(Bloomberg) -- Wall Street’s self-regulator tried to ban Alpine Securities Corp. from the industry after finding that it jacked up fees on customers by 60,000% and violated a cease-and-desist order 35,000 times.

But the Utah-based brokerage firm isn’t going quietly. 

Alpine not only fought back against the Financial Industry Regulatory Authority’s ruling, but won a court injunction keeping the company in business during an appeal that challenges the organization’s underlying power. 

Alpine, which expects to argue its appeal early next year, claims Finra wields the power of a government agency but doesn’t operate with the same constitutional constraints and accountability. Since the injunction, at least three other brokers have challenged Finra’s constitutionality in court.

Self-regulatory organizations are the latest target of US conservatives pushing to dismantle big government. The issue, which the Supreme Court may need to resolve, could threaten a web of SROs that the US government uses to help oversee broad swaths of the economy from finance to horse racing to the electric grid.

“If the courts hamstring Finra, it will mean the beat cop isn’t able to crack down,” said Benjamin Edwards, a law professor at the University of Nevada, Las Vegas, who submitted a brief in support of Finra.

Finra regulates thousands of firms by crafting rules, conducting exams and imposing sanctions for bad behavior. Overseen by the Securities and Exchange Commission and authorized by Congress, Finra helps fund its activities through membership dues and fines. Last year, it barred or suspended 555 brokers and levied $54.5 million in fines.

The Supreme Court has been whittling away at the power of federal agencies and is currently considering a case that challenges the SEC’s ability to use in-house judges. Other private regulators, including the Public Company Accounting Oversight Board, which oversees corporate audits, and the Horseracing Integrity and Safety Authority, which was created following a flood of doping incidents and horse injuries, are also facing similar court challenges.

Disastrous Consequences

An Alpine win could have impact far beyond Finra. Some of the more than forty other SROs that oversee trading of stocks, futures, options and municipal bonds warn in court briefs of disastrous consequences for the financial markets and investors if they are stripped of their power. 

Clearing houses, for example, could have trouble collecting collateral from banks or brokers to protect against defaults. Exchanges, which can quickly halt trading to protect investors when news that moves stock prices leaks, warn that oversight of securities markets could be “destabilized.” 

Alpine’s attorney Brian Barnes dismissed the warnings as “scare tactics,” and said a win by his client wouldn’t lead to the abolition of Finra. The company is arguing that Finra violated the Constitution by improperly appointing hearing officers and infringing on certain protections such as the right to a trial by jury. One way to help resolve the problem would be for the SEC to take over authority for appointing and removing Finra’s hearing officers, Barnes said.

Finra contends that as a private agency it isn’t subject to constitutional requirements and is adequately supervised by the SEC, which reviews its cases on appeal.

Proponents of the SRO system highlight the efficiencies and cost-savings to taxpayers of private players with industry expertise helping crack down on misconduct. But supporters of Alpine’s case argue that citizens facing accusations from SROs aren’t guaranteed their constitutional rights. Former Attorney General Bill Barr, who served during Donald Trump’s administration, said that Congress needs to pass a statute that outlines Finra’s authority and provides some due process requirements.

Finra “can destroy people’s livelihood and drive them out of the industry with very little review of that,” said Barr, who represents a group that submitted a brief in support of Alpine.

The case dates back to 2019 when Finra alleged that Alpine charged customers excessive fees without proper notice and misused funds. Alpine denied the allegations, but after a 19-day hearing, a panel of in-house judges fined, banned and instituted a permanent cease-and-desist order on the firm. 

Alpine appealed to Finra’s appellate council, and then filed a federal lawsuit against the regulator. In April, Finra tried to expedite the process after alleging that the brokerage continued to disobey the cease-and desist order. 

Alpine unsuccessfully tried to get a federal judge in Washington to pause the proceeding while its constitutional claims were heard. The firm appealed to a DC Circuit panel, arguing that Finra was “rushing Alpine to the guillotine,” according to court papers.

Finra’s attorney argued that an injunction would make it difficult for it to carry out its “regulatory duties” and leave Alpine free to keep causing “intentional and egregious investor harm.”

DC Circuit Judge Justin Walker, who was appointed by Trump, sympathized with Alpine, stating that “there is a serious argument that Finra hearing officers exercise significant executive power.” In a divided decision, the three-judge panel granted the injunction while it considers the appeal. 

Traders Pile On

Other traders are also leaning on the Alpine case to fight back. Sidney Lebental, who used to run the US treasuries desk at Bank of America Corp., has asked a federal judge to pause Finra’s proceeding while awaiting the outcome of the Alpine case. Finra accused him of spoofing the market — a practice of manipulating prices to profit at the expense of others — 523 times.

Meanwhile, William Kielczewski, a broker who appealed his Finra suspension and fines, has asked the SEC to throw out the sanctions or hold off on a decision until the Alpine case is resolved.

Emily Hammond, a law professor at George Washington University, said that courts have generally been supportive of SROs because they contain fundamental components of due process where there is an opportunity to be heard and appeal decisions. But government agencies “tend to be deferential to their SROs” so tend to side with them, Hammond added. 

Frank Black, 82, who was permanently barred from the industry by Finra for lying about inspecting some of his brokerage firm’s offices, said the in-house hearing was unfair and that he wants to be heard by “an impartial judge and jury.” He denies Finra’s claims.

The Pacific Legal Foundation, a group that opposes big government and has won Supreme Court cases, filed a lawsuit in October in North Carolina on Black’s behalf.

“I have more rights if I get a speeding ticket,” said Black.

--With assistance from Zoe Tillman.

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