Judge Shoots Down FINRA Suit by Arizona Brokerage

(CN) – A federal judge has again blocked brokerage Scottsdale Capital Advisors from suing the Financial Industry Regulatory Authority on claims that the regulator unfairly targets the penny-stock sector.

According to the opinion from the U.S. District Court for the District of Columbia, Arizona-based Scottsdale has been battling FINRA in court for over a decade now, the agency having “fined, sanctioned, and censured Scottsdale and its officers multiple times for a host of violations involving Scottsdale’s dealings in unregistered penny stocks.”  Recently, the company sued FINRA in the U.S. District Court of Maryland but failed at trial and on appeal, prompting Scottsdale to bring the fight to Washington.

In its complaint, Scottsdale claimed FINRA violated its membership agreement and by-laws by only allowing members to elect seven of the twenty-three governors, using internal guidance against members unfairly, and that FINRA engaged in improper enforcement of one of its rules stipulating that “each FINRA member in the conduct of its business shall observe high standards of commercial honor and just and equitable principles of trade.” Scottsdale alleged that its business suffered and lost revenue due to the misconduct, while FINRA moved to dismiss the case on the basis that the District Court lacked the power to hear it.

In his ruling, U.S. District Judge Christopher Cooper agreed with FINRA that the Securities Exchange Act calls for an “exclusive administrative review process” by the Securities Exchange Commission. This means challenges such as Scottsdale’s were intended by Congress to be argued administratively in appellate courts, subsequently stripping the Columbia court of jurisdiction, the court found.

Scottsdale argued that because it brought a contract claim the case fell outside of the statutory review requirement and was therefore within the court’s jurisdiction. Judge Cooper disagreed, noting Scottsdale was simply using the breach of contract claim to disguise the “true nature” of the firm’s intention, which was to challenge the still ongoing disciplinary and regulatory actions imposed by FINRA.

“Jack Dempsey once observed that ‘the best defense is a good offense,'” Cooper wrote in his opening. “In boxing, perhaps, but not always in litigation. This case proves the point.”

“Scottsdale’s gambit fails again,” Judge Cooper concluded, dismissing Scottsdale’s motion.

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