D.C. Circuit Questions Constitutionality of FINRA Hearing Officers, Enjoins Disciplinary Proceeding | Sidley Austin LLP

On July 5, 2023, the D.C. Circuit Court of Appeals handed down an emergency order that could throw a major obstacle in front of the Financial Industry Regulatory Authority (FINRA) regulatory program. The decision enjoins FINRA from expelling Alpine Securities Corporation (Alpine) through its expedited hearing process due to constitutional issues pending appeal. The court agreed that Alpine was likely to win on the merits in its argument that FINRA hearing officers are acting with executive authority without being properly appointed officers of the executive branch in violation of the Constitution.

The Alpine case draws upon principles established by the U.S. Supreme Court in Lucia v. SEC, which held that administrative law judges (ALJs) within the Securities and Exchange Commission (SEC) were Officers of the United States who must be appointed in accordance with the Appointments Clause of the Constitution. Although far from over, the Alpine case calls into question the constitutionality of FINRA’s hearing officers and may have significant implications for the self-regulator.

Source: D.C. Circuit Questions Constitutionality of FINRA Hearing Officers, Enjoins Disciplinary Proceeding | Insights | Sidley Austin LLP