Ballad of a FINRA Man

October 15, 2020

That great American jurist, Bob Dylan, once mused "But something is happening here and you don't know what it is. Do you, Mr. Jones?" Frankly, sage words for these pandemic times -- and equally appropriate for a FINRA AWC that wound up in state court and two federal courts. The respondent was barred by FINRA for failure to testify during a second on-the-record interview. Why did he refuse to appear? Ummm, that's not completely clear. Were there any mitigating factors? It appears so. Were they considered? Perhaps but ultimately the respondent entered into a settlement whereby he was barred for his conduct. So, you know, why did he settle for a Bar when he could have testified at the second hearing or pursued his administrative remedies? Again, I'm not quite sure what happened or what was going on. See for yourself.

FINRA AWC: September 2015

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jeffrey Allan Mohlman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Jeffrey Allan Mohlman, Respondent (FINRA AWC 2015044734401 / September 21, 2015) (the "Mohlman AWC")
The AWC alleges that Mohlman was first registered in 2001 and by June 2012, he was registered with FINRA member firm Questar Capital Corporation until his February 13, 2015, discharge by that firm. The AWC asserted that "Mohlman has no relevant disciplinary history." In part, the FINRA AWC alleged that:

On September 3,2015, during the course of an investigation into allegations that Mohlman engaged in unapproved and undisclosed private securities transactions, FINRA requested, pursuant to FINRA Rule 8210, that Mohlman appear for OTR testimony on September It, 2015. 

As stated in a September 9,2015 email and by this agreement, Mohlman, through his counsel, acknowledges that he received FINRA's request for his OTR testimony and that he will not appear for the OTR testimony at any time. By refusing to appear and provide OTR testimony as requested, Mohlman violates FINRA Rules 8210 and 2010.

In accordance with the terms of the AWC, FINRA imposed upon Mohlman a Bar in all capacities. The AWC discloses that Mohlman was represented by legal counsel.

Ohio State Court Complaint: May 2019

Although the Mohlman AWC was issued in September 2015, apparently, Mohlman stewed about his Bar and the FINRA regulatory process for a few years because in May 2019, he sued FINRA and various of its executives/employees/agents for fraud. 

Side Bar:  The 2015 FINRA AWC states that Mohlman's middle name is "Allan" with a second "a." but the subsequent court documents state that it is "Allen" with an "e." Also, FINRA's online BrokerCheck records as of October 15, 2020, disclose his middle name as "Allan."

The WMA Scheme

As alleged in part in Mohlman's 2019 Ohio Common Pleas Court Complaint:

13. While a representative for Questar, the Plaintiff had conversations with approximately six family members and friends concerning WMA Enterprises, Inc. ("WMA"). Plaintiff did not attempt to sell investments with WMA nor did he receive compensation of any sort from WMA, 

14. Plaintiff learned that WMA was a Ponzi scheme from the television news on October 31, 2014, 

15. Plaintiff immediately personally informed all persons who had invested in WMA of this fact, 

16. Plaintiff himself had invested $238,111.11 with WMA and lost a substantial amount of money, 

17. Plaintiff fully cooperated with investigations by the FBI and IRS and was himself listed as a victim of the WMA scheme, 

18. Plaintiff paid all bankruptcy court attorney's fees for those persons to whom he had mentioned WMA, 

19. An investigation of Plaintiff was commenced by Defendant FINRA in 2014, . . .

Mitigating Factors

Mohlman asserts in his Complaint that he fully cooperated with FINRA's investigation, including testifying for 7 1/2 hours during an initial interview. Although Mohlman acknowledges that FINRA had scheduled a second interview on September 11, 2015, he alleges in part in Paragraph 26 of his Complaint that the Defendants:

were aware of mitigating factors in Plaintiff's case including: the death of a close friend in a motorcycle accident in April, 2014, the attempted murder of his sister and the bloody suicide of her husband, which the Plaintiff clean-up in May, 2014 and was subsequently treated for PTSD and sleeplessness with two psychotropic drugs and a prior brain surgery for a brain tumor which affected his memory, 

