This case is of interest to those who need to understand
the SEC's interpretation of its jurisdiction over FINRA disciplinary actions.
FINRA sanctioned Sharemaster for failing to file an annual audit by a firm
registered with PCAOB. At issue was whether or not an exemption from that
requirement applied to Sharemaster. FINRA's hearing panel found that
Sharemaster was not subject to the exemption, ordered it suspended until it
filed a compliant report and imposed costs of $1,785. Sharemaster appealed the FINRA
sanction to the SEC. It did not request a stay of the decision under Commission
While the appeal was pending Sharemaster filed a compliant annual report and
the suspension was lifted.
Under Exchange Act Section 19(d) the Commission has jurisdiction over FINRA
action that: 1) imposes a final disciplinary sanction; 2) denies membership or
participation of an applicant; 3) prohibits or limits any person's access to FINRA
services; or 4) bars any person from associating with a FINRA member.
The Commission dismissed Sharemaster's appeal. It ruled that the FINRA imposed
suspension was not a final sanction as the suspension was contingent and had
been lifted by FINRA. It dismissed Sharemaster's argument that the finding of a
violation and assessment of costs were final rulings.
The Commission opinion concluded that the only sanction
potentially subject to appeal was the suspension. Because it had been lifted
there was no jurisdiction. It found the costs not an appealable sanction as
under FINRA rules costs are not deemed sanctions. In ruling that the finding of
violation was not an appealable sanction the Commission analogized to civil
contempt actions in federal court. Once the civil contempt is purged by
compliance with the order appellate jurisdiction is moot.
Read more commentary on SEC administrative
opinions at SEC
Tea Party, a blog by Robert Fusfeld.
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