Supreme Court Denies Stay in Alpine v. FINRA: Constitutional Battles Over SRO Enforcement Continue

R Tamara de Silva

On March 14, 2025, the Financial Industry Regulatory Authority (FINRA) overcame an immediate injunction challenge from Alpine Securities Corp., as Chief Justice John Roberts denied Alpine’s request for a stay pending appeal before the U.S. Supreme Court.

Despite this denial, Alpine’s broader constitutional arguments, implicating the private nondelegation doctrine and the Appointments Clause, remain in play. Alpine had sought to halt FINRA’s expedited enforcement proceeding on the grounds that FINRA wields government-like authority without appropriate constitutional safeguards. This development follows a partial victory for Alpine at the U.S. Court of Appeals for the D.C. Circuit, which held that FINRA could not unilaterally expel a broker-dealer without SEC review. Although the circuit court stopped short of enjoining the entire enforcement proceeding, it identified questions about delegating such significant enforcement power to a private self-regulatory organization.

SRO Enforcement

Under the Securities Exchange Act of 1934 (Exchange Act), the Securities and Exchange Commission (SEC) routinely delegates certain of its responsibilities of oversight and enforcement to self-regulatory organizations (SROs). SROs are private entities that perform the day-to-day mechanics of supervising and sanctioning financial actors

The SEC requires most broker-dealers operating in the securities market to join an SRO registered with the SEC. The SEC officially recognizes only one such registered national securities association, FINRA.

Operating under authority granted by the Exchange Act, FINRA has the power to craft and apply its own regulations for these member firms. The Exchange Act affords FINRA broad latitude to revise or promulgate new rules deemed “necessary for the protection of investors, the maintenance of fair and orderly markets, or the safeguarding of securities or funds.” FINRA is capable of independently authoring and enforcing securities regulations against registered broker-dealers. 

FINRA’s adjudicatory system, led by its hearing officers, enables it to impose penalties such as monetary fines, suspensions, or, in serious cases, complete expulsion. Firms that lose at a FINRA hearing may appeal first to the National Adjudicatory Council (NAC), then to the SEC, and finally to a federal court if needed. Expulsion is sometimes referred to as a “corporate death penalty,” reflecting the reality that an expelled broker-dealer cannot operate without SRO membership.

Despite these regulatory powers, FINRA remains a private corporation and not a federal agency. Rather than relying on congressional appropriations, it is funded through mandatory dues collected from industry participants, along with fines levied against members found to be noncompliant. Its twenty-two-member Board of Directors is chosen by these dues-paying members rather than by the SEC. As a result, FINRA’s core functions closely resemble those of a government regulator, yet its structure and funding place it somewhere between a purely private enterprise and a formal executive-branch agency.

Because all broker-dealers are required to register with FINRA, its membership encompasses 3,298 Broker-Dealer firms, 31,971 Investment Advisers and 713,576 registered individuals.[i]

When FINRA charged Salt Lake City–based Alpine Securities with violating a cease-and-desist order (and other misconduct), it initiated an expedited proceeding to expel the firm, often referred to as the “corporate death penalty,” because a firm generally cannot do business if it loses FINRA membership.

FINRA Constitutional Challenge

Alpine sought a preliminary injunction in federal court, raising two alternative arguments. First, it maintained that if FINRA is a private entity, then the federal government has impermissibly delegated sweeping regulatory and enforcement powers to it in violation of the private nondelegation doctrine. Second, it argued that if FINRA is instead deemed to be a governmental entity, its hearing officers function like SEC administrative law judges and must be appointed and overseen in compliance with the Appointments Clause of the U.S. Constitution, including the President’s removal power.

After the district court denied relief, Alpine appealed to the D.C. Circuit. In November 2024, a divided panel issued a ruling that blocked FINRA from enforcing an expulsion prior to SEC review, finding that doing so likely violates the private nondelegation doctrine if FINRA is truly private. The court reasoned that an immediate expulsion from FINRA effectively ousts a broker-dealer from the securities industry before any government official has a chance to review the punishment. This portion of the ruling reflected the circuit court’s concern that FINRA’s unilateral imposition of the “corporate death penalty” might exceed the constitutional boundaries of delegating regulatory power to a private entity. However, the Circuit Court otherwise allowed the expedited enforcement proceedings to continue, concluding that merely being required to defend against a FINRA action did not constitute irreparable harm.

Appointments Clause

Because the court enjoined only the immediate, self-executing expulsion, it did not reach the merits of Alpine’s arguments under the Appointments Clause.

