FINRA Sued in the Wrong Place At the Wrong Time

[O]n April 6, 2012, Fife and his wife were notified that they were barred pursuant to FINRA Rule 9552(h). Id.  ¶ 98. Again, they did not challenge the bar because "it simply was not worth the time, energy, and expense." Id. ¶ 18.

For years, the bar did not impact Fife or his businesses. See id. ¶¶ 21-22, 26, 100. In September 2013, the Securities and Exchange Commission ("SEC") changed its regulations to create "new consequences for those barred by FINRA." Id. ¶¶ 20, 100. Fife continued to believe that he had not suffered adverse consequences from the FINRA bar. Id. ¶¶ 22, 100. Then, in September 2020, the SEC filed a civil action against Fife, alleging that he had violated Exchange Act § 15(a)(1) and that he is a "recidivist violator of the federal securities laws," invoking the FINRA bar as an example. Id. ¶¶ 23-25, 103, 106-08. In this action, Fife seeks a "judgment nullifying the FINRA [s]uspension and [b]ar." Id. ¶ 110.

SIDE BAR: 

  "SEC Charges Unregistered Penny Stock Dealer" (SEC Release / September 3, 2020)

https://www.sec.gov/litigation/litreleases/2020/lr24886.htm

  In a Complaint filed in the United States District Court for the Northern District of Illinois

https://www.sec.gov/litigation/complaints/2020/comp24886.pdf, the SEC charged John M. Fife, and his companies Chicago Venture Partners, L.P., Iliad Research and Trading, L.P., St. George Investments LLC, Tonaquint, Inc., and Typenex Co-Investment, LLC, with violating the dealer registration provisions of Section 15(a)(1) of the Securities Exchange Act. As alleged in part in the SEC Release, the Defendants:

regularly engaged in the business of purchasing convertible notes from penny stock issuers, converting those notes into shares of stock at a large discount from the market price, and selling the newly issued shares into the market at a significant profit. The SEC alleges that Fife and his companies engaged in more than 250 convertible transactions with approximately 135 issuers, sold more than 21 billion newly-issued penny stock shares into the market, and obtained more than $61 million in profits. The complaint also alleges that, at the time of the conduct, the Defendants were not registered with the SEC as dealers, in violation of the mandatory registration provisions of the federal securities laws. It further alleges that by failing to register, the Defendants avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory inspections and oversight, financial reporting requirements, and maintaining books and records.

  As to what invoked John Fife's 2022 ire as manifested in his SDNY lawsuit against FINRA, we have this allegation in the 2020 SEC Complaint:

2. In doing so, Fife who is a recidivist violator of the federal securities laws and the Entity Defendants (together with Fife, Defendants) have violated, and continue to violate, the mandatory dealer registration requirements of the federal securities laws. 

. . .

11. John M. Fife, age 59, resides in Chicago, Illinois. In 2007, the SEC charged Fife with violations of 10(b) of the Exchange Act and Rule 10b-5 thereunder for his participation in an annuity market timing scheme. SEC v. Fife, No. 07-C-0347 (N.D. Ill. Jan. 18, 2007). That case settled after Fife consented to an injunction, monetary relief, and a bar from associating with an investment adviser, with the right to reapply after 18 months. In 2012, in an unrelated action, the Financial Industry Regulatory Authority (FINRA) barred Fife from association with any FINRA member for failing to respond to FINRA requests for information. FINRA Case No. 2011029203701 (March 2012). 

The statute at issue in this case permits judicial review, and provides that an adversely-affected person, after exhausting administrative remedies, including an appeal to the SEC, 15 U.S.C. § 78s(d)(2), "may obtain review" of a FINRA disciplinary order "in the United States Court of Case Appeals for the circuit in which he resides or has his principal place of business, or for the District of Columbia." 15 U.S.C. § 78y(a)(1); see also North v. Smarsh, 160 F. Supp. 3d 63, 83 (D.D.C. 2015). The appeal must be taken within sixty days of the final order. 15 U.S.C. § 78y(a)(1). Although the use of "may" might seem to imply that district courts also have jurisdiction, it is the law of this Circuit that clauses containing "a specific statutory grant of jurisdiction to the court of appeals . . . should be construed in favor of review by the court of appeals." Nat. Res. Def. Council v. Abraham, 355 F.3d 179, 193 (2d Cir. 2004) (collecting cases); see also Altman v. SEC, 768 F. Supp. 2d 554, 558 (S.D.N.Y. 2011), aff'd, 687 F.3d 44 (2d Cir. 2012). Under § 78y of the Exchange Act, "district courts lack jurisdiction to hear post-enforcement challenges seeking declaratory and injunctive relief related to disciplinary proceedings-such challenges must proceed[] in accordance with the statutory scheme." Altman, 768 F. Supp. 2d at 558. Free Enterprise Fund does not command a different result. See id. at 559-62. Therefore, even assuming, arguendo, that Fife is excused from exhausting the administrative remedies, this Court lacks subject matter jurisdiction over this action. ³

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Footnote 3: The Court need not reach the timing of the filing of this action, which is years past the sixty-day appeal window. See 15 U.S.C. § 78y(a)(1). It also need not address that even if filing this action in a district court was permissible, which it is not, this would be an improper forum as Fife does not reside in this district, Compl. ¶ 28, nor does he allege that his principal place of business is in this district, see generally id., and this is not the district court for the District of Columbia. See 15 U.S.C. § 78y(a)(1). 

• Fife
• FINRA
• SDNY
• Rule 9552
• SEC
• Exhaustion of Administrative Remedies
• Bar
• Recidivist
• Jurisdiction
• BrokeAndBroker
• Bill Singer