Judge lets Finra proceed with enforcement action against broker
A federal judge last week denied a broker’s effort to stop Finra from disciplining him.
Eugene H. Kim filed a lawsuit in a Washington, D.C., federal court against the Financial Industry Regulatory Authority in August challenging its enforcement authority. In July, the broker-dealer self-regulator alleged that Kim misused customer funds in connection with a private placement offering sold by the firm he worked for from 2015 until last year, National Securities Corp.
Kim sought a temporary restraining order and preliminary injunction against Finra to prevent it from pursuing the enforcement action. He argued that Finra is a “state actor” and that its enforcement efforts were unconstitutional.
U.S. District Judge Ana C. Reyes denied the injunction in an order issued last Friday. Reyes, citing much legal precedent, said Finra is not a state actor. She noted that it’s subordinate to the Securities and Exchange Commission and is not under direct control of government appointees.
“Though opportunities have abounded, no court has ever held that Finra or its relationship with the SEC is unconstitutional,” Reyes wrote in her 36-page opinion. “Because Finra is likely not a state actor, plaintiff’s [constitutional] challenges are unlikely to succeed.”
Finra recently expressed confidence that it would be able to defend itself against Kim’s charges and a similar lawsuit working its way through the court system brought by Alpine Securities Corp. Reyes’ decision gives it an initial victory.
“Finra is gratified by the court’s ruling denying Kim’s motion,” Finra spokesperson Rita De Ramos wrote in an email.
Kim did not respond to a request for comment.
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