A broker-dealer is in federal court challenging the Financial Industry Regulatory Authority’s (FINRA) scope of power. At issue is FINRA’s power to maintain an enforcement action against Scottsdale Capital Advisors Corp. (Scottsdale) relating to sales of unregistered securities. FINRA has asked the court to dismiss Scottsdale’s lawsuit.
Scottsdale has asked the court to permit Scottsdale’s lawsuit to continue because (a) the Exchange Act of 1934 bars FINRA from launching disciplinary proceedings over alleged violations of other laws, such as the Securities Act of 1933, and (b) there is nothing in the Exchange Act preventing the court from hearing Scottsdale’s claims.
FINRA has argued that the court does not have jurisdiction to hear any claims until Scottsdale has exhausted the administrative process first, which would include first letting FINRA consider the claim through at least two levels of review, and then allowing the SEC to step in. The SEC filed a brief in support of FINRA’s take on the matter.
FINRA also claims that its authority under Rule 2010, which it used to charge Scottsdale, extends beyond the reach of the Exchange Act. Rule 2010 requires firms to “observe high standards of commercial honor and just and equitable principles of trade”, including behavior beyond just securities transactions.
If the court rules in favor of FINRA, Scottsdale will be required to follow FINRA’s administrative process before getting its day in court. If the court sides with Scottsdale and allows its case to proceed, the result could have far-reaching implications for other broker-dealers targeted by FINRA.
Did You Lose Money with Scottsdale Capital Advisors?
The attorneys at Dimond Kaplan & Rothstein, P.A. have recovered more than $100 million from banks and brokerage firms for their wrongful actions. If you were sold unregistered securities by your broker or brokerage firm, you may have certain legal rights that require your immediate attention. Contact us to schedule an appointment or consultation today.