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Standard Investment Chartered, Inc. v. National Assoc. of Securities Dealers, Cato Legal Briefs

Standard Investment Chartered, Inc. v. National Assoc. of Securities Dealers, Cato Legal Briefs

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Published by: Cato Institute on Oct 26, 2011
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10/10/2013

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No. 11-381I
N THE
 
 Supreme Court of the United States
 _____________ 
S
TANDARD
I
NVESTMENT
C
HARTERED
,
INC
.,
 Petitioner,
v.N
 ATIONAL
 A 
SSOCIATION OF
S
ECURITIES
D
EALERS
,
ET AL
.,
Respondents.
 _____________ 
On Petition for a Writ of Certiorarito the U.S. Court of Appeals for the Second Circuit
 _____________ 
BRIEF
 AMICI CURIAE 
OF THE CATO INSTITUTE AND THE COMPETITIVE ENTERPRISEINSTITUTE IN SUPPORT OF PETITIONER
 _____________ 
I
LYA 
S
HAPIRO
D
 AVID
J.
 
B
EDERMAN
 Cato Institute
Counsel of Record
1000 Mass. Avenue, N.W. Emory Law School SupremeWashington, DC 20001 Court Advocacy Project(202) 842-0200 1301 Clifton Road Atlanta, GA 30321H
 ANS
B
 ADER
(404) 727-6822S
 AM
 AZMAN
lawdjb@emory.eduComp. Enterprise Institute1899 L St., N.W., 12
th
FloorWashington, DC 20036(202) 331-2278
 
 
(i)
QUESTION PRESENTED
Respondent National Association of SecuritiesDealers (NASD)—now known as the FinancialIndustry Regulatory Authority (FINRA)—is aprivate entity that engages in proprietary activitiesas well as certain regulatory activities of itsmembers as a ‘‘Self-Regulatory Organization’’ (SRO).Petitioner, a securities dealer, is a FINRA member.Petitioner and other members lost significant votingcontrol over FINRA through a proxy solicitation.Petitioner then brought this state-law suit allegingthat FINRA had lied to the membership in the proxystatement by significantly understating thecompensation they could legally receive in exchangefor giving up some of their voting rights.The Second Circuit held, in conflict with othercircuits, that SROs have absolute, non-statutoryimmunity for any illegal acts that are ‘‘incident to’’their regulatory activities. In this case, the courtreasoned, the voting-rights changes were ‘‘incidentto’’ FINRA’s regulatory activities because they werepart of a broader plan by FINRA to acquire assetsfrom a competitor and to form a larger entity thatwould also have certain SRO responsibilities.The Question Presented is: Are SROs entitled to the absolute immunitygiven to government actors even for actions separatefrom the regulatory duties that shroud them in thosequasi-governmental clothes for other purposes?
 
 
(ii)
TABLE OF CONTENTS
 Page
QUESTION PRESENTED FOR REVIEW ................ iTABLE OF CONTENTS ............................................ iiTABLE OF AUTHORITIES ..................................... iiiINTEREST OF
 AMICI CURIAE 
................................ 1 ARGUMENT ............................................................... 2I. SROS MUST BE AMENABLE TO PRIVATESUIT TO COUNTERACT THE POWER THEY HAVE BEEN DELEGATED. ................................ 3 A. Our Constitutional Framework DemandsThat All Entities Exercising Delegated Authority Be Held Accountable. ...................... 4B. SROs’ Lack of Accountability has CreatedSignificant Policy Failures. ............................. 9
 
II. ABSOLUTE IMMUNITY IS A DANGEROUSWITHDRAWAL OF ACCOUNTABILITY, AND THE SECOND CIRCUIT ERRED INEXPANDING IT. .................................................. 14 A. The Second Circuit Erred in Extending Absolute Immunity to the Conduct atIssue. ................................................................ 14B. Absolute Immunity, Combined With SROStructures, Makes Abuse of Power AlmostCertain. ............................................................ 19CONCLUSION ........................................................... 23
 

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