BANNED BROKER QUESTIONS FINRA'S RIGHT TO BAR HIM
Investment law specialists on Thursday raised concerns that the Financial Industry Regulatory Authority will lose its capacity to exclude bad brokers because of a progressing case pitting the Securities and Exchange Commission against a broker that FINRA banned in 2008.
If the U.S. Court of Appeals for the D.C. Circuit rules against the SEC and for ex-broker John M.E. Saad in Saad v. SEC, it would be an "earthquake-sized ruling for FINRA," according to an Associate at New York law office Hoguet Newman Regal and Kenney, John Curley.
In an up and coming hearing for the situation, the D.C. Circuit Court of Appeals will consider, in addition to other things, whether an industry ban for broker misconduct can ever be a reasonable authorization in a FINRA execution procedure.
Saad, who was banished from the industry following a FINRA disciplinary action that the regulator said proved he submitted fabricated expense reports to his boss and deluded examiners about his activities, contended that after the U.S. Supreme Court's 2017 assessment in Kokesh v. SEC, a FINRA lifetime expulsion is "punitive" and hence not an appropriate FINRA sanction.
The issue has been gradually clearing its path through the courts. Most as of late, the SEC ruled against Saad. In any case, that choice is currently on appeal in the D.C. Circuit.
The Notions of Legal Experts
“One of the issues the Circuit may have to resolve is whether an industry ban is ‘remedial’ or ‘punitive,’” according to Curley, who serves clients in investments regulatory investigations and proceedings.
“There is a precedent that FINRA may only impose ‘remedial’ and not ‘punitive’ sanctions, and this is where Kokesh’s analysis of what makes a court-ordered relief ‘remedial’ or ‘punitive’ could be relevant,” Curley stated. “Of particular note is that in the D.C. Circuit’s remand ruling, then-Circuit Judge [Brett] Kavanaugh concurred in the decision with a forceful argument that an industry bar is not remedial,” Curley explained.
All things regarded, he declared: “I think Saad has an uphill climb here. One, regardless of whether the D.C. Circuit finds that a FINRA bar is remedial or punitive, I think it’s pretty unlikely that the D.C. Circuit would say that the bar, even if ‘punitive,’ is across-the-board impermissible as a sanction for securities-industry misconduct. Two, it may be difficult for Saad to convince the Circuit that a bar was excessive or oppressive in his case, particularly because the record shows that he misled his employer and regulators.”
According to government investigations and securities enforcement attorney Jacob S. Frenkel, “Case law supports that principle,” he stated, continuing: “Just as a Fifth Amendment assertion is a sacrosanct right in SEC matters, a Fifth Amendment assertion in a FINRA lawsuit or investigation results in a permanent bar. Many fail to understand this critical distinction between a state actor versus industry self-regulator, and that will determine the outcome.”
