The Second Circuit Court of Appeals has recently affirmed that FIN RA and its officers are entitled to absolute immunity from private suits for damages resulting from the discharge of their regulatory responsibilities. The plaintiffs in Standard Investment Chartered, Inc. v. NASD were broker-dealer firms who alleged that proxy materials distributed in 2006 by FIN RA (when it was still the NASD) were misleading. The proxy materials sought approval of bylaw amendments in connection with the then-proposed consolidation of the NASD with the regulatory arm of the NYSE to form FIN RA. The plaintiffs complained of misrepresentations in the proxy materials concerning a one-time “special member payment” that was made to firms in connection with the consolidation.  

Because of its quasi-governmental nature as a selfregulatory organization, FIN RA and its officers are absolutely immune from suit where the alleged misconduct concerns such things as bylaw amendments that are within FIN RA’s role as regulator. The court found it significant that FIN RA cannot alter its bylaws without approval from the SEC after a notice and comment period.

Nevertheless, FIN RA is a private company that has not been shy about emphasizing its similarity to non-governmental entities when criticized for the high compensation levels of certain FIN RA personnel. FIN RA has emphasized that such personnel perform functions that more closely resemble those of the entities that FIN RA regulates than lower-compensated functions that are characteristic of government agencies.

In some respects, FINRA and its officers seem to have the best of both worlds.