Wall Street Self-Regulators’ Legal Threats Risk Upending Markets

Herrick counsel, Maxim M.L. Nowak, was quoted in Bloomberg Law discussing potential challenges facing the American securities trading systems amidst looming circuit court rulings that could determine the constitutionality of the Financial Industry Regulatory Authority ("FINRA") and other Wall Street self-regulatory groups.

The article noted that U.S. Supreme court case SEC v. Jarkesy is one anticipated ruling involving self-regulatory organizations ("SRO"). This case involves the Securities and Exchange Commission’s ("SEC") use of in-house judges, known as administrative law judges ("ALJ"). “What’s interesting from an industry perspective is what happens with these SROs,” said Max. “If Jarkesy curtails the SEC’s ability to use ALJs, SROs may be in trouble too,” he said. “The logic extends to them.”

Another case highlighted in the article was one involving FINRA's pursuit of Alpine, once a major clearinghouse for penny-stock trades, for alleged misconduct related to customer accounts. Max pointed to potential procedural burdens on regulators and the courts. “Are enforcers really going to be required to bring standalone actions in federal court every time there is an enforcement action?” he asked. “Will the enforcers and the courts be provided with the needed increased resources that change might require?”

Read the full article in Bloomberg Law here. Access may require a subscription.