Legal Challenge to FINRA's Constitutionality Dismissed by D.C. Court

Posted on November 3rd, 2023 at 1:15 PM
Legal Challenge to FINRA's Constitutionality Dismissed by D.C. Court

From the desk of Jim Eccleston at Eccleston Law 

An advisor who faced FINRA disciplinary action attempted to stop the proceedings in a D.C. federal court.

FINRA initially alleged that Eugene Kim, while associated with National Securities Corporation (NSC) between December 2017 and June 2019, had engaged in unethical conduct, acted in bad faith, and misused customer funds. Kim challenged FINRA's enforcement action in court by filing a demand for a jury trial in a D.C. federal court, focusing on the organization's constitutionality. He argued that while FINRA claims to be a private corporation with no constitutional responsibilities, it operates as a Congressionally-authorized entity with the statutory authority to enforce federal securities laws against a large number of individuals.

Kim referenced the Alpine Securities v. FINRA case, where a three-judge panel in the D.C. Appeals Circuit temporarily halted FINRA's industry ban on Alpine Securities. Still, the D.C. Circuit Court rejected this argument, stating that the Alpine order does not require courts to enjoin all challenged FINRA enforcement actions.

Ben Edwards, a professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, and a keen observer of legal challenges against FINRA, anticipates a growing number of cases where representatives seek to challenge FINRA's disciplinary actions by questioning the organization's legitimacy.

Edwards believes this argument will persist until the Supreme Court addresses it. Edwards told WealthManagement.com in an interview that despite FINRA's temporary success, the organization still faces a "reconstituted post-Trump era Supreme Court," which he sees as broadly unfriendly to administrative regulation.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, finra

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