Federal Court Rules that FINRA Can’t Sue to Enforce Fines
The U.S. Court of Appeals for the Second Circuit has ruled that FINRA has no authority to institute court actions to collect disciplinary fines. The Court explained that FINRA can enforce its fines through the “draconian sanction†of expelling a firm from membership and preventing the firm from engaging in the securities business. The Court opined that Congress did not intend to give FINRA the right to enforce fines in court as indicated by explicitly granting access to the courts to the SEC. The Court indicated that a 1990 rule allowing court actions was not properly approved by the SEC.
OUR TAKE: FINRA may ultimately seek the power to use the courts through a properly vetted rulemaking process. Also, the SEC could use the courts on behalf of FINRA. Either way, this case is another example of federal court hostility to the securities regulators and private plaintiffs.
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