Pacific Legal Foundation petitions SEC to protect constitutional rights in FINRA cases

Washington, D.C.; July 18, 2025: Pacific Legal Foundation filed a petition for rulemaking today urging the Securities and Exchange Commission to protect constitutional rights by allowing individuals targeted by the Financial Industry Regulatory Authority (FINRA) in enforcement proceedings to transfer their cases to federal district court.

Under current practice, FINRA, the only private entity authorized by the SEC to enforce federal securities laws, prosecutes alleged violations of securities laws through in-house tribunals imposing bars or expulsions from the securities industry—what has been called the corporate death penalty—as well as monetary sanctions on individuals and firms. Such in-house tribunals deprive FINRA’s enforcement targets of an independent judge and jury. But the Supreme Court’s decision in SEC v. Jarkesy makes clear that such adjudications violate the Constitution when they seek to strip individuals of liberty or property. Bringing such suits to federal court guarantees that a truly neutral and independent judge, with a jury where appropriate, decides such cases.

“FINRA’s in-house proceedings sidestep the Constitution’s guarantees of due process, jury trials, and the independent judiciary,” said Adi Dynar, an attorney at Pacific Legal Foundation. “PLF’s petition offers a simple solution: Give enforcement targets the option to have their day in court before a federal judge and jury where appropriate.”

The proposed rule would not prevent FINRA from initiating in-house actions but would allow respondents to transfer their cases to federal court within a limited time window. There, both sides would benefit from established procedures, including rules of evidence and opportunities for early resolution.