* Court rules FINRA cannot file lawsuits to collect fines
* Decision could end 11-year legal battle
By Suzanne Barlyn
Oct 5 The Financial Industry Regulatory
Authority (FINRA) cannot go to court to collect fines it says
brokerages and brokers have to pay in disciplinary cases, a
U.S. federal appeals court ruled on Wednesday.
A three judge panel of the U.S. Court of Appeals for the
Second Circuit in New York threw out a $1.3 million judgment
from a federal district court in FINRA's favor. The judgment
was against Fiero Brothers Inc., a now defunct New York-based
brokerage, and its president John J. Fiero.
The court wrote that the Exchange Act, which allows
self-regulatory organizations to oversee parts of the
securities industry, doesn't give FINRA a right to enforce
fines by filing lawsuits, the court wrote.
The decision could end a legal battle that began in 2000
when FINRA's predecessor, the National Association of
Securities Dealers, permanently barred Fiero from the
securities industry, expelled his firm, and jointly fined Fiero
and the firm $1 million for allegedly violating short selling
FINRA first sued Fiero and the firm in New York state
court, a process that ended in 2008 when the state's highest
court also threw out a judgment in FINRA's favor.
Fiero then went to federal court seeking a declaratory
judgment that FINRA didn't have authority to collect the fine
through the courts. FINRA counter-sued, saying it had a
contractual right to collect the $1.3 million.
Lawyers disagreed about the impact of the case.
"It's a game changer," said Matthew Farley, a securities
lawyer for Drinker Biddle & Reath LLP in New York. FINRA has
tried to collect unpaid fines in court cases for about 20
years, he said.
But that strategy is on the decline, said Brian Rubin, a
securities lawyer for Sutherland Asbill & Brennan in
Washington, D.C. Current FINRA guidelines for sanctions
discourage fines if a broker is barred, he said. Brokers who
are suspended and fined aren't allowed to return to the
industry unless they pay the fine, he said.
For its part, FINRA spokeswoman Nancy Condon said the
regulator "will continue to review the ruling and weigh our
"The decision will not have any impact or restrict our
ability to enforce FINRA rules and securities laws, to
discipline firms or to protect investors," she said in a
(Reporting by Suzanne Barlyn in Washington; Editing by
Jennifer Merritt and Walden Siew)