Broker-dealers sue FINRA, claim enforcement powers violate the Constitution

Two broker-dealer firms are taking FINRA to federal court, arguing the regulator's enforcement powers are unconstitutional and threatening to end their business.

Boustead Securities, Sutter Securities, and their former CEO Keith C. Moore have filed a legal challenge against the Financial Industry Regulatory Authority in the U.S. District Court for the District of Delaware (Boustead Securities, LLC, et al. v. Financial Industry Regulatory Authority, Inc., Case 1:26-cv-00360). The case, filed April 1, 2026, takes aim at the foundation of FINRA's authority to investigate, prosecute, and discipline broker-dealers through its in-house enforcement process.

At the heart of the dispute is a FINRA disciplinary action filed on January 15, 2026, which the plaintiffs say sought monetary sanctions and a finding of willful violations of federal securities laws. According to the court filing, that action set off a chain of consequences the firms say is pushing them toward losing their ability to do business entirely.

The plaintiffs allege that within days of FINRA going public with the disciplinary action, their market access was harmed. Clearing firms, banks, issuers, and counterparties reportedly treated the proceeding as a significant or even disqualifying risk event. The firms claim FINRA went further — allegedly contacting Nasdaq before the enforcement action was even filed and instructing the exchange not to approve any IPOs where Boustead served as underwriter. They also allege FINRA admitted to interfering with their limited membership applications to Nasdaq and the New York Stock Exchange.

The fallout, according to the filing, was swift. Issuers walked away from agreements. Sutter's clearing firm moved to terminate its arrangement. Personal brokerage accounts belonging to Moore and Daniel McClory, another firm principal, were shut down by Dominari Securities, which allegedly said it had "no choice."

The legal challenge raises five constitutional claims. If FINRA is considered a private entity, the plaintiffs argue it has been handed government-level enforcement power without the oversight the Constitution requires. If it is considered a government actor, they say it is violating a string of constitutional protections — from the Appointments Clause and separation of powers to the Seventh Amendment right to a jury trial and the Fifth Amendment right to due process.

The Seventh Amendment argument leans heavily on the Supreme Court's 2024 ruling in SEC v. Jarkesy, which held that SEC enforcement actions seeking civil penalties are legal in nature and must go before a jury. The plaintiffs argue the same logic applies to FINRA's proceedings.

On due process, the filing describes what it calls a structurally biased system — one where the adjudicator is selected, employed, and paid by the same organization that brings the case.

No court ruling has been issued and no determination has been made on the merits. The case is in its earliest stages.

Still, for advisors and firms operating under FINRA's oversight, the case raises a question worth watching: Can the mere act of a FINRA enforcement filing end a firm's ability to do business — before anything is actually proven?