GKN Wins Historic Appeal: FINRA Lacks Authority to Enforce Collection of Disciplinary Awards

The United States Court of Appeals for the Second Circuit in Manhattan ruled unanimously in a historic decision today that FINRA lacks authority to bring court actions to collect disciplinary fines it has imposed – a monumental win for GKN.  The holding by the appellate court reversed the district court and concluded differently from the Supreme Court of the State of New York and New York State Appellate Division in Manhattan, earlier rulings that GKN successfully had vacated by the New York State Court of Appeals on jurisdictional grounds.  Accepting GKN’s contentions, the 2^nd Circuit ruled that the Securities Exchange Act did not provide FINRA with the necessary authority, and that rule changes FINRA filed with the SEC were not filed in the proper manner providing for comment and approval.  FINRA’s notices to members over the years, announcing its collection policy, thus were of no effect.  In one footnote, the 2^nd Circuit noted that the same powers it was discussing would apply to other self-regulatory agencies.  In another footnote, the 2^nd Circuit cautioned that it was offering no opinion on the validity of a properly promulgated rule authorizing fine collection through judicial proceedings, a reference GKN believes accounts for its other arguments against FINRA enforcing fine collection that the 2^nd Circuit did not address.  The decision, Fiero v. Financial Industry Regulatory Authority, Inc., is published at 660 F.3d 569 (2d Cir. 2011).