Under Article II of the Constitution, the Appointments Clause requires that ‘Officers of the United States’—those who wield significant authority on behalf of the government—be appointed by the President (or another constitutionally authorized means) and remain subject to presidential oversight. If FINRA’s hearing officers qualify as such officers, they must adhere to these formal appointment and removal processes to satisfy constitutional requirements. Circuit Judge Justin Walker’s partial dissent strongly suggested that FINRA’s entire enforcement approach violates both Article II and private nondelegation principles, highlighting that forced participation in what he characterized as an “unconstitutionally structured” forum constitutes irreparable harm in its own right

Following that partial win in the D.C. Circuit, Alpine turned to the U.S. Supreme Court and asked for an emergency stay to halt the FINRA proceeding entirely, pending a full certiorari petition. Chief Justice Roberts denied that stay, which allows FINRA’s enforcement to move forward but does not foreclose the Supreme Court from addressing Alpine’s broader constitutional arguments. Alpine’s cert petition remains pending, and the Court may still decide to grant plenary review.

Private Nondelegation Clause

Central to Alpine’s partial victory at the D.C. Circuit is the private nondelegation doctrine. This is the principle that Congress cannot delegate significant regulatory power to a private organization unless a governmental actor (here, the SEC) maintains ultimate authority to approve or disapprove the private entity’s rules and sanctions. By definition, the nondelegation doctrine protects against scenarios in which federal legislative or executive power is transferred to private entities without sufficient governmental oversight or accountability. In this context, the D.C. Circuit flagged that if FINRA can immediately expel a member firm without prior government review, the firm effectively suffers irreversible harm, making post hoc SEC review potentially meaningless. The circuit court was careful to limit its holding to expedited expulsions and did not call into question FINRA’s general disciplinary or rulemaking processes. Even so, its reasoning indicates that private nondelegation challenges may have substantial force in future cases.

The D.C. Circuit’s decision also explicitly withheld judgment on whether FINRA hearing officers qualify as “Officers of the United States,” which would trigger compliance with the Appointments Clause. Judge Walker’s dissent, however, argued that FINRA’s hearing officers have adjudicatory powers that mirror those of SEC ALJs. By analogizing to Lucia v. SEC and Free Enterprise Fund v. PCAOB, he contended that FINRA’s structure might violate Article II because it affords significant executive power to individuals who are neither appointed through the constitutional process nor subject to presidentially accountable removal.

In its application before the Supreme Court, Alpine does not raise the Court’s pivotal decision of last year, Jarkesy v. SEC. Because Jarkesy addresses constitutional requirements for adjudications involving punitive measures, these questions of jury trials and Article III judges may arise if FINRA’s enforcement parallels the SEC’s antifraud proceedings. Alpine’s case is not formally based onJarkesy but the same logic could come into play. In Jarkesy, the Supreme Court held that when the SEC prosecutes an antifraud claim akin to common law fraud and seeks punitive civil penalties rather than purely compensatory relief, the Seventh Amendment guarantees the respondent a jury trial. The Court reasoned that such matters do not fall under the “public rights” exception to Article III jurisdiction, because civil penalties targeting fraudulent conduct for punitive purposes more closely resemble traditional common law lawsuits. By extension, if FINRA’s enforcement proceedings mirror antifraud claims or involve punitive sanctions rather than mere administrative remedies, one could argue that the logic of Jarkesy, requiring a jury and an Article III judges, should also apply, especially if FINRA’s disciplinary process functions like an internal tribunal instead of a neutral judicial forum.

In an Article III court proceeding, litigants benefit from a judge with lifetime tenure under the Constitution, the possibility of a jury trial (depending on the nature of the claims), and application of the Federal Rules of Evidenceand discovery rules. By contrast, in anadministrative or SRO-based enforcement setting, there is often no jury, and the proceeding is overseen by a hearing officer or panel that may be inclined to defer to the SRO’s interpretation of its rules. The rules governing evidence and discovery in such a forum also differ considerably from those in federal court, potentially leaving respondents with meaningfully sparser procedural safeguards.

These arguments have broader implications for other self-regulatory organizations, including the National Futures Association (NFA), which features a similar structure of mandatory membership, private rulemaking, and federal oversight. Should courts extend the private nondelegation doctrine or apply Jarkesy and other Article II requirements to SROs, organizations like FINRA and the NFA may need to reconsider their disciplinary processes. They might be required to incorporate more robust SEC or CFTC pre-deprivation review, adhere to constitutional appointment and removal protocols for in-house adjudicators, or possibly channel certain punitive enforcement actions into federal court with a jury available to decide factual questions.

For now, Alpine remains subject to FINRA’s proceeding. The D.C. Circuit’s ruling bars FINRA from executing a final expulsion until the SEC has a chance to review, but it does not otherwise limit FINRA’s enforcement authority.

Meanwhile, the Supreme Court’s refusal to grant an emergency stay does not foreclose a grant of certiorari. Combined with developments in Axon, Lucia, and Jarkesy, the partial ruling in Alpine is consistent with a trend of heightened judicial scrutiny over non-Article III adjudication. As federal courts continue to emphasize structural constitutional limits, regulated entities and SROs alike may be affected and this would improve procedural safeguards in the industry.

If you have questions about any of the issues discussed here, or if you are facing NFA or FINRA enforcement proceedings, we would be happy to help. Please feel free to contact us to discuss how these recent developments might impact your situation.