The Complaint does not specify why or whether Mohlman refused to testify at the second FINRA interview scheduled for September 11, 2015 (or requested an extension of time). Clearly, there seems to be an inference in the Complaint that Mohlman did not want to testify or did not fee able or competent to do so. Moreover, it is unclear as to the factors and mechanics that came into play involving the alleged impact of the above-referenced "mitigating factors" on the second, scheduled interview. Notwithstanding, Mohlman's Complaint alleges in pertinent part that the Defendants:

suggested that this matter be resolved by having Plaintiff state that he would not testify at this interview, 

29. Plaintiff's Counsel accepted this suggestion and submitted an Acceptance, Waiver and Consent (AWC) to Defendant FINRA at FINRA's, Schroeder, Brown and the Does' direction, 

30. On September 21, 2015 Plaintiff was barred from the securities industry by Defendant FINRA, 

Fraud in the Inducement

In summing the pertinent events up, FINRA conducted an investigation; Mohlman was ordered to provide on-the-record testimony; he testified at one interview; something came up pertaining to a second interview; FINRA suggested that Mohlman resolve whatever transpired by stating that "he would not testify;" Mohlman entered into an AWC predicated upon his refusal to testify; and, in accordance with the terms of the AWC, FINRA imposed a Bar in September 2015. Over the course of the ensuing four years, Mohlman seems to have thought about FINRA's investigation, and the cited "mitigating factors," and the AWC, and the Bar -- and all that boiled over and prompted Plaintiff Mohlman to allege in part that:

34. Due to the fraud committed by the Defendants in inducing the Plaintiff to fail to testify at his second interview, thus fraudulently avoiding the requirement that they consider the mitigation factors in the Plaintiffs case, the Plaintiff has incurred actual damages in the amount of $90,000 in legal fees, $50,000.00 in residual fees for business he could not refer due to securities industry bar in 2015 which resulted in his inability to get appointed as a non-securities licensed Professional Alliance Partner, $200,000.00 due to inability to get appointed with several insurance carriers since the 2015 bar and clients refusing to conduct business with him due to his bar, $48,000.00 reputation rehabilitation specialist fees, $3000.00 for PTSD therapy since March, 2015 through EMDR therapy with a psychotherapist and currently in month 3 of IASIS Therapy for PTSD and anxiety, and punitive damages in the amount of $500,000.00.

February 2020 SDOH Dismissal

Following Mohlman's filing in the Common Pleas Court, on May 24, 2019, the Defendants removed the case to the United States District Court for the Southern District of Ohio ("SDOH")

Exhaustion of Administrative Remedies

Initially, SDOH tackled the issue of whether Mohlman had exhausted his administrative remedies before filing his lawsuit. In pertinent part, the Court found that:

Congress set forth the exclusive means for review of final actions in FINRA disciplinary proceedings when it enacted the Exchange Act, with its system of appeal of FINRA decisions to the SEC, and exclusive review by the United States Courts of Appeals. 15 U.S.C. § 78y. Congress did not provide for seeking damages or equitable relief in state courts or federal district courts. 

Plaintiff asks this Court to set aside his final regulatory settlement. When Plaintiff executed the AWC, he waived his rights to exercise these administrative remedies, or to take any action to dispute its findings or "create the impression that [it] is without factual basis." AWC, p. 4. Plaintiff's waiver of his administrative remedies by executing the AWC does not eliminate the existence of the administrative remedies, nor does it create subject matter jurisdiction for him to challenge the AWC in this Court. Congress foreclosed this approach when it enacted the Exchange Act, with its system of appeal of FINRA decisions to the SEC, and exclusive review by the United States Courts of Appeals. 15 U.S.C. § 78y. 

at Page 6 of the SDOH Order

FINRA's Immunity

Next, SDOH addressed the issue of a self-regulatory-organization's immunity:

