Bill Cara

The Challenge to FINRA’s Authority is Heating Up.

September 9, 2023

Broker-dealers are taking on the Government in a clash of Titans. At the heart of this legal dispute is whether FINRA, the Financial Industry Regulatory Authority, has the power to enforce securities regulations, and if so, under what constitutional framework. Judges overseeing the case have already expressed their reservations about FINRA’s authority.

Enter Bill Barr, the former Trump Attorney General, and Noel Francisco, the former US Solicitor General, both formidable legal minds. They are now advocating for significant changes to FINRA’s role and authority. In a friend-of-the-court brief, Barr and Francisco aligned themselves against the stance of the Biden administration’s Justice Department, which supports the current structure of FINRA.

This legal saga traces back to broker-dealer Alpine Securities Corp’s efforts to halt an expedited FINRA hearing that aimed to remove Alpine from the organization and impose a $2.3 million fee, which Alpine claims is excessive. The allegations against Alpine are serious, with FINRA stating that the violations in this case are among the most egregious in the securities industry.

Alpine, in turn, put forth two critical constitutional arguments in its bid to halt the FINRA proceedings. First, they argue that FINRA hearing officers, despite being private employees, effectively act as government agents, wielding significant power to enforce federal securities laws. Alpine contends that this setup violates the Appointments Clause and other provisions in Article II of the Constitution.

Alternatively, Alpine claims that if FINRA is not considered a government entity, its enforcement of federal securities laws infringes upon the constitutional nondelegation doctrine. This doctrine stipulates that federal authority should be wielded solely by the Federal Government, and Alpine argues that the SEC’s oversight of FINRA does not meet constitutional standards.

US District Judge Beryl Howell initially dismissed Alpine’s constitutional arguments, asserting that FINRA is a private self-regulatory organization, not a government agency, and emphasizing the SEC’s ultimate control and oversight over FINRA.

However, a divided three-judge DC Circuit panel granted Alpine’s motion for an injunction in July, suggesting that FINRA hearing officers may exercise authority similar to SEC administrative law judges, potentially raising constitutional concerns.

The DC Circuit’s decision to allow Alpine to proceed with its case prompted two additional briefs supporting Alpine, one from the New Civil Liberties Alliance and another from Barr and Francisco on behalf of the American Free Enterprise Chamber of Commerce.

This ongoing legal battle has far-reaching consequences. It’s an existential challenge to the very foundation of FINRA’s authority and the constitutionality of its actions. As former high-ranking officials and legal experts weigh in, the financial regulatory landscape hangs in the balance. The outcome of this dispute will undoubtedly shape the future of US securities regulation.

This information is based on an article by Matthew Sellers, published by of Formpunblished by