FINRA Ducks Suit From Broker Fired Over Label
CHICAGO (CN) - A securities broker cannot sue the Financial Industry Regulatory Authority because he was fired to avoid the group's scrutiny, the 7th Circuit ruled.
Neil Aslin joined Best Direct as a securities broker, but the firm fired him in 2011 to keep compliance with the so-called FINRA taping rule.
The rule requires securities firms to adopt monitoring measures when too many of their brokers have recently worked for a firm that it has previously disciplined.
So-called disciplined firms earn this distinction if FINRA has expelled them over their securities sales practices. The taping rule is intended to prevent crooked brokers from moving en masse and starting illegal behavior all over again.
Because monitoring measures are so expensive, small firms often avoid reaching the critical mass that triggers the regulation by firing brokers ho are found to have once worked for a disciplined firm.
"A broker counts toward a firm's number of brokers from disciplined firms if he or she was registered for at least 90 days with a disciplined firm within the past three years," according to the 7th Circuit.
When Aslin's former employer, Brewer Financial, settled a disciplinary matter relating to private security offerings, 11 of Best Direct's 17 brokers were added to a list of brokers from a disciplined firm. To avoid the monitoring requirements, Best Direct fired Aslin and several other brokers.
Aslin filed suit, alleging that the FINRA violated his due process rights by adding him to the list of brokers from the disciplined firm without giving him the opportunity to challenge his designation.
U.S. District Judge Ronald Guzman dismissed the claim, reasoning that the group's actions had not deprived Aslin of a liberty or property interest.
The 7th Circuit affirmed last week, but on different grounds. The three-judge panel ruled that FINRA removed Aslin from its list, mooting his claim.
Because Aslin had last worked at Brewer Financial in March 2009, FINRA no longer counted him as a member of a disciplined firm by the end of March 2012. Thus, at the time of Guzman's decision, Aslin was no longer suffering any injury-in-fact.
"The court could not grant or effect the relief Aslin sought - to prevent FINRA from designating him as a member of a Disciplined Firm without process - since FINRA is no longer designating Aslin as such or threatening to designate him in the immediate future," Hamilton wrote.
"If this suit were to continue, Aslin would be asking a court either to tell FINRA to stop doing something that it is not doing, or to declare rights and obligations about a controversy that no longer exists," he added.
Though Aslin has been unable to find work since his termination, and he may find it more difficult to secure employment in the future, an injunction or declaratory judgment will not remedy this injury, according to the ruling.
Best Direct would not have to rehire Aslin if the court declared that a rule not currently applicable to him violates his due process rights, the court found. Such a declaration also would not require Best Direct to rehire Aslin or prohibit a prospective employer from considering the fact that he was fired because of the taping rule.
Because the now-moot suit is not "capable of repetition, yet evading review," it must be dismissed, the court said.
The Financial Regulatory Authority is a privately owned nonprofit that monitors securities. The group was created as part of a plan of private regulation established under the Maloney Act in 1938.