FINRA is immune "from suit for conduct falling within the scope of the SRO's regulatory and general oversight functions." D'Alessio v. New York Stock Exch., Inc., 258 F.3d 93, 105 (2d Cir. 2001) (holding that a self-regulating authority like FINRA is "immune from liability for claims arising out of the discharge of its duties under the Exchange Act"); accord: Lucido v. Mueler, No. 08-15269, 2009 U.S. Dist. LEXIS 89775, *19 (E.D. Mich. Sep. 29, 2009) (granting FINRA's motion to dismiss, in part, on FINRA's immunity from claims seeking to expunge registered representative's criminal record from FINRA's CRD database), affd 2011 U.S. App. LEXIS 17632 (6th Cir. 2011); Standard Inv. Chartered, Inc. v. NASD, 637 F.3d 112, 116 (2d Cir. 2011); In re Series 7 Broker Qualification Exam Scoring Litig., 548 F.3d 110, 114 (D.C. Cir. 2008) (affirming dismissal of class action against NASD and finding that "[w]hen [a self-regulating authority] acts under the aegis of the Exchange Act's delegated authority, it is absolutely immune from suit for the improper performance of regulatory, adjudicatory, or prosecutorial duties delegated by the SEC"); DL Capital Group LLC v. NASDAQ Stock Market, Inc., 409 F.3d 93, 97 (2d Cir. 2005) (holding that when a self-regulating authority engaged in conduct consistent with the powers delegated to it pursuant to the Exchange Act and the regulations and rules promulgated thereunder, self-regulating authority is immune from suit); Scher v. NASD, 386 F. Supp. 2d 402, 406 (S.D.N.Y. 2005) (dismissing complaint against NASD and related entities because action barred by immunity granted to NASD "for conduct falling within the scope of the [NASD's] regulatory and oversight functions") (citation omitted), affd, 2007 U.S. App. LEXIS 4692 (2d Cir. 2007); P'ship Exch. Sec. Co. v. NASD, 169 F.3d 606, 608 (9th Cir. 1999) (holding that the NASD was protected by immunity for its actions taken "under the authority delegated to it by the Exchange Act"); Sparta Surgical Corp. v. NASD, 159 F.3d 1209, 1215 (9th Cir. 1998) ("when Congress elected 'cooperative regulation' as the primary means of regulating the over-the-counter market, the consequence was that self-regulatory organizations had to enjoy freedom from civil liability when they acted in their regulatory capacity"); American Benefits Group, Inc. v. NASD, No. 99 Civ. 4733, 1999 U.S. Dist. LEXIS 12321, *24 (S.D.N.Y. Aug. 10, 1999) (holding that "the NASD is entitled to absolute immunity when exercising its authority within the scope of its official duties").

FINRA's regulatory immunity extends to its employees acting within the "aegis of the Exchange Act's delegated authority." P'ship Exch. Sec. Co., 169 F.3d at 608 (citation omitted). Because FINRA can act only through its employees, FINRA employees may rely upon and invoke immunity. Standard Inv. Chartered, 637 F.3d at 115 ("[t]here is no question" that officers of a self-regulating authority are entitled to immunity for actions taken in discharging their regulatory responsibilities); Hurry v. Fin. Indus. Regulatory Auth., No. CV-14- 02490-PHX-ROS, 2015 U.S. Dist. LEXIS 180020, at *15 (D. Ariz. Aug. 5, 2015) (dismissing claim against FINRA employee for actions taken in his role as a FINRA employee).

at Pages 6 - 8 of the SDOH Order 

That's one helluva a one-two punch!  First, SDOH finds that Mohlman failed to exhaust his administrative remedies. Second, SDOH finds that FINRA and its employees have regulatory immunity for the actions at issue. Having staggered Mohlman, the Court follows him into a corner and pummels him into into submission:

There is no recognized right to sue FINRA for failing to consider mitigating factors. Moreover, entering into settlements of disciplinary actions falls within FINRA's regulatory authority. 15 U.S.C. § 78o-3(i). This is the precise conduct to which a self-regulating authority's immunity is intended to apply. D'Alessio, 258 F.3d at 105. This action against Defendants is barred by FINRA's absolute regulatory immunity, and this case will be dismissed.

