Useful Limits to the Fifth Amendment: Examining the Benefits that Flow From a Private Regulator’s Ability to Demand Answers to It’s Questions During an Investigation

Thursday, January 1st, 2009 at 12:00 am by Alan Lawhead
Alan Lawhead, Useful Limits to the Fifth Amendment: Examining the Benefits that Flow From a Private Regulator’s Ability to Demand Answers to It’s Questions During an Investigation, 2009 Colum. Bus. L. Rev. 210

The Financial Industry Regulatory Authority (FINRA), which resulted from the 2007 merger of the regulatory functions of the New York Stock Exchange and the National Association of Securities Dealers, conducts examinations of brokerage firms to verify that brokers are complying with securities industry rules. During its investigations, FINRA does not grant a Fifth Amendment privilege against self-incrimination because a central tenant of membership is that brokers cooperate and testify in FINRA’s investigations. The lynchpin supporting FINRA’s ability to obtain testimony is that—under the state action doctrine—FINRA is a private actor. This article analyzes the Supreme Court’s 2001 state-action decision in Brentwood Academy and concludes that the Fifth Amendment does not apply in FINRA’s private investigations. Congress is formulating a dramatic overhaul of the byzantine U.S. financial regulatory system. This process highlights the need to discuss the benefits of private regulation of brokerage firms. I argue that FINRA’s role as a private self regulator should be preserved, including its operation beyond the bounds of constitutional restrictions. FINRA’s testimony requirement furthers the detection of misconduct and therefore promotes confidence in securities markets and benefits the investing public.

Author Information

Alan Lawhead is a Vice President in the Office of General Counsel of the Financial Industry Regulatory Authority ("FINRA").