Alpine Securities v FINRA: Narrow Holding Lets FINRA to Live and Fight Another Day.

The United States Court of Appeals for the District of Columbia recently delivered its highly anticipated ruling in the Alpine Securities case, a decision with significant implications for FINRA and the broader framework of securities regulation. Alpine challenged FINRA’s constitutionality on two critical grounds. First, it contended that FINRA’s appointment of hearing officers violates the Appointments Clause. Second, it argued that FINRA’s actions breach the non-delegation doctrine. While the court granted Alpine’s request for a preliminary injunction and prevented FINRA from expelling the firm, it did so on narrow grounds, finding that FINRA's decision to expel Alpine before the firm could appeal to the SEC violated the non-delegation doctrine.

Interestingly, while in its initial decision granting Alpine’s emergency motion for injunction pending appeal, and enjoining the Financial Industry Regulatory Authority from continuing the expedited enforcement proceeding against Alpine Securities pending further order of the court, the panel relied on the Appointment Clause, here the court focused on the private non-delegation argument and, assuming without deciding that FINRA is a private entity, on the lack of practical SEC review before expulsion in expedited proceedings, concluding that this gap likely violates the private non-delegation doctrine.

The Non-Delegation Doctrine

The private non-delegation doctrine is a constitutional principle that governs when and how Congress can delegate regulatory authority to private entities. While Congress can delegate such authority, the delegation must meet specific conditions to remain constitutional. At its core, the doctrine ensures that private entities do not exercise regulatory authority unchecked, and that ultimate oversight and decision-making power remain with a governmental entity. Private entities can act as "aids" to governmental agencies, performing specific regulatory roles or tasks. However, their authority must not be independent or unchecked. For a delegation to be constitutional, a government agency must retain ultimate control over the private entity’s decisions. The government must have the power to approve, disapprove, or modify the private entity's actions. This oversight ensures that accountability remains with the government. In essence, the doctrine acts as a safeguard against private entities wielding governmental power without accountability, requiring that such power be exercised under the close supervision of an accountable governmental authority.

The court held that FINRA’s expedited proceedings for expulsion operate in a way that undermines the SEC’s ability to provide meaningful oversight, a key concern under the private nondelegation doctrine. Under the expedited procedures, FINRA’s expulsion orders take effect immediately upon issuance, before the SEC has a chance to review them, leaving expelled members unable to do business — an effective bar from the industry. As the court explained, this immediate expulsion carries devastating consequences for FINRA member firms, as the SEC’s review often comes too late to prevent businesses from collapsing. Although the SEC can grant a stay to delay the enforcement of an expulsion, the process is discretionary, not automatic, and requires a burdensome demonstration that the relief should be granted.

The court reasoned that this type of regulatory framework developed under the expedited procedures allows FINRA, a private entity, to determine who can participate in the securities industry without sufficient government oversight, violating the private nondelegation doctrine. In FINRA’s expedited proceedings, the SEC’s oversight is limited, delayed, and often inconsequential, leaving FINRA with de facto regulatory authority. Ultimately, the court found that this lack of immediate and substantive government supervision over FINRA’s expulsion decisions in expedited proceedings fails to meet the constitutional requirements for delegating regulatory authority to private entities.

The Appointments Clause

The court considered Alpine's argument that FINRA's hearing officers are unconstitutionally appointed under the Appointments Clause, but it declined to grant a preliminary injunction on these claims. The court reasoned that Alpine failed to demonstrate irreparable harm resulting from the alleged violations. Specifically, the harm of being expelled from the securities industry is no longer pressing because the court already enjoined FINRA from expelling Alpine without SEC review. Since any expulsion order would ultimately be subject to the SEC's independent review, the SEC—not FINRA—would impose the consequences of an expulsion.

As for Alpine’s claim of being forced to participate in proceedings before allegedly unconstitutionally appointed FINRA officers, the court rejected this argument, noting that while constitutional violations can constitute irreparable harm, Alpine’s claims did not meet the high bar for a preliminary injunction. The court found that Alpine did not suffer immediate harm requiring expedited relief, especially since any constitutional deficiencies in FINRA’s structure could be remedied later, for example, through a new hearing before a properly appointed official if necessary. Consequently, the court denied injunctive relief on the Appointments Clause claims, leaving those questions to be resolved after full factual development and SEC review.

Regulatory Landscape Remains Unsettled

The Alpine Securities decision serves as a critical moment in the ongoing debate surrounding the constitutional boundaries of FINRA’s authority within the framework of securities regulation. By focusing on the private non-delegation doctrine and finding FINRA’s expedited expulsion procedures constitutionally deficient, the D.C. Circuit has highlighted what it thought was an important gap in regulatory oversight. The court’s narrow holding focused on the necessity for meaningful SEC review to maintain accountability and uphold constitutional principles when private entities are delegated quasi-governmental authority. While the court refrained from addressing broader constitutional claims, such as those arising under the Appointments Clause, its decision continues to create uncertainty about the regulatory landscape in the securities industry.

Ultimately, the case reflects a broader tension in securities regulation: the balance between granting private self-regulatory organizations sufficient autonomy to ensure efficient oversight of the industry and ensuring adequate governmental control to protect constitutional rights. Although FINRA emerged with its structural framework largely intact, the ruling signals that future challenges to its regulatory authority may lead to significant changes, especially as courts continue to scrutinize the interplay between private regulatory actions and governmental oversight. In this sense, Alpine Securities v. FINRA is not merely a resolution of one firm's grievances but a prelude to the larger legal and policy battles that lie ahead. For now, FINRA has "lived to fight another day," but its authority may not remain unchallenged in the face of evolving judicial and regulatory scrutiny.