A broker dealer now says FINRA’s power is unconstitutional after the Supreme Court declined on Monday to hear a challenge on its latest case.
In a significant legal development, the U.S. Supreme Court has decided not to hear a challenge brought by Alpine Securities Corp. against the Financial Industry Regulatory Authority (FINRA).
This ruling effectively maintains FINRA’s status as a self-regulatory organization (SRO) within the securities industry, reinforcing its authority to oversee broker-dealers.
Background of the Case
Alpine Securities, a brokerage firm, contended that FINRA’s self-regulatory status is unconstitutional.
The firm argued that FINRA operates without sufficient oversight, which raises questions about its regulatory powers and the fairness of its disciplinary actions against member firms.
Alpine’s challenge aimed to prompt a re-evaluation of the framework governing self-regulatory organizations in the U.S.
The initial court let FINRA continue its enforcement proceeding against Alpine, saying it would not cause the kind of irreparable harm Alpine could face if later expelled, such as going out of business.
This prompted Alpine’s appeal to the Supreme Court.
Some investors, particularly those holding $GTII, allege Alpine targeted their investments through concentrated short positions, potentially involving counterfeit shares, as noted by the DTCC.
This has led to accusations of market manipulation, with investors calling for regulatory action against Alpine.
In 2017, The SEC charged Alpine for failing to file thousands of Suspicious Activity Reports (SARs) for microcap stock transactions flagged as suspicious, or filing deficient SARs that omitted critical information.
This has also raised concerns among investors about Alpine’s compliance with anti-money laundering regulations and its role in potentially manipulative schemes.
Implications of the Supreme Court’s Decision
By choosing not to take up the case, the Supreme Court effectively upheld the existing regulatory structure that has been in place for decades.
This decision reinforces the work of self-regulatory organizations like FINRA.
Many retail investors would argue however that FINRA is simply a lobbied group with ties to institutional investor interests.
The decision comes at a time when the regulatory landscape is increasingly scrutinized, and the need for effective oversight is paramount in light of recent market volatility and high-profile trading scandals — an in some cases, even a check on our own regulators.
In a federal Racketeer Influenced and Corrupt Organizations Act (RICO) lawsuit, investor-turned whistleblower Anna Trades claims that FINRA-operated dark pool venues—namely OTCBB, OOTC, and XADF—are being used to launder counterfeit shares, conceal failed trades, and offload synthetic exposure into pensions, 401(k)s, IRAs, Thrift Savings Plans (TSPs), and ETFs.
These practices, she argues, are endangering the retirement savings of millions of Americans and destroying U.S. companies and jobs.
While the retail investor fight against Alpine may be a win, FINRA still has explaining to do if it is to gain the trust of the public.
FINRA’s Role in the Financial Markets
FINRA is a “non-profit” organization that regulates member brokerage firms and exchange markets.
Its responsibilities include enforcing compliance with securities laws, conducting examinations, and implementing disciplinary actions against firms that violate regulations.
The organization is supposed to play a vital role in fostering investor confidence and ensuring the integrity of the financial markets.
However, investor confidence has been further shattered with high profile cases such as the MMTLP scandal, which exposed the regulators short-comings and possible collusion to fraud.
FINRA triggered a U3 halt in MMTLP and delisted the ticker in December of 2022, leaving tens of thousands of investors unable to take out their capital, resulting in a complete wipeout of investor’s portfolios.
Transcripts between FINRA and the SEC surfaced of a fraud investigation happening behind the scenes prior to the halt and delisting, yet no clarity has been provided to these investors.
Looking Ahead
The Supreme Court’s refusal to hear the case may have broader implications for the future of financial regulation in the United States.
As the regulatory environment evolves, stakeholders and retail investors alike will likely continue to scrutinize the effectiveness and accountability of self-regulatory organizations.
As financial markets face ongoing challenges, including technological advancements and shifts in trading patterns, the importance of robust regulatory frameworks remains critical.
The ruling in the Alpine Securities case underscores the necessity for a balance between regulatory authority and accountability, ensuring that the interests of investors are adequately protected.
The Supreme Court’s decision not to engage with the Alpine Securities challenge reinforces FINRA’s role as a key player in the U.S. financial regulatory landscape.
As the industry anticipates future developments, the focus will remain on ensuring that self-regulatory organizations operate effectively while safeguarding the interests of all investors and maintaining market integrity.
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