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Amicus Briefs

Alpine Securities Corporation v. FINRA

The Financial Industry Regulatory Authority is a nominally private non-profit corporation that regulates the securities brokerage industry subject to oversight by the U.S. Securities and Exchange Commission. But it wields vast legislative, executive, and adjudicatory powers over more than 600,000 individual brokers and thousands of broker-dealer firms nationwide. 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.

The U.S. District Court for the District of Columbia concluded that FINRA is not a “state actor”—leaving the regulator unbound by most constitutional restraints when it investigates, prosecutes, and punishes alleged wrongdoers. That conclusion unwittingly confirmed that FINRA violates Article II of Constitution, which prohibits empowering private law enforcement without close Executive Branch supervision, and the “private nondelegation doctrine,” a vital judicial principle that reserves binding federal power for the federal government alone. NCLA filed an amicus curiae brief in Alpine Securities Corporation v. FINRA, asking the U.S. Court of Appeals for the District of Columbia Circuit to end FINRA’s blatantly unconstitutional use of executive power.

Though SEC explicitly pre-approves nearly all FINRA-promulgated rules, the agency provides virtually no real-time supervision or direction of FINRA’s law enforcement activities. Indeed, in most cases, SEC commissioners are entirely oblivious to FINRA’s investigatory and prosecutorial activities, even as those activities routinely threaten fines and other career-altering sanctions against American citizens.

FINRA cannot have it both ways—evading the Constitution’s appointment, removal, due process, and jury trial requirements by claiming to be a mere private actor, while simultaneously wielding vast, unsupervised governmental power. Judges should recognize this inescapable dilemma and either declare FINRA a government actor or demand that its enforcement activities be far more closely supervised by SEC officials.

Margaret A. Little
Senior Litigation Counsel
Russ Ryan
Senior Litigation Counsel
Andrew Morris
Senior Litigation Counsel

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