U.S. District Judge Deborah K. Chasanow has dismissed Scottsdale Capital Advisors’ securities case claiming that the Financial Industry Regulatory Authority did not have legal authority to enforce securities laws. The self-regulatory organization had filed an administrative case against the financial firm, accusing it of selling unregistered penny stock shares.
In March, Scottsdale filed its complaint, contending that the claims brought by the regulator came out of violations of the Securities Act of 1933, which it believes that the Securities and Exchange Commission, and not FINRA, has purview over when it comes to enforcing it the act. However, Scottsdale also said that both the SEC and FINRA did not have the “realm of expertise” to make a ruling in the SRO’s case against it.
Judge Chasanow dismissed Scottsdale’s lawsuit citing lack of subject matter jurisdiction. She said that the allegations brought by FINRA as they pertain to the penny stock trades should not be in heard in federal court.
Prior to the securities case’ s dismissal by the judge, the SEC urged Judge Chasanow to throw out the case on the grounds that the issue isn’t ripe enough for a federal court to examine. The regulator’s lawyers filed an amicus brief in which they said that the firm shouldn’t be allowed to circumvent FINRA’s internal review process in order to bring up complaints about the SRO’s regulatory authority. The SEC said that in line with the Exchange Act of 1934, Scottsdale should bring its complaints to FINRA first and then the SEC.
Brokerage’s Challenge To FINRA Enforcement Power Axed, Law360, April 26, 2016
Securities Act of 1933 (PDF)