Supreme Court Won’t Halt Disciplinary Proceeding Against Securities Firm

The D.C. Circuit allowed the action to move forward despite sharing the company’s concerns about the constitutionality of a regulatory body’s prosecuting it.

Chief Justice John Roberts attends the State of the Union address in the House Chamber of the U.S. Capitol in Washington on Feb. 7, 2023. Jacquelyn Martin/Pool/Getty Images

The U.S. Supreme Court on March 14 denied Alpine Securities Corporation’s emergency request to stop a Financial Industry Regulatory Authority (FINRA) enforcement action aiming to bar it from the securities business.

The company is arguing that FINRA, a self-regulating organization that is charged with supervising member firms under U.S. Securities and Exchange Commission (SEC) oversight, lacks authority under the U.S. Constitution to enforce its regulations because it is a private organization that is not formally part of the federal government.

The authority drafts and enforces rules regulating member firms and monitors their activities to ensure compliance with its rules and federal securities laws.

The authority accuses Alpine of charging excessive fees and violating cease-and-desist orders and wants to expel the company as a member of FINRA in an expedited enforcement proceeding.

Chief Justice John Roberts acted alone in denying the company’s Feb. 18 application to stay the FINRA proceeding. He did not explain his decision. Under Supreme Court rules, the company can file its request with another justice.

The U.S. Department of Justice opposed the stay in a brief filed on March 7. Acting Solicitor General Sarah Harris wrote that the company was not likely to succeed on the merits and that it failed to demonstrate that it would suffer irreparable harm if the expedited enforcement action were allowed to continue.

Meanwhile, the Supreme Court is considering the Salt Lake City-based company’s appeal of a November 2024 ruling by a divided U.S. Court of Appeals for the District of Columbia Circuit that allowed the regulator’s enforcement action to proceed.

Despite letting the enforcement action move forward, the circuit court determined that FINRA may not “summarily expel broker-dealers from the securities industry without prior review by the SEC” because this runs afoul of the private nondelegation doctrine, according to Alpine’s petition filed with the Supreme Court on Feb. 20.

The doctrine is a constitutional principle that holds that the federal government’s powers may not be delegated to private bodies.

However, the District of Columbia Circuit declined to block the enforcement action, “reasoning that being subjected to an enforcement action by a constitutionally illegitimate actor does not constitute irreparable injury,” the petition said.

Alpine asked the Supreme Court to decide whether “FINRA’s structure and asserted power to enforce the federal laws, including its exercise of unfettered prosecutorial discretion,” violate the Constitution.

According to the petition, FINRA, a corporation registered in Delaware, “enforces the federal securities laws and its own rules that carry the force of federal law.”

The authority unconstitutionally “executes policy judgments on behalf of the Executive Branch and, in turn, the American people,” when it “investigates, prosecutes, adjudicates, and punishes individuals and entities who are forced to join FINRA as a condition of doing business in the United States securities industry.”

This unconstitutionality stems from the fact that the authority “is a nominally private corporation that acts as a federal government enforcement agency,” the petition states.

The petition said the SEC treats FINRA as a “‘private’ enforcement arm” and encourages it “to engage in aggressive action unburdened by the dictates of the Constitution or democratic accountability.”

Harris has not yet filed a response to the petition. The high court has directed her office to do so by March 26.

In the brief opposing the emergency application, she argued that the Supreme Court was unlikely to grant the petition for a number of reasons, among them that “every court of appeals to address the irreparable-injury question has rejected [Alpine’s] position.”

The brief also detailed some of FINRA’s allegations against the company.

In 2017, the SEC initiated an enforcement proceeding against Alpine for what it said was “egregious and illegal conduct on a massive scale” between 2011 and 2015, and the result was a civil penalty of $12 million. The SEC finding was affirmed by a federal district court in 2019 and the U.S. Court of Appeals for the Second Circuit in 2020.

By 2019, FINRA was investigating complaints from Alpine’s customers alleging excessive fees. The authority determined that the company’s actions were “intentional and egregious,” issued a cease-and-desist order, and ordered the company’s removal from FINRA membership, the brief said.

FINRA launched another investigation and found that Alpine was continuing to engage in misconduct. The authority opened an expedited disciplinary proceeding, accusing the company of violating the cease-and-desist directive upward of 35,000 times and sought its “immediate expulsion from FINRA,” the brief said.

The Epoch Times reached out for comment to the company’s attorney, David Thompson of Cooper and Kirk in Washington, and the U.S. Department of Justice, which represents FINRA.

No replies were received by publication time.