FINRA, Formerly NASD, Gets Serious About Enforcing Fines
Since just about the beginning of time, FINRA (formerly NASD) fines were viewed as a mere nuisance by out-of-business firms and former registered persons. FINRA has been criticized in the past for not collecting regulatory fines or fees from arbitration proceedings. At least in one case, this seems to have changed.
FINRA filed, and won, an enforcement action against John Fiero and Fiero Brothers, the broker-dealer he controlled, obtaining an award for over $1,000,000 in fines and costs. In the past, this would have been a pyrrhic victory for FINRA as it was well-known that they would not pursue collection if the firm was out of business. Well, it looks like this is no longer the case. FINRA filed a lawsuit in New York state court to collect the award.
FINRA was successful in the lower court and the appellate level. There were various defenses raised by Fiero and his company -- all of which were nice attempts but hard to fathom. Their success, perhaps temporary, came at the Court of Appeals, New York's highest court. For the first time in this matter, it appears, a court addressed the issue of jurisdiction over the action. The Court of Appeals found that Section 27 of the Exchange Act of 1934 specifically provides for "exclusive jurisdiction" in Federal Court. Boom, like that, FINRA was foiled.
Probably not for long. And this will be a lesson for those of us who practice in this area. We can no longer advise clients that, out of the business means that FINRA won't come after you. Maybe it's based on dollar level, but we'll see.
That's the view from The Law Planet -- Jupiter, Florida.
