for arbitration of discrimination and sexual harassment claims. If the arbitration clause is broad with language such as "any and all disputes," "related to" and "arising out of," the question becomes one for a court (or in some jurisdictions for the arbitrators) to decide based on your state's laws (or those of the state in the choice of law provision of your contract). Some jurisdictions hold that a broad arbitration clause would not necessarily include sexual harassment disputes because they would be outside the scope of the employment agreement. Since a sexual harassment claim could stand on its own, it would not be covered by the arbitration clause and could be brought in court. Each state will treat this differently, and you may want to get a second opinion from other legal counsel on your state's precedent.


I'm a registered rep with a small broker-dealer. My partners and I are creating an internet-based platform for accredited investors to invest in early-stage companies in compliance with Regulation D. We will receive a percentage of the profit the companies earn after the investors have made their investment and the offering is completed. We do not believe that this constitutes transaction-based compensation, and so we don't think we need to register the website as a broker-dealer. However, we would like some clarification on what exactly is meant by transaction-based compensation?

— E. M., Washington

A "broker" is generally defined as "any person engaged in the business of effecting transactions in securities for the account of others" and a dealer as "any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise." In both instances, part of the definition includes being "engaged in the business." The SEC has stated that a person may be "engaged in the business" by receiving compensation "tied to the successful completion of a securities transaction." Courts and the SEC staff have said that having a "salesman's stake" in a securities transaction is the hallmark of "broker" activity. A "salesman's stake" is present when a person receives commissions or other compensation based, directly or indirectly, on the size, value or completion of any securities transactions. That is how the SEC looks at whether the compensation is "tied to" the transaction. In other words, is the compensation based on the amount of the investment or on whether the investment is completed? In your case, the compensation is not based on the investments themselves. but, rather, on the ultimate profitability of the firm. Therefore, it would appear that you are right and it would not be considered transaction-based compensation.

Alan J. Foxman is an attorney with the law offices of Rita G. Dew, P.A.
and a senior consultant with National Compliance Services
in Delray Beach, Fla. He can be contacted at: this email address.