LexisNexis Corporate & Securities Law Community 2011 Top 50 Blogs

Bon mots

"You can observe a lot just by watching." Yogi Berra

"We do not distain to borrow wit or wisdom from any man who is capable of lending us either." Henry Fielding, Tom Jones

"In our complex society the accountant's certificate and the lawyer's opinion can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar." United States v. Benjamin, 328 F.2d 854, 862 (2d Cir. 1964)

Finra Findings and Costs Not Sanctions Subject to SEC Appellate Jurisdiction

Sharemaster, Exchange Act Rel. 65570, October 14, 2011

This case is of interest to those who need to understand the SEC's interpretation of its jurisdiction over Finra disciplinary actions.

Finra sanctioned Sharemaster for failing to file an annual audit by a firm registered with PCAOB. At issue was whether or not an exemption from that requirement applied to Sharemaster. Finra's hearing panel found that Sharemaster was not subject to the exemption, ordered it suspended until it filed a compliant report and imposed costs of $1,785. Sharemaster appealed the Finra sanction to the SEC. It did not request a stay of the decision under Commission Rule 401(d).

While the appeal was pending Sharemaster filed a compliant annual report and the suspension was lifted.

Under Exchange Act Section 19(d) the Commission has jurisdiction over Finra action that: 1) imposes a final disciplinary sanction; 2) denies membership or participation of an applicant; 3) prohibits or limits any person's access to Finra services; or 4) bars any person from associating with a Finra member.

The Commission dismissed Sharemaster's appeal. It ruled that the Finra imposed suspension was not a final sanction as the suspension was contingent and had been lifted by Finra. It dismissed Sharemaster's argument that the finding of a violation and assessment of costs were final rulings.

The Commission opinion concluded that the only sanction potentially subject to appeal was the suspension. Because it had been lifted there was no jurisdiction. It found the costs not an appealable sanction as under Finra rules costs are not deemed sanctions. In ruling that the finding of violation was not an appealable sanction the Commission analogized to civil contempt actions in federal court. Once the civil contempt is purged by compliance with the order appellate jurisdiction is moot.