Moreover, neither the Exchange Act, nor any other provision of the federal securities laws provides for a cause of action against a self-regulating authority (or its employees) for acts or omissions in connection with its duties as a securities regulator. To the contrary, courts routinely hold that no private right of action exists against a self-regulating authority like FINRA for its regulatory acts. In re Series 7, 548 F.3d at 114 ("By specifically adopting an appeals process which does not provide monetary relief, Congress has displaced claims for relief based on state common law"); Desiderio, 191 F.3d at 208; MM&S Fin., Inc. v. NASD, 364 F.3d 908, 911-912 (8th Cir. 2004) ("the Exchange Act does not create a private right of action against the NASD defendants for violating their own rules" and a party's attempt to bypass the absence of a private right of action by asserting a claim under state contract law is "fruitless"); Spicer v. Chicago Bd. of Options Exchange, Inc., 977 F.2d 255, 260 (7th Cir. 1992); Matyuf v. NASD Dispute Resolution, Inc., No. 04-540, 2004 U.S. Dist. LEXIS 25174, *10 (W.D. Pa. Oct. 4, 2004); In re Olick, 99-cv-5128, 2000 U.S. Dist. LEXIS 4275, *11 (E.D. Pa. Apr. 4, 2000) (a party "may not maintain a private cause of action against the NASD under the Exchange Act, or at common law, for regulatory actions taken by the NASD"); Feins v. AMEX, 81 F.3d 1215 (2d Cir. 1996); Meyers v. NASD, No. 95-cv-75077, 1996 U.S. Dist. LEXIS 6044, *14 (E.D. Mich. Mar. 29, 1996) (court dismissed action against FINRA finding allegations were "an unsuccessful attempt to create a private cause of action for the violation of the NASD rules where none exists"); Jablon v. Dean Witter & Co., 614 F.2d 677, 681 (9th Cir. 1980); Pinnacle Sec. Inv. Assocs., L.P. v. AMEX, 946 F. Supp. 290, 293-94 (S.D.N.Y. 1996); Shahmirzadi v. Smith Barney, Harris Upham & Co. Inc., 636 F. Supp. 49, 52 (D.D.C. 1985). 

at Pages 8 - 9 of the SDOH Order  

Having found that Mohlman failed to exhaust his administrative remedies, and further finding that there was no private right of action in Ohio against the Defendants, SDOH granted  the Defendants' Motion to Dismiss and terminated the case

October 2020 6Cir Opinion

Not surprisingly, Mohlman appealed SDOH's dismissal of his Complaint to the United States Court of Appeals for the Sixth Circuit ("6Cir"). Somewhat surprisingly, the 6Cir characterized the appeal as involving "an issue of first impression regarding the administrative procedure under the Securities Exchange Act, 15 U.S.C. § 78a et seq. " Jeffrey Allen Mohlman, Plaintiff/Appellant, v. Financial Industry Regulatory Authority, Susan Schroeder, and Heidi Brown, Defendants/Appellees (Opinion, 6Cir., No. 20-3257 / October 14, 2020)

In his appeal to 6Cir, Mohlman argued that the '34 Act is not the exclusive remedy for complaints such as his about FINRA; and, therefore, he was entitled to seek relief under the Ohio State Constitution. Further, Mohlman argued that FINRA was not immune for the conduct at issue and that the Ohio Constitution provided him with a private right of action. 6Cir would have none of it and affirmed SDOH's dismissal of his Complaint:

