Civil Liberties Association Says FINRA Should Be Subject to Constitutional Restraints
In an amicus curiae brief, the New Civil Liberties Alliance ("NCLA") urged the U.S. Court of Appeals for the Fourth Circuit to recognize that FINRA "wield[s] vast [executive] power typically exercisable only by government officials" and should be subject to the same constitutional restraints as the government.
The brief relates to an October 2023 Complaint, in which a securities firm and its principal sued the SEC and FINRA after FINRA's Office of Hearing Officers imposed a $243,000 fine on the firm and principal, and a lifetime bar on the principal’s ability to work in the financial sector. (On appeal, the National Adjudicatory Council ("NAC") of FINRA reduced the fine to $146,500, but otherwise affirmed the sanctions and maintained the lifetime bar on the principal.) The Complaint alleged: (i) FINRA’s board of governors, national adjudicatory council, and hearing officers are not appointed in compliance with the Appointments Clause, yet they exercise significant governmental and executive power; (ii) FINRA unlawfully wields the government’s legislative, executive, and judicial power in violation of Articles I, II, and III of the Constitution and the Fifth Amendment’s Due Process Clause while remaining insulated from Congressional appropriations; and (iii) FINRA and SEC’s adjudication of the firm’s and principal's private rights and imposition of civil penalties without a jury trial violates the Seventh Amendment to the Constitution.
NCLA argued that FINRA should be constitutionally restrained because it is "a private actor... wield[ing] vast governmental power typically exercisable by government officials," thus, Article II of the Constitution and the so-called "private nondelegation doctrine" apply. NCLA further argued that FINRA holds powers over more than 600,000 individual brokers and thousands of broker-dealer firms nationwide. NCLA highlighted that, in a typical year, "FINRA bars hundreds of brokers from the securities industry and imposes tens of millions of dollars in aggregate fines against industry participants."