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Broker Cannot Sue FINRA for Breaking FINRA Rules

By George Khoury, Esq. on November 06, 2017 10:15 AM

FINRA, the securities industry's self-regulating organization, will be able to regulate with a little more impunity now after the Eleventh Circuit Court of Appeals ruled that there is no private right of action for association members to sue the regulatory body when it doesn't follow its own rules.

A broker that was a registered member of a FINRA affiliated broker sought to bring an individual lawsuit against the organization due to an alleged failure to abide by their own rules. Unfortunately for that broker, the appellate court agreed with the district court's dismissal of his case due to there being no law authorizing a private right of action against FINRA.

What's This Case About?

In 2009, FINRA investigated and issued a disciplinary action against plaintiff and appellant Anthony Turbeville, stemming from an allegation that he fraudulently recommended certain investments to unsophisticated, vulnerable, investors. Turbeville lost that action, and then appealed that decision within FINRA.

But, rather than continuing on with the internal appeal as the statutory scheme would require, Turbeville filed a defamation lawsuit in state court against the individuals that had provided testimony against him in the FINRA action. This led FINRA to investigate Turbeville again, but this time for retaliation. However, this investigation fizzled out. But rather than start to move on, Turbeville decide to also file suit against FINRA in state court for defamation, abuse of process, and even conspiracy.

Can't State a State Claim

After Turbeville's state court case was removed to federal court, FINRA successfully sought dismissal on the grounds that the state court claims were effectively challenging FINRA's regulations, which was basically futile. As the district court explained, and the appellate court affirmed, FINRA has immunity from liability when it comes to its regulatory duties.

Furthermore, the court found that the internal grievance process set up by FINRA and the Exchange Act provide the exclusive remedy for association members complaining of FINRA failing to follow its own rules.

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