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Turbeville v. Financial Industry Regulatory Authority

United States Court of Appeals, Eleventh Circuit

November 1, 2017

ANTONY LEE TURBEVILLE, Plaintiff-Appellant,

         Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 8:15-cv-02920-JSM-EAJ

          Before TJOFLAT and ROSENBAUM, Circuit Judges, and REEVES, [*] District Judge.

          OFLAT, Circuit Judge:

          Before us is the District Court's dismissal of Antony Turbeville's complaint against the Financial Industry Regulatory Authority ("FINRA") and its denial of Turbeville's motion to remand the case to Florida state court. We affirm both.



         The Securities Exchange Act of 1934 ("Exchange Act") provides that persons who wish to use any instrumentality of interstate commerce to transact in securities must join an association of brokers and dealers registered as a national securities association. 15 U.S.C. § 78o(a)(1), (b)(1).[1] In turn, the Exchange Act requires registered national securities associations to establish membership and conduct rules "designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, . . . to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest . . . ." Id. § 78o-3(b)(6).

         When member brokers or dealers violate the rules of a national securities association or any provision of the Exchange Act, the association can-indeed, must-levy sanctions that carry the force of federal law. Id. § 78o-3(b)(7) (requiring national securities associations to "appropriately discipline[]" members for violating "the rules of the association" or "any provision of" the Exchange Act "by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a member, or any other fitting sanction"). In this way, the Exchange Act vests registered national securities associations with a prominent role in the administration and enforcement of federal securities law. Fittingly, the Exchange Act refers to these associations as "self-regulatory organizations" ("SROs"). Id. § 78s. Before taking effect, all rules proposed by national securities associations must be reviewed by the Securities and Exchange Commission ("SEC") to ensure they are "consistent with the requirements of" the Exchange Act and may be approved by the SEC only after public notice and comment. Id. § 78s(b)(1).

         FINRA, a private, non-profit Delaware corporation, is one of those national securities associations and a registered SRO.[2] FINRA oversees and regulates securities firms who join its membership, individuals who work for those firms, and individuals associated with those firms. Securities brokers who wish to join a FINRA-affiliated firm must pass FINRA-administered examinations and comport their professional conduct with the rules, regulations, and standards FINRA promulgates. When its member brokers or associated persons violate FINRA's rules, FINRA disciplines them pursuant to the Exchange Act's requirements.


         FINRA's disciplinary process is governed by the FINRA Code of Procedure, a series of internal rules that set forth the disciplinary procedures that apply-and the due-process protections afforded-to members charged with breaking the rules. In satisfaction of the Exchange Act's requirement, the SEC approved the FINRA Code of Procedure. Fiero v. Fin. Indus. Regulatory Auth., Inc., 660 F.3d 569, 571-72 (2d Cir. 2011).

         The FINRA Code of Procedure sets forth a multi-layered hearing and appeals process that governs disciplinary actions against FINRA-affiliated brokers and dealers.[3] Once FINRA formally charges a broker with a violation by filing a complaint, a FINRA hearing panel conducts a full hearing to determine whether the individual violated FINRA regulations, and, if so, imposes sanctions. See FINRA Rule 9200 (setting forth FINRA's disciplinary procedures). The individual may then appeal the hearing panel's finding and punishment to FINRA's appeals board, the National Adjudicatory Council ("NAC"). FINRA Rule 9311(a). After that, a broker may, as of right, seek de novo review of the NAC's decisions in the SEC. 15 U.S.C. § 78s(d)(2). Finally, the broker may appeal the SEC's decision to a federal court of appeals-again, as of right. Id. § 78y(a)(1).

         Prior to formally charging a broker with a violation and instituting formal disciplinary proceedings, FINRA retains discretion to issue to the broker a "Wells notice, " a communication informing the individual that FINRA believes it has grounds to institute a disciplinary action and inviting him to respond and try to convince FINRA not to institute formal proceedings. See FINRA Rule 8210(a)(1); FINRA Regulatory Notice 09-17 at 3 (Mar. 2009). These notices become a part of the public record: FINRA's SEC-approved rules require it to disclose communications like Wells notices in response to public inquiries about FINRA-affiliated brokers or firms. See FINRA Rule 8312(a), (b)(2)(A) (requiring FINRA, "[i]n response to a written inquiry, electronic inquiry, or telephonic inquiry via a toll-free telephone listing, " to release "information regarding a current or former FINRA member, " including Wells notices, which are required by the "U5" and "U6" forms listed in the Rule). Those rules are designed to satisfy the Exchange Act's requirement that SROs "establish and maintain a . . . readily accessible electronic or other process, to receive and promptly respond to inquiries regarding . . . registration information on its members and their associated persons." 15 U.S.C. § 78o-3(i)(1). FINRA makes these disclosures through its "BrokerCheck" program, an online database that contains a report on each currently and formerly registered broker. BrokerCheck reports are available to the public.

         FINRA's rules set forth an administrative-review proceeding through which a broker may "dispute the accuracy of" information disclosed in his BrokerCheck report by filing written notice stating the grounds for his dispute and submitting supporting documentation "identifying the alleged inaccurate factual information and explaining the reason that such information is allegedly inaccurate." See FINRA Rule 8312(e)(1)(B). Once the broker has done so and if FINRA determines that the "dispute of factual information is eligible for investigation, " FINRA will "add a general notation to the eligible party's BrokerCheck report stating that the eligible party has disputed certain information included in the report." Id. § (e)(2)(B). Once it completes its investigation, FINRA will then issue a written finding setting forth its determination as to the accuracy of the information contested, and it will update the broker's BrokerCheck report accordingly. Id. § (e)(3)(A)-(B). Unlike the hearing panel determination in the formal disciplinary process, this initial finding is the end of the road: "A determination by FINRA, including a determination to leave unchanged or to modify or delete disputed information, is not subject to appeal." Id. § (e)(3)(C).


         In 2009, FINRA filed a complaint against Antony Turbeville, a registered representative of a FINRA-affiliated broker firm. The complaint alleged that, among other things, Turbeville committed securities fraud by recommending certain types of collaterized mortgage obligations to elderly buyers who lacked the sophistication and risk tolerance necessary to make them suitable purchasers. A FINRA hearing panel found that Turbeville's conduct violated FINRA's rules, barred him from associating with any FINRA-affiliated firm, and assessed restitution and adjudication costs against him. Turbeville appealed the hearing panel's decision to the NAC, which affirmed. Turbeville then appealed to the SEC. Before the SEC reviewed his case, Turbeville withdrew his appeal, thereby letting the hearing panel's findings and punishments stand.

         While Turbeville's appeal to the NAC was still pending, FINRA learned that Turbeville filed a defamation suit in Florida state court against the elderly investors who testified against him in the course of the FINRA hearing panel's proceedings.[4]Upon learning of this suit, FINRA investigated Turbeville again-this time, to determine whether he violated FINRA rules by filing a retaliatory action against his former customers in an attempt to influence ongoing FINRA disciplinary proceedings. FINRA's investigators determined that they had cause ...

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