U.S. District Court Dismisses Complaint against FINRA

The U.S. District Court for the District of Maryland granted FINRA's Motion to Dismiss in a case in which a plaintiff alleged that FINRA took disciplinary action that was beyond the scope of its authority.

The complaint, which was submitted by a securities firm and its principals, concerned an ongoing FINRA proceeding and alleged that the plaintiff broker-dealer sold 74 million shares of unregistered, nonexempt "penny stock" securities. The complaint further alleged that FINRA acted outside the scope of its authority in enforcing FINRA Rule 2010 and, in doing so, violated the Securities Act of 1933 (the "Securities Act").

In its Motion to Dismiss, FINRA asserted that the court lacked subject matter jurisdiction because the plaintiffs had not followed the exclusive review process in the Securities Exchange Act of 1934 (the "Exchange Act") during their examination of a FINRA disciplinary matter. Plaintiff argued that FINRA lacked jurisdiction because the underlying claims pertained not to Exchange Act matters, but to violations of the Securities Act. FINRA also alleged violations of NASD and FINRA rules.

In an amicus curiae brief supporting FINRA's Motion to Dismiss, the SEC stated:

[T]he relief plaintiffs seek in this Court ignores Congress's choice in the Exchange Act to establish a detailed statutory scheme that channels review of disciplinary sanctions issued by self-regulatory organizations first through an administrative process before the [SEC] and then to a court of appeals. Congress, by contrast, gave federal district courts no role in that exclusive review scheme.