•  
• Tweet
•  
•        Print
•  
•         Track Keywords
•  
• 

By: John Gibbons, Carlton Fields

Is FINRA constitutional? Two cases currently playing out in D.C. federal courts, Alpine Securities Corp. v. FINRA and Kim v. FINRA, tee up that question. But the Financial Industry Regulatory Authority is an unusual target for constitutional challenge, because it is not a government agency. As securities lawyers know, FINRA is a private Delaware corporation registered as a self-regulatory organization (SRO). As an SRO, FINRA (among other things) writes and enforces conduct rules for registered broker-dealer firms, monitors firms' compliance, administers broker qualification exams, and refers fraud and insider-trading investigations to the SEC.

As law students studying for the bar are advised, a private actor generally cannot violate the U.S. Constitution. So Alpine and Kim largely turn on whether FINRA acts as a private entity or as an arm of the government when it enforces conduct rules and securities laws.

In Alpine, the district court refused to enjoin FINRA's expedited proceeding against a broker-dealer. The court found that FINRA is not a state actor for constitutional purposes, emphasizing that: the government does not fund FINRA or select its board or officers; FINRA performs other functions (like administering exams) that the SEC does not share; and FINRA alone determines which of its member firms to investigate and discipline. FINRA's SRO role also did not violate the constitutional doctrine that limits the delegation of......................

To view our full article Click here