Regulator Exceeded its Power According to Court

On 23.10.11, In Legal Industry, by Blake Houser



A Manhattan federal appeals court on Wednesday ruled that Finra, a key regulator of Wall Street for over 70 years, does not have the authority to take its members to court in order to implement its disciplinary actions.

The surprise ruling limits the powers of the Financial Industry Regulatory Authority, which is formerly known as the National Association of Securities Dealers, at a time when it has been under so much pressure to enforce greater accountability on all its licensed brokers and brokerage firms.

The federal court’s decision came after a 14-year battle waged by Fiero Brothers, a small penny-stock brokerage firm, and John J. Fiero, the firm’s owner. In December of 2000, after legal skirmishes that lasted for a number of years, Finra charged Mr. Fiero and his firm of breaking federal fraud laws, particularly its act of engaging in a manipulative activity call naked short-selling. Aside from the its expulsion, the regulator also slapped a $1 million fine on the firm.

The firm was closed and its owner was banned from the market. Finra eventually wound up in federal court in its attempt to collect the money when both the firm and its owner refused to pay the fine.

However, according to a panel composed of three judges of the United States Court of Appeals for the Second Circuit, the jurisdiction of which covers Wall Street, Finra had no right to do that.

Judge Ralph K. Winter Jr in an opinion wrote, “The principal issue is whether the Financial Industry Regulatory Authority Inc. has the authority to bring court actions to collect disciplinary fines. We hold that it does not and reverse.”

Blake Houser

Client Relations Manager at The Wells & Drew Companies
About the author:
Blake Houser is Client Relations Manager at Wells & Drew. In addition, he is the third generation in this family-owned speciality printing business.

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