The Financial Industry Regulatory Authority (“FINRA”) is now facing a second litigation challenging the constitutionality of its use of disciplinary tribunals to impose sanctions on FINRA members. A broker filed a complaint in federal court in Pennsylvania on the heels of the Supreme Court’s landmark ruling in SEC v. Jarkesy, 144 S.Ct. 2117 (2024). The case, Blankenship v. Financial Industry Regulatory Authority, Docket No. 2:24-cv-03003 (E.D. Pa. Jul 10, 2024), seeks both preliminary and permanent injunctions to halt disciplinary proceedings brought against him by FINRA’s Department of Enforcement. FINRA had previously charged the broker with allegedly engaging in unsuitable mutual fund trading practices including, among other things, recommending short-term holds for Class A mutual funds designed to be long-term investments which allegedly resulted in unnecessary charges to customers and excess commissions to the broker.

On July 5, the United States Court of Appeals for the D.C. Circuit granted an emergency injunction blocking the Financial Industry Regulatory Authority (“FINRA”) from halting the securities business of Alpine Securities Corporation (the “Company”) through an expedited hearing process pending the Company’s appeal challenging the constitutionality of FINRA’s enforcement proceedings.  Alpine Securities Corporation, et al v. Financial Industry Regulatory Authority, Inc., 1:23-cv-01506-BAH (July 5, 2023).  While noting that this was not a decision on the merits, the court found that the Company had shown a likelihood that it will succeed on the merits in its challenge to the structure of FINRA enforcement actions, having at this early stage “raised a serious argument that FINRA impermissibly exercises significant executive power.”

On June 23, 2022, FINRA’s Department of Enforcement announced a settlement in which a broker-dealer agreed to pay $3.6 million in fines, $4.77 million in disgorgement, and partial restitution of over $625,000 to resolve the broker-dealer’s alleged misconduct under the Exchange Act and NASD and FINRA Rules in connection with three IPOs and seven follow-on offerings between June 2016 and December 2018 for which the broker-dealer acted as underwriter, as well as for other supervisory and operational violations.