A federal appeals court has issued a temporary block on the self-regulatory organization Finra from expelling Alpine Securities from the industry. This ruling represents a significant win for the brokerage firm as it seeks to challenge the constitutionality of Finra’s enforcement powers.
The U.S. Court of Appeals for the District of Columbia voted 2-1 in favor of Alpine Securities and its affiliated clearing firm, Scottsdale Capital Advisors. Finra had initiated proceedings to expel and penalize Alpine Securities for alleged misconduct, including the misuse of customer funds. However, Alpine Securities firmly denies these allegations.
While the court’s order did not specifically address the constitutionality of Finra’s enforcement powers, one of the judges, Justin Walker, commented on the issue in a separate statement. Walker pointed out that there is a valid argument that Finra hearing officers possess substantial executive power and do not act under the President, which could potentially raise constitutional concerns.
In granting the injunction, the judge emphasized that it would allow Alpine Securities to continue its business operations while litigating its constitutional challenge.
It’s important to note that Judge Walker was appointed to the appeals court in 2020 by President Trump. Judge Karen Henderson, who was appointed in 1990 by President George H. W. Bush, ruled in favor of Alpine’s request for an injunction but did not endorse Walker’s statement. On the other hand, Judge Bradley Garcia, a recent appointee under President Biden, dissented.
Brian W. Barnes, the lawyer representing Alpine Securities from the law firm Cooper & Kirk, expressed his satisfaction with the judges’ decision.
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Wall Street Watchdog
Introduction
Background of the Legal Battle
As Alpine Securities awaits further proceedings, the recent decision by the D.C. Circuit brings hope for a careful examination of the constitutional concerns raised by Finra’s exercise of regulatory power over participants in the securities industry throughout the United States.
Note: The Finra spokesperson has confirmed that the organization is currently reviewing the decision and exploring its options.
Alpine Securities: A Shift in Business Policies
In August 2018, Alpine Securities made a surprising announcement to its customers. They declared that they would no longer handle retail accounts and introduced additional fees, including a substantial $5,000 monthly account fee for retail customers who failed to close their accounts. Finra labeled this fee as unreasonable and discriminatory, criticizing Alpine for providing minimal notice to its customers regarding the modifications to their business plan.
Subsequently, Alpine Securities decided to dispute Finra’s decision by appealing to the National Adjudicatory Council. In addition, they filed a lawsuit against Finra in federal court in October 2022, challenging Finra’s operation and structure based on constitutional grounds. This lawsuit claimed that Finra’s internal enforcement tribunals violated the rights provided by the Constitution, unfairly depriving both entities and individuals of their property without due process of law.
As the appeal before the National Adjudicatory Council progressed, Finra discovered that Alpine Securities failed to comply with a cease-and-desist order. As a result, Finra sought an expedited expulsion of Alpine in April 2023. However, Alpine immediately approached the court seeking an injunction to block the expulsion. However, their request was denied by Judge Beryl Howell on June 7. Judge Howell stated that Alpine had failed to fulfill all the necessary prerequisites to obtain such extraordinary relief. Unperturbed by this setback, Alpine promptly appealed Judge Howell’s ruling the following day.
This series of events has undoubtedly altered the course of Alpine Securities’ future. Only time will tell how the legal battle between Alpine Securities and Finra unfolds.
