United States District Court, W.D. Oklahoma
L.RUSSELL UNITED STATES DISTRICT JUDGE.
the Court is Plaintiff Wilbanks Securities, Inc.'s
Emergency Motion for a Temporary Restraining Order. Docs. 11
& 14. Defendants Financial Industry Regulatory Authority
(FINRA) and Securities and Exchange Commission (SEC) have
responded. Docs. 16 & 17. Having considered the
parties' arguments and submissions, and for the reasons
set forth below, the Court denies Plaintiff's application
for a temporary restraining order due to the lack of subject
Securities, Inc. is a securities broker-dealer headquartered
in Oklahoma City. Doc. 11. It argues in this action that its
regulating authority, FINRA, is unfairly applying one if its
rules and that, should it continue to do so, Wilbanks will
collapse. FINRA is the self-regulatory organization (SRO)
responsible for enforcing compliance by its members with the
Securities Exchange Act, with authority delegated by the
Securities and Exchange Commission (SEC). See Karsner v.
Lothian, 532 F.3d 876, 880 (D.C. Cir. 2008); 15 U.S.C.
§ 780-3(b)(7). Because Wilbanks Securities is a member
of FINRA, it is subject to its rules and regulations, as well
as those of the Securities Exchange Act and the SEC.
present troubles began when an arbitration panel rendered a
$1, 073, 000 award against it on April 13, 2017. See
Doc. 11, Ex. 1, Arbitration Award in FINRA Case No. 16-00226,
Huitt v. Wilbanks Securities, Inc. A few days later,
on April 18, 2017, FINRA notified Wilbanks that it had
learned of the adverse arbitration award and that this placed
Wilbanks in violation of the Net Capital Rule, an SEC
regulation that requires every securities broker to maintain
a certain amount of net capital at all times. 17 C.F.R.
ordered Wilbanks to immediately book the adverse award as a
liability. Doc. 11, Ex. 3. This type of book-keeping is not
new practice: in a September 2000 notice to brokers, the SEC
explained that the Net Capital Rule required firms subject to
adverse awards to book the award as a liability despite that
the appeal process had not been exhausted and no judgment had
been entered. The SEC's rationale for requiring the
immediate booking of the award was that “grounds for
revision on appeal are very limited.” See NASD
Notice to Members 00-63, Doc. 1, Ex. 15.
the award was an immediate liability, FINRA informed Wilbanks
that, per FINRA Rule 4110(b)(1), it must suspend all business
operations until it was in compliance with the Net Capital
Rule. Further, Securities and Exchange Act Rules 17a-11(b)
and (g) required Wilbanks to periodically notify the SEC and
FINRA of its Net Capital deficiency. Doc. 11, Ex. 3.
Wilbanks's clearinghouse, RBC Correspondent Services,
then informed it that Wilbanks's net capital deficiency
meant RBC would restrict its ability to trade. Doc. 11, Ex.
D. Wilbanks was thus more or less barred from conducting
responded quickly to stave off closure. On April 20, 2017, it
moved to vacate the $1.07 million arbitration award in the
U.S. District Court for the District of Colorado.
See Doc. 11, Ex. 5, Huitt v. Wilbanks
Securities, Inc., No. 17-cv-00919-STV. In short,
Wilbanks believes substantive unfairness and procedural
irregularities plagued the arbitration proceedings. The
District Court for the District of Colorado is presently
considering the validity of those awards and those issues are
not before this Court.
before this Court is Wilbanks's application for a
temporary restraining order requiring FINRA and the SEC to
retract the Notice of Net Capital Deficiency, which would
permit Wilbanks to stay in business until the District Court
in Colorado rules on its motions to vacate. In effect,
Wilbanks asks that this Court excuse it from complying with
SEC's Net Capital Rule, at least until a hearing on a
preliminary injunction can be heard. Wilbanks believes that
without the TRO, its seventy-five broker-employees will be
out of work, clients will be unable to access their accounts,
and Wilbanks Securities will effectively be put out of
business-all of which it contends would result in a
deprivation of due process under the Fifth Amendment.
Wilbanks's specific argument appears to be that FINRA
Rule 12904(j), which mandates that a firm who has suffered an
adverse arbitration award must pay the award with 30 days
unless it files a motion to vacate, excuses it from the
SEC's own interpretation of its Net Capital Rule that
requires it to immediately book the award as a liability.
Whatever the merits of that argument,  the Court is
powerless to grant relief because it lacks subject matter
jurisdiction over the present action.
initial matter, it is not clear that Wilbanks may assert any
action against the SEC: sovereign immunity shields the United
States, its agencies, and its employees from suit, absent a
waiver. Fed. Deposit Ins. Corp. v. Meyer, 510 U.S.
471, 475, 114 S.Ct. 996 (1994). Consequently, the SEC is
specifically immune from suit except in certain well-defined
circumstances. SEC v. Independence Drilling Corp.,
595 F.2d 1006, 1008 (5th Cir. 1979); 15 U.S.C. §§
77v(a), 78aa. Those circumstances consist of areas in which
Congress has expressly waived sovereign immunity. United
States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361
(1990). So absent this waiver, the Court lacks subject matter
jurisdiction to adjudicate claims against the United States
and its agencies, including the SEC. United States v.
Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961 (1983).
Further, it is plaintiff's burden to establish this
waiver. See James v. United States, 970 F.2d 750,
753 (10th Cir. 1992).
though, has not met this burden. In fact, it has not pointed
to any waiver of sovereign immunity that would allow it to
sue the SEC. In oral proceedings before the Court on May 5,
2017, Wilbanks seemed to suggest that the Declaratory
Judgment Act may confer jurisdiction. Yet it is
well-established that this Act cannot serve as an independent
basis for jurisdiction, see Skelly Oil Corp. v. Phillips
Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876 (1950),
and does not “operate as an express waiver of sovereign
immunity.” Worsham v. U.S. Dep't of the
Treasury, 2013 WL 5274358, at *7 (D. Md. Sept. 17,
2013). In short, the Act “neither provides nor denies a
jurisdictional basis for actions under federal law.”
any event, all of Wilbanks's claims, including those
against FINRA, suffer from another jurisdictional defect:
Wilbanks has failed to first seek relief under the Exchange
Act's exclusive review scheme.
Exchange Act creates a comprehensive, multi-tiered scheme for
reviewing FINRA regulatory actions. See, e.g., Swirsky v.
NASD, 124 F.3d 59, 61 (1st Cir. 1997); see First
Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 696 (3d Cir.
1979), cert. denied, 444 U.S. 1074 (1980). Any
proceeding in which FINRA issues a disciplinary sanction is
subject to de novo review by the SEC, either upon application
of the aggrieved party or on the Commission's own motion.
15 U.S.C. § 78s(d). The SEC then makes an independent
determination as to liability, including whether FINRA's
determination was in accordance with its rules and FINRA
applied its rules in a manner consistent with the purposes of
the Exchange Act. 15 U.S.C. § 78s(e)(1)(A). Under 15
U.S.C. § 78s(e)(1)(A) and (B), the SEC can affirm, set
aside, or modify any sanction, or simply remand the case to
FINRA for further proceedings. ...