Last Friday, the D.C. Circuit issued its decision in Alpine Securities Corp. v. FINRA, No. 23-5129, a closely-watched case about the authority of the Financial Industry Regulatory Authority (“FINRA”), a private corporation that regulates and oversees large parts of the securities industry. The case raised significant questions about whether FINRA exercises too much executive authority with too little government oversight from the Securities Exchange Commission (“SEC”). However, in an opinion written by Judge Millett and joined by Judge Srinivasan, the D.C. Circuit avoided these larger issues in favor of a narrow ruling.

In 2022, FINRA sanctioned and imposed a cease-and-desist order against one of its members, Alpine Securities Corporation, for violating FINRA’s rules. Alpine then challenged FINRA’s constitutionality in federal district court. While that lawsuit was pending, FINRA concluded that Alpine had violated the cease-and-desist order and expelled Alpine from membership in FINRA. Although Alpine can seek SEC review of that decision, the expulsion was effective immediately, before any such review. In district court, Alpine sought a preliminary injunction enjoining the expedited proceeding on the grounds that either FINRA is a private entity exercising a regulatory role without government oversight or a government entity, in which case, its structure violates the Appointments Clause. 

The D.C. Circuit concluded that Alpine was entitled to a limited preliminary injunction barring FINRA from expelling Alpine before the SEC has a chance to review its decision. The Court explained that Alpine demonstrated a likelihood of success on the merits of its private nondelegation claim only to the extent that FINRA can unilaterally expel an entity without governmental oversight. The Court did not reach the merits of the Appointments Clause claim, explaining that immediate expulsion is different from other sanctions because it requires the company to close its securities-trading business and cannot be reversed after SEC review.

Judge Walker concurred in the judgment in part and dissented in part, explaining that he would have reached the larger questions about the private nondelegation doctrine and Appointments Clause and enjoined the expedited proceeding in its entirety. In Judge Walker’s view FINRA exercises significant executive authority without SEC review throughout its proceedings, not just when it expels a member. Judge Walker also concluded that Alpine would be subject to irreparable harm not just from being expelled from FINRA but also from being subjected to a proceeding before an unconstitutional officer.