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FINRA

For the commercial litigator, their first foray into the world of enforcement actions brought by the Financial Industry Regulatory Authority (FINRA) can be disorienting. Many elements will seem familiar: substantive rules govern the conduct of FINRA members and their employees; procedural rules guide enforcement actions; in-person hearing with testimony and an adjudication. While sanctions can and often are imposed, no one goes to jail.

But below the surface are fundamental differences that can catch even experienced counsel off-guard. Discovery is a one-way street: FINRA Enforcement has the power to depose witnesses at any time, but respondents have no such ability. Causes of action are broadly written, and references to “high standards of commercial honor,” for example, may leave a civil litigator at a loss as to what the elements of such a claim might be.

Role and Function

FINRA is a limited purpose, private organization that oversees broker-dealers in the United States. It is a self-regulatory organization (SRO) authorized by the Securities and Exchange Act of 1934 with oversight by the Securities & Exchange Commission (SEC). FINRA has jurisdiction over securities broker-dealers (known as members) and their employees who handle securities transactions (known as representatives). The organization is generally considered a private actor not subject to the Due Process Clause.

Before the Complaint

Most FINRA enforcement actions begin as requests for information under FINRA Rule 8210. which permits the organization to, at any time, seek documents and information from any member or associated person under FINRA’s jurisdiction and to depose them under oath.

Unlike the SEC or an attorney general, FINRA cannot compel documents or testimony from persons outside its jurisdiction. Nonetheless, the scope of Rule 8210 is generally sufficient for enforcement actions.

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