Fiero v. Financial Industry Regulatory Authority, Inc.
2011 U.S. App. LEXIS 20173
| 2d Cir. | 2011Background
- FINRA is a self-regulatory organization (SRO) authorized to discipline members under the Exchange Act; FINRA’s Code of Procedure governs disciplinary actions and appeals to the SEC.
- Fiero Brothers and John Fiero were FINRA members previously disciplined for violations of Exchange Act provisions and FINRA rules, including a $1,000,000 fine and bans.
- New York state courts and later the New York Court of Appeals addressed FINRA’s collection of fines, ultimately holding the federal courts had exclusive jurisdiction over enforcement of Exchange Act judgments.
- The Fieros filed suit in federal court seeking a declaratory judgment that FINRA lacks authority to collect fines through judicial proceedings; FINRA counterclaimed to enforce the fine.
- The district court dismissed the Fieros’ declaratory judgment claim and entered judgment for FINRA on its breach-of-contract theory; on appeal, the Second Circuit reversed, holding FINRA lacks authority to collect fines via court actions; it vacated the money judgment.
- The decision analyzes whether FINRA’s collection authority exists under the Exchange Act or under a 1990 rule change that NASD purportedly authorized court actions to collect fines, finding no proper promulgation or legislative grant of such authority.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Exchange Act authorizes FINRA to sue to collect fines | Fiero | FINRA | No; Exchange Act does not confer such authority |
| Whether the 1990 Rule Change properly authorized court collection of fines | Fiero | FINRA | No; rule not properly promulgated; not valid authority |
Key Cases Cited
- Redington, Touche Ross & Co. v. Redington, 442 U.S. 560 (U.S. 1979) (congressional intent; negative implications not enough to infer implied authority)
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353 (U.S. 1982) (implied remedy evidence and legislative intent; enforcement context)
- Securities and Exchange Comm’n v. Rosenthal, 426 F. App’x 1 (2d Cir. 2011) (SEC enforcement authority under Exchange Act §21(e) acknowledged in some circuits)
- Fed. Trade Comm’n v. Bunte Bros., 312 U.S. 349 (U.S. 1941) (agency power inferred from longstanding practice and statutory language)