Former Broker’s Defamation Suit Against FINRA Fails on Appeal

(CN) – A former broker’s defamation lawsuit against the Financial Industry Regulatory  Authority hit a brick wall in the 11th Circuit, where an appellate panel ruled that he had no private right of action to sue the regulatory body.

Affirming a Florida district court decision, the panel struck down Antony Lee Turbeville’s claims that FINRA defamed him by prematurely publishing a threat of disciplinary proceedings against him.

Turbeville was entitled to challenge FINRA’s actions through the standard administrative and judicial processes set up through the Exchange Act, but his lawsuit, in which he sought damages from FINRA outside that prescribed framework, was not permissible, the appellate panel found.

Judge Gerald Tjoflat wrote that although individuals associated with FINRA and other financial industry self-regulatory organizations may find the standard appeal process incapable of “fully assuaging … reputational harm” caused by disciplinary action, they chose to accept a limitation on redress by affiliating themselves with the regulatory organizations.

Turbeville’s request to move his case back to state court was denied as well.

According to the ruling, Turbeville’s claims against FINRA entailed primarily “federal questions” of whether the regulatory body violated its protocols and exceeded its authority under the Exchange Act.

Allowing Turbeville to proceed in state court “would undercut the distinctly federal nature of the Exchange Act,” the judge wrote.

“If actions like Turbeville’s are permitted, fifty state courts would be authorized to supervise FINRA’s regulatory conduct and its application of its internal, SEC-approved rules through the vehicle of state tort law,” the ruling states.

Turbeville’s dispute with FINRA dates back nearly nine years, spawning from a 2009 FINRA complaint alleging that he had misled elderly clients of his firm Brookstone Securities regarding the risks of collateralized mortgage obligations (CMO) he recommended as investments.

Turbeville disputed the allegations of misconduct, maintaining that he made sure all the clients signed disclosures acknowledging the risks of the investment products, and that FINRA came after him simply because these products became a “political hot potato” amid the 2008 financial crisis.

After those disciplinary proceedings culminated in a $1.6 million restitution order and a FINRA bar against Turbeville, he did not pursue a Securities and Exchange Commission appeal per the standard process. He did, however, file a slander case in Florida against several investors who participated in the proceedings.

FINRA did not take kindly to Turbeville’s outside claims against the investors, and it sent him a so-called “Wells notice,” stating that it made a preliminary determination that he interfered with the original FINRA action by suing the alleged victims.

Turbeville in turn filed the case at hand against FINRA, seeking damages for defamation and abuse of process, among other counts.

Turbeville insisted FINRA had publicly released the Wells notice “far earlier than would normally have been the case had customary protocols been followed.” He further claimed that FINRA and its agents’ attempt to police his Florida case against the former clients was “outside the scope of their regulatory authority.”

Importantly, the Wells notice appeared to have been issued to Turbeville when he was no longer working in the securities industry. It was removed from his publicly viewable BrokerCheck profile after Turbeville challenged its validity.

The 11th Circuit nonetheless affirmed the Middle District of Florida’s dismissal of all the former broker’s counts against FINRA. Generally the appellate panel held that, outside the appellate avenues afforded under the Exchange Act, FINRA’s members and “associated persons” do not have a private right of action to sue the regulatory body for alleged violations of its own rules.

The appellate panel declined to address the district court’s assertion that FINRA and its agents were entitled to absolute immunity in the case.

%d bloggers like this: