Judge tosses suit alleging Finra misled members

A lawsuit brought by two brokerage firms against NASD over its 2007 merger with the New York Stock Exchange’s regulatory unit has been dismissed.

Judge Jed S. Rakoff dismissed the claims, holding that NASD, now known as the Financial Industry Regulatory Authority Inc., has immunity from lawsuits.

“[Self-regulatory organizations] and their officers are absolutely immune from private damages suits challenging official conduct performed within the scope of their regulatory functions,” he wrote in an order last Monday.

A key issue in the suit was whether Finra executives, including then-NASD chief Mary Schapiro, misled brokerage firm members by claiming that $35,000 was the most that could be paid to member firms upon completion of the merger. She is now chairman of the Securities and Exchange Commission.

‘ARTIFICIAL AND UNCONVINCING’

The plaintiff firms argued that their claim related to the SRO’s finances, not its regulatory function. But Mr. Rakoff said that this distinction was “artificial and unconvincing.”

The original case against NASD was filed by Standard Investment Chartered Inc. in May 2007. In December 2008, Benchmark Financial Services Inc. filed a similar case.

“We are pleased with today’s decision,” Finra spokeswoman Nancy Condon said in a statement last week. “We have said from the outset these cases were without merit, and today’s ruling more than demonstrates that.”

But an attorney representing one of the plaintiffs says the case may not be over yet.

“We have to confer with our client,” said Jonathan Cuneo of Cuneo Gilbert & LaDuca LLP. “But we anticipate filing an appeal.”

E-mail Dan Jamieson at [email protected].