FINRA has no authority to bring an action in federal court to collect fines it imposes on members according to the Second Circuit Court of Appeals. Likewise, a rule the SRO issued over two decades ago under which it claimed such authority is invalid. Fiero v . Financial Industry Regulatory Authority, Nos. 09-1556-cv, 09-1863-cv (2nd Cir. Oct. 5, 2011) [an enhanced version of this opinion is available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law].
The action traces to a FINRA disciplinary proceeding brought against John Fiero and Fiero Brothers, Inc. The firm was a member of FINRA and a registered broker dealer with the SEC. In 1998 a disciplinary proceeding was brought which ended with findings that Mr. Fiero and his firm violated Exchange Act Section 10(b). The hearing panel expelled the firm and barred Mr. Fiero. It also imposed a fine of $1 million plus costs. The findings were affirmed on appeal.
Subsequently, FINRA filed an action in the New York Supreme Court to collect the fine. That court awarded the SRO a judgment of $1,329,724.54 which was affirmed on appeal. The New York Court of Appeals however reversed, concluding that the state courts lacked subject matter jurisdiction.
Mr. Fiero and his firm subsequently filed a declaratory judgment action in Federal Court seeking a ruling that FINRA did not have authority to bring a court action to collect a fine. The district court dismissed the complaint.
The Second Circuit reversed, concluding that FINRA does not have the authority to bring such an action.
Please click here to read the entire post.
For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
For more information about LexisNexis products and solutions connect with us through our corporate site.