BROOMFIELD — A court case playing out in Washington, D.C., between a civil liberties organization and the federal organization that regulates financial planners may not have direct implications for Broomfield, but those who follow the local district court know that Broomfield is the epicenter in Colorado for court cases filed against the Financial Industry Regulatory Authority, or FINRA.
Since Jan. 1, Broomfield County District Court has received 73 cases, and hundreds more before that, against FINRA, which does not have a physical presence in Broomfield. FINRA is a national organization, authorized by the U.S. Securities and Exchange Commission, to write rules and enforce regulations affecting financial planners and investment advisers. FINRA has offices across the country, including one at 4600 S. Syracuse St. in the Denver Tech Center.
The Broomfield connection comes down to the lawyers who file the cases, and the vast majority of them are filed by one firm and one attorney: Owen Harnett of HLBS Law, headquartered in nearby Westminster. Harnett, who has practiced in this narrow category of law for seven years, said his firm has five lawyers who work almost exclusively on FINRA cases with clients from all over the country. The filings in Colorado are mostly requests for court-ordered expungement of disciplinary decisions; FINRA is named as respondent in the cases because it often has a say in whether such records should be sealed.
Why Broomfield? Proximity, said Harnett in an interview with BizWest.
The boilerplate language in the filings — those from Harnett as well as unaffiliated lawyers, says, “Venue is proper … because FINRA has a regional office located in Denver, Colorado. Petitioner’s counsel is located just northwest of Denver in close proximity to Broomfield, where a majority of the evidence is located.”
“It’s also about consistency,” Harnett said. The subject matter and application of the law is somewhat specialized, and judges don’t always have experience with it, he said. “Broomfield courts know the content. It’s good for the client and cheaper to file in just one court” where judges are familiar with the subject matter, he said.
Of the 73 cases filed this year in Broomfield, Harnett and his partners filed most of them. Of the most recent 20, he filed 18 and Longmont attorney Brian Luther filed two.
Harnett draws his cases from all over the country using word of mouth and referrals. The latest case he filed, Matthew Edward Roberson v. Financial Industry Regulatory Authority, case number 2023cv30186 filed Aug. 29, is an attempt by Los Gatos, California-based Roberson to have his record expunged.
Roberson and former investment firms that he had represented in earlier years had agreed to arbitrate and reached a decision to expunge. The court action seeks court confirmation of the expungement agreement.
FINRA’s database of background on Roberson shows that three customer disputes were filed involving him — in 2011, 2001 and 2000. Two of the three were settled, one with a $2.25 million settlement, and the third case was denied. Roberson had left the employment of the financial companies that ultimately paid the settlements, and he was not privy to the reasons for the settlements, according to the FINRA records.
Harnett filed a similar case Aug. 26 involving Naples, Florida, financial consultant James Brian Moran. Luther filed a case Aug. 18 on behalf of client William Bringham Jr. of Illinois.
“I’m very passionate about this (area of law),” Harnett said. His court work in Broomfield deals with only some of the cases he argues. In some cases, he needs to present cases in Maryland or the District of Columbia in order to engage the federal government.
And that’s where the recent civil liberties action sparked interest for Harnett and others working in this area of law.
The New Civil Liberties Alliance has been objecting to what it has said is heavy-handed enforcement of financial regulatory laws. In this case, the alliance said in a press release, FINRA “investigates, prosecutes, and punishes hundreds of securities firms and brokers every year for alleged violations of federal securities laws and rules, despite operating outside the government and without answering to the president. Today, the New Civil Liberties Alliance filed an amicus curiae brief in Alpine Securities v. FINRA, asking the U.S. Court of Appeals for the District of Columbia Circuit to end FINRA’s blatantly unconstitutional use of executive power. FINRA is a nominally private nonprofit corporation that regulates the securities brokerage industry subject to oversight by the U.S. Securities and Exchange Commission. But it wields vast legislative, executive and adjudicatory powers over more than 600,000 individual brokers and thousands of broker-dealer firms nationwide,” the press statement said.
“The U.S. District Court for the District of Columbia concluded that FINRA is not a ‘state actor’ — leaving the regulator unbound by most constitutional restraints when it investigates, prosecutes, and punishes alleged wrongdoers. That conclusion unwittingly confirmed, however, that FINRA violates both Article II of the Constitution, which prohibits empowering private law enforcement without close Executive Branch supervision, and the ‘private nondelegation doctrine,’ a vital judicial principle that reserves binding federal power for the federal government alone to wield.”
The alliance, through senior counsel Russ Ryan, said that the SEC pre-approves FINRA rules but “the agency provides virtually no real-time supervision or direction of FINRA’s law-enforcement activities. … FINRA cannot have it both ways. It cannot evade the Constitution’s appointment, removal, due process, and jury trial requirements by claiming to be a mere private actor, while simultaneously wielding vast, unsupervised governmental power.”
Ray Pellecchia, head of public relations and senior director of corporate communications for FINRA, told BizWest in an email that “FINRA looks forward to the D.C. Circuit’s consideration of Plaintiffs’ appeal, when FINRA and the United States government will present their defenses to Plaintiffs’ novel and unsupported constitutional arguments.”
As for the expungement activity that occurs in Broomfield, Pellecchia said that new rules go into effect Oct. 16 that will place additional restrictions on the process. Chief among them is a requirement that arbitration occur via a three-person panel and that unanimous consent be required before the court could consider confirming the expungement request.
“Whether those filing the actions are doing so ahead of the new rules becoming effective, again, you would have to check with them,” Pellecchia said.
Harnett said the alliance’s case is welcome, as far as he’s concerned. “They have their hands in both pots, public and private, and act like officers of the court and have constitutional authority,” he said. “It’s crazy what they can do. They can strip (an investment adviser) of his license, boom, just like that.”