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Appeals court rules in favor of firm challenging FINRA’s constitutionality

On Behalf of | Jul 12, 2023 | Financial News

A brokerage firm has won the latest round in its legal battle challenging the constitutionality of the Financial Industry Regulatory Authority, reports AdvisorHub.

The U.S. Court of Appeals for the District of Columbia ruled 2-1 in favor of Scottsdale Capital Advisors and its affiliate Alpine Securities Corporation. The appellate court found that the firm had met the requirements for an emergency injunction that would prevent FINRA from expelling the firm from the financial industry.

In March, a FINRA hearing panel expelled Alpine Securities for allegedly imposing unreasonable fees on its customers, and ordered the firm to pay $2.3 million in restitution.

Alpine then filed a lawsuit asking for an injunction, claiming that FINRA’s structure and operation including its Board of Governors and enforcement units were in violation of the Constitution’s separation of powers. The firm based the challenge on its claim that FINRA sought to enforce the nation’s securities laws without authorization from the executive branch. Alpine said FINRA was “unaccountable and immune at every turn.”

A federal court in Tampa denied the request for a preliminary injunction, saying the claim likely lacked merit. But that decision has now been overturned by the appellate court ruling. In the order, Circuit Judge Justin R. Walker wrote, “There is a serious argument that FINRA hearing officers exercise significant executive power. And it is undisputed that they do not act under the President. That may be a constitutional problem.”

In reaction to the appeals court decision, a spokesperson for FINRA said the authority is reviewing the order and considering its options.

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