Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

DOJ files brief opposing challenge to constitutionality of FINRA

On Behalf of | Nov 13, 2023 | FINRA Compliance

The Department of Justice has filed a brief opposing a challenge to the constitutionality of the Financial Industry Regulatory Authority, according to a Reuters report.

The DOJ took the action last at the District of Columbia U.S. Circuit Court of Appeals in support of FINRA’s legal battle against expelled brokerage firm Alpine Securities Corporation.

Last year 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.”

In the July opinion granting the injunction, 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.”  FINRA has called Alpine’s challenge to its authority an “existential threat.”

In its brief filed last week, the Justice Department noted that FINRA’s enforcement and regulatory actions are overseen by the Securities and Exchange Commission, thus refuting the claim by Alpine that FINRA is not sufficiently accountable and has been given too much authority.  The DOJ also pointed that appeals courts have upheld FINRA’s regulatory power given the fact that its enforcement decisions are reviewed by the SEC.

FINRA also filed its own brief with the DC Court of Appeals, citing a previous US Supreme Court ruling to bolster its argument that FINRA is a private company that is not part of the government, thus “its board members and employees are not ‘officers of the United States’ subject to presidential appointment and removal.”  The authority warned that without private regulation, investors would be “exposed to deception, overreaching and outright theft by unscrupulous industry members.”

In August, the Court of Appeals upheld a preliminary injunction against FINRA that allows Alpine to continue to operate while it appeals the decision to bar the firm from the financial industry.

Alpine’s attorney released a statement saying “We are optimistic that the D.C. Circuit will see that there is no principled basis for distinguishing FINRA from other unaccountable government entities the Supreme Court has held unconstitutional.”

The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA, and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.