Plaintiff did not exhaust his administrative remedies under the FINRA Rules and the Exchange Act. While Plaintiff waived his procedural rights when he executed the Letter, Plaintiff still could have applied for review by the National Adjudicatory Council and the SEC. See Bruce Zipper, Exchange Act Release No. 34-81788, 2017 WL 11433739 (Sep. 29, 2017) ("We dismiss Zipper's application for review because Zipper's [Letter] contains a valid and enforceable appellate waiver . . . ."). Plaintiff instead curiously filed suit in State court four years after executing the Letter, requesting damages for FINRA's alleged fraudulent failure to consider mitigating factors.3 [R. 4] 

Plaintiff cites to Saad v. S.E.C., 718 F.3d 904 (D.C. Cir. 2013), for the proposition that we may set aside the final decision because FINRA did not consider mitigating factors in sanctioning him to a lifetime bar from the securities industry. [Pl.'s Br. at 8] While the Saad court emphasized the importance of considering mitigating factors in administering sanctions, the plaintiff there filed a petition in the United States Court of Appeals for the District of Columbia after appealing to the National Adjudicatory Council and petitioning the SEC for review. Id. at 906, 913. Thus, the plaintiff in Saad followed the administrative procedure under the Exchange Act, which Plaintiff did not do here. Saad is therefore inapposite. Plaintiff failed to exhaust the available administrative remedies. Whether his failure to exhaust administrative remedies constituted a jurisdictional bar-as opposed to noncompliance with a non-jurisdictional rule-is a question we need not answer. See generally Avocados Plus Inc. v. Veneman, 370 F.3d 1243, 1247-49 (D.C. Cir. 2004) (exhaustion can be jurisdictional or non-jurisdictional). Even if the requirement is non-jurisdictional here, Plaintiff forfeited any argument in favor of an exception that might have applied by failing to raise it before the district court.4 See id. at 1247 (non-jurisdictional exhaustion can be excused but "[i]f the statute does mandate exhaustion, a court cannot excuse it."); First Jersey, 605 F.2d at 696-700 (analyzing exceptions to the exhaustion rule in a challenge to FINRA disciplinary action). Because we conclude that Plaintiff failed to exhaust the available administrative remedies, we do not address the merits of the case. See Citadel Sec., LLC, 808 F.3d at 701 (affirming the district court's dismissal for failure to exhaust administrative remedies and not addressing the merits of absolute immunity, lack of private right of action, or failure to state a claim).

= = = = =

Footnote 3: Pursuant to its Sanction Guidelines, FINRA is required to consider aggravating and mitigating factors when determining sanctions against its members. See SANCTION GUIDELINES (2019), available at 

Footnote 4: We acknowledge that other circuits have labeled the exhaustion requirement "jurisdictional" in the context of challenges to FINRA disciplinary proceedings. See, e.g., Swirsky, 124 F.3d at 62; First Jersey, 605 F.2d at 700. However, that practice began before the Supreme Court's recent observations that courts-including the Supreme Court-have traditionally been too quick to use that term to describe inflexible rules that are not truly jurisdictional. See, e.g., Arbaugh v. Y&H Corp., 546 U.S. 500, 510 (2006) (" 'Jurisdiction,' this Court has observed, 'is a word of many, too many, meanings.' This Court, no less than other courts, has sometimes been profligate in its use of the term.") (quoting Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 90 (1998)); Kontrick v. Ryan, 540 U.S. 443, 455 (2004) ("Clarity would be facilitated if courts and litigants used the label 'jurisdictional' not for claim-processing rules, but only for prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) falling within a court's adjudicatory authority."). It is unclear whether the exhaustion requirement applicable in this case is properly considered jurisdictional, and we decline to make that determination here, where we need not and the parties have not briefed the issue. Cf. Hoogerheide v. IRS, 637 F.3d 634, 636 (6th Cir. 2011) ("In the aftermath of Arbaugh, it no longer is appropriate to treat the exhaustion requirements for bringing a § 7433 claim as jurisdictional. Mandatory though the exhaustion requirement in § 7433(d) may be, it is not jurisdictional.").

at Pages 5 - 6 of the 6Cir Opinion