Cases
Smith v. SEC and FINRA
CASE SUMMARY
NCLA urges the U.S. Court of Appeals for the Sixth Circuit to set aside an SEC administrative order that affirmed Financial Industry Regulatory Authority (FINRA) sanctions unlawfully punishing our client Eric S. Smith.
FINRA is a private, members-only organization that lacks any lawful power to regulate or discipline Mr. Smith because he has never been licensed with FINRA or otherwise consented to its authority over him. Congress could not empower FINRA to prosecute and adjudicate claims against a member of the general public like Mr. Smith without violating the legal doctrine forbidding the government from delegating unsupervised power to private parties. Nevertheless, FINRA launched formal disciplinary proceedings in 2017 against Mr. Smith and a brokerage firm of which he was neither an officer, director, or employee, wrongly accusing him and the firm of misconduct dating back to 2010. A FINRA-assembled panel imposed the lifetime industry ban and restitution order against Mr. Smith in January 2019. Mr. Smith first appealed those sanctions to FINRA’s National Adjudicatory Council, which affirmed the panel’s decision in September 2020 and ordered him to pay another $1,200 in appeal costs.
The President has not commissioned FINRA leaders or adjudicators as officers of the United States, so they had no authority to prosecute or adjudicate FINRA’s enforcement action against Mr. Smith. At least three layers of for-cause protection stop the President from removing FINRA employees at will, preventing him from fulfilling his constitutional duty to “take care that the laws be faithfully executed” regarding their work. Mr. Smith was also deprived of his Seventh Amendment right to a jury trial in an Article III court in defending against FINRA’s claims, a right the Supreme Court definitively recognized last year in SEC v. Jarkesy.