An irreverent Wall Street Blog
Federal Court Deems FINRA Absolutely Immune in Expungement Lawsuit
February 28, 2023
Indeed, we live in a litigious society. That being said, just because you're angry or unhappy doesn't mean that the law will reward you with damages. Similarly, just because you feel wronged by the party that you have sued, doesn't mean that the Court will provide you with a trial. In some cases, notwithstanding how upset a Plaintiff may be, there is no "right of action" provided under law to sue the perceived wrongdoer. Making matters even more infuriating for those confronted with such an obstacle, the law also protects some parties from lawsuit pursuant to the doctrine of "absolute immunity." In essence, not only is the Court's door barred to you, but even if you forced your way in, you're not going to be able to sue the proposed Defendant. Such is often the barrier encountered by public customers and industry participants when they try to sue Wall Street's self-regulatory-organization FINRA, as set out in a recent federal lawsuit.
2018 Federal Lawsuit Alleges FINRA Defames Rep
On October 9, 2018, pro se Plaintiff Thomas Howes sued the Financial Industry Regulatory Authority, Inc. ("FINRA") in the United States District Court for the District of Maryland ("DMD") alleging that FINRA is reporting false and defamatory information about him via two disclosed customer complaints. Plaintiff Howes seeks to have the cited complaints expunged from the Central Registration Depository ("CRD") and from his Uniform Application for Securities Industry Registration or Transfer Form (the "Form U4").
Thomas Howes, Plaintiff, v. Financial Industry Regulatory Authority, Inc., Defendant (Opinion, United States District Court for the District of Maryland / February 24, 2023)
https://brokeandbroker.com/PDF/HowesDMDOp230224.pdf
https://brokeandbroker.com/PDF/HowesDMDOp230224.pdf
FINRA's Six-Year Document Retention Requirement
The DMD Opinion offers in part this further background pertaining to the dispute:
Mr. Howes alleges that FINRA’s procedure for expunging false information is flawed, because it only requires member firms to retain documents and information for six years. (Id., at ¶ 6). He asserts that if the retention policies were longer, he could have proven that the 10- and 17-year-old complaints against him were false by using documentation gained through discovery. (Id., at ¶ 7). He also asserts that FINRA should not keep complaints on the U-4 or broker check for longer than six years, i.e., the same length of time as the retention policies. (Id.).
Mr. Howes includes a petition for expungement in a section of his complaint entitled “Grounds for Expungement – Federal Question.” (Id., ¶¶ 8, 9-26). In his conclusion, Mr. Howes complains that his only dispute mechanism is arbitration,3 which is unfair because of the retention policies, and he asks the court to grant relief through expungement. (Id., at ¶ 13).
= = =
Footnote 3: Before filing his complaint, Mr. Howes filed two arbitration claims in FINRA’s Office of Dispute Resolution, each seeking to expunge records. (See ECF Nos. 1-4, 1-5, 1-6). The FINRA arbitration panel denied all his claims. (ECF No. 1-4).
at Page 3 of the DMD Opinion
So . . . by way of recap, Howes had filed two FINRA expungement arbitrations that resulted in denials by a FINRA Arbitration Panel. In part, Howes seems to ascribe his arbitration losses to the detrimental impact of a FINRA rule requiring its member firms to retain certain documents/information for no more than six years. As Howes argues, FINRA's allegedly unfairly truncated retention rule made it difficult if not impossible to demonstrate the falsehoods in the cited customer complaints, which were between one and justy-shy of two decades old.
SIDE BAR: FINRA Financial and Operational Rule 4511: General Requirements
(a) Members shall make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.
(b) Members shall preserve for a period of at least six years those FINRA books and records for which there is no specified period under the FINRA rules or applicable Exchange Act rules.
(c) All books and records required to be made pursuant to the FINRA rules shall be preserved in a format and media that complies with SEA Rule 17a-4.
(b) Members shall preserve for a period of at least six years those FINRA books and records for which there is no specified period under the FINRA rules or applicable Exchange Act rules.
(c) All books and records required to be made pursuant to the FINRA rules shall be preserved in a format and media that complies with SEA Rule 17a-4.
FINRA Says Federal District Court Has Jurisdiction
In opposing Plaintiff Howe's lawsuit, FINRA urged that DMD to exercise its jurisdiction and to dismiss the case "because Mr. Howes is not challenging the merits of the customer disputes to be expunged but rather is challenging FINRA rules and federal statutes that govern document retention obligations, maintenance of registration information, and disciplinary proceedings." at Page 7 of the DMD Opinion. In finding that it has jurisdiction over the dispute, DMD holds in part that:
[H]owes argues in his brief that the heart of his complaint is the non-production of discovery, his right to discovery under federal law, and specific challenges to Exchange Act rules. (Id., at 10, 17); see Wall, 42 F.4th at 219 (considering the substance of the pro se plaintiff’s objections). Properly construed, Mr. Howes’ complaint alleges that FINRA violated federal laws and rules and applied rules in conflict with federal law, and he seeks equitable relief. As such, this court finds it has jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa.
at Page 9 of the DMD Opinion
FINRA Has Absolute Immunity
Having accepted it jurisdiction over the lawsuit, DMD proceeded to consider FINRA's Motion to Dismiss. DMD concedes that "there is no express or implied private right of action against FINRA for violating its own rules or for actions taken to perform its self-regulatory duties under the Exchange Act. " at Page 9 of the DMD Opinion. Moreover, DMD affirms that " [F]INRA is entitled to absolute immunity from suits in connection with the discharge of its regulatory responsibilities." at Page 10 of the DMD Opinion. As to be expected following the Court's predicate findings, if concludes in part that:
Therefore, Mr. Howes’ complaint, construed to allege that FINRA violated federal laws and rules and applied rules in conflict with federal law, fails to state a viable claim. Because amendment would be futile under the circumstances, dismissal of his complaint will be with prejudice.
at Page 11 of the DMD Opinion
BREAKING NEWS: Supreme Court Pegs The Bank Secrecy Acts's $10,000 maximum penalty for the nonwillful failure to file a compliant report to a per-report and not per-account basis.
Alexandru Bittner, Petitioner v. United States (Opinion, United States Supreme Court, No, 20-1195 / February 28, 2023)
Alexandru Bittner, Petitioner v. United States (Opinion, United States Supreme Court, No, 20-1195 / February 28, 2023)
FINRA Censures and Fines Member Firm for Risk Management Controls and Supervisory Procedures
In the Matter of Fenix Securities, LLC, Respondent (FINRA AWC)
In the Matter of Fenix Securities, LLC, Respondent (FINRA AWC)
FINRA Arbitration Panel Slams Morgan Stanley With Multi-Million Dollar Compensatory/Punitive Damages in Charles Schwab Lawsuit
In the Matter of the Arbitration Between Charles Schwab & Co., Inc, Claimant, v. Morgan Stanley, Christopher Robert Armstrong, Randall Brian Kiefner, Respondents (FINRA Arbitration Award)
In the Matter of the Arbitration Between Charles Schwab & Co., Inc, Claimant, v. Morgan Stanley, Christopher Robert Armstrong, Randall Brian Kiefner, Respondents (FINRA Arbitration Award)