Not Just a Private Club: Self Regulatory Organizations as State Actors When Enforcing Federal Law

In the Securities Exchange Act of 1934, Congress enacted a comprehensive scheme for regulating the national securities markets. Pursuant to that scheme, the Securities and Exchange Commission was given ultimate authority to enforce the newly enacted securities laws against market participants. The Exchange Act also created a prominent enforcement role for national securities exchanges, like the New York Stock Exchange. Congress required these self-regulatory organizations as a condition for their continued operation to enforce, among other things, compliance by their members with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The SROs were also given the power to sanction those members the SRO found to have violated federal law. The power and enforcement responsibilities conferred upon SROs under the Exchange Act raise the issue of whether constitutional protections such as due process and the right against self-incrimination apply in SRO enforcement proceedings when the SRO is enforcing federal law. The answer to that question, however, turns on whether SROs are state actors when enforcing federal law. State action is a fundamental prerequisite in cases alleging deprivation of constitutionally protected rights. At issue is whether SROs should be subject to the same constitutional limitations as the government when they are acting in the same capacity as the government in enforcing federal law, as required of them by the Exchange Act. Despite the Supreme Court\u27s extensive jurisprudence on the state action question, the Court has not addressed the issue of whether SROs are state actors. Lower courts have split on the question of whether SROs are state actors. The purpose of this Article is to explain why SROs should be considered state actors when enforcing federal law. The various Supreme Court precedents discussing the state action issue strongly suggest that when enforcing federal law, SROs are state actors. In that situation, SROs should be subject to the same constitutional limitations as the Commission or any other government agency. In Section II, the Article first examines the disciplinary responsibility of SROs imposed by the Exchange Act including the powers which the Commission has to coerce enforcement activity on the part of an SRO. Both the statutory and regulatory frameworks are analyzed. This Section then goes on to demonstrate the symbiotic relationship that exists between the Commission and the SROs in the context of SRO rule-making. This analysis examines the Commission\u27s role in approving rules and its authority to amend SRO rules and require SROs to adopt rules. This analysis is significant because the Commission\u27s authority in the rule-making area effectively allows the Commission to coerce SRO action, and because it demonstrates the heavily regulated nature of SRO activity. Section III then applies this analysis to the state action tests the Supreme Court currently employs. The Supreme Court has articulated several distinct tests for determining whether state action exists. This Section addresses two of the more relevant tests: (1) the coercion or encouragement test; and (2) the public function test. The Section explains the history and policy considerations that underlie each of these two tests, and demonstrates that under each of these tests SROs enforcing federal law should be considered state actors. In Section IV, the Article analyzes lower court decisions that have addressed the general topic of state action in the context of SROs. Finally, in Section V, the Article concludes that SROs are state actors when they enforce federal law. This conclusion not only follows from the Supreme Court\u27s extensive state action jurisprudence, but is also bolstered by the common sense argument that a dual system for enforcement of federal securities laws—one providing full constitutional protections and the other providing no such constitutional protections—is illogical. This dual enforcement system, which can lead to outcome determinative results based solely upon the prosecutorial forum, has a recognized historical foundation but is unsupported by current state action jurisprudence

Double Jeopardy Issues in the Financial Sector

(Excerpt) Double jeopardy issues arise regularly in the financial, banking and commodities industries where both civil and criminal statutes and penalties are used in successive prosecutions by federal and state governments to sanction the same conduct. Recent Supreme Court and federal court decisions have established new standards for determining when civil fines and other civil penalties constitute “punishment” for purposes of the double jeopardy clause of the Fifth Amendment. These decisions indicate that where a civil penalty imposed by a federal or state actor bears no “rational relation” to any actual damages caused, the penalty will be characterized as punishment for purposes of the double jeopardy clause

Order Flow Cases: Jurisdiction, Preemption and Securities Laws

(Excerpt) Primary jurisdiction and preemption issues arise in securities class action litigation when alleged violations of state law arise from conduct that is either explicitly or implicitly regulated by the federal securities laws. These are two distinct theories: one is a matter of administrative law and judicial economy (primary jurisdiction); the other is a matter of constitutional law involving the Supremacy Clause (preemption). To date, there has not been extensive case law involving preemption and the federal securities laws (other than in the blue sky and tender offer areas) and there has been almost no case law on primary jurisdiction and the federal securities laws. This article discusses these issues in the context of the order flow cases. In the eight ongoing order flow cases pending in state courts in Illinois, Massachusetts, Minnesota and New York, the plaintiffs have challenged the practice of certain broker-dealers that make monetary and non-monetary payments to retail brokers, particularly discount brokers, for the purpose of inducing the retail brokers to send orders to the defendants for execution

Not Just a Private Club: Self Regulatory Organizations as State Actors When Enforcing Federal Law

In the Securities Exchange Act of 1934, Congress enacted a comprehensive scheme for regulating the national securities markets. Pursuant to that scheme, the Securities and Exchange Commission was given ultimate authority to enforce the newly enacted securities laws against market participants. The Exchange Act also created a prominent enforcement role for national securities exchanges, like the New York Stock Exchange. Congress required these self-regulatory organizations as a condition for their continued operation to enforce, among other things, compliance by their members with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The SROs were also given the power to sanction those members the SRO found to have violated federal law. The power and enforcement responsibilities conferred upon SROs under the Exchange Act raise the issue of whether constitutional protections such as due process and the right against self-incrimination apply in SRO enforcement proceedings when the SRO is enforcing federal law. The answer to that question, however, turns on whether SROs are state actors when enforcing federal law. State action is a fundamental prerequisite in cases alleging deprivation of constitutionally protected rights. At issue is whether SROs should be subject to the same constitutional limitations as the government when they are acting in the same capacity as the government in enforcing federal law, as required of them by the Exchange Act. Despite the Supreme Court\u27s extensive jurisprudence on the state action question, the Court has not addressed the issue of whether SROs are state actors. Lower courts have split on the question of whether SROs are state actors. The purpose of this Article is to explain why SROs should be considered state actors when enforcing federal law. The various Supreme Court precedents discussing the state action issue strongly suggest that when enforcing federal law, SROs are state actors. In that situation, SROs should be subject to the same constitutional limitations as the Commission or any other government agency. In Section II, the Article first examines the disciplinary responsibility of SROs imposed by the Exchange Act including the powers which the Commission has to coerce enforcement activity on the part of an SRO. Both the statutory and regulatory frameworks are analyzed. This Section then goes on to demonstrate the symbiotic relationship that exists between the Commission and the SROs in the context of SRO rule-making. This analysis examines the Commission\u27s role in approving rules and its authority to amend SRO rules and require SROs to adopt rules. This analysis is significant because the Commission\u27s authority in the rule-making area effectively allows the Commission to coerce SRO action, and because it demonstrates the heavily regulated nature of SRO activity. Section III then applies this analysis to the state action tests the Supreme Court currently employs. The Supreme Court has articulated several distinct tests for determining whether state action exists. This Section addresses two of the more relevant tests: (1) the coercion or encouragement test; and (2) the public function test. The Section explains the history and policy considerations that underlie each of these two tests, and demonstrates that under each of these tests SROs enforcing federal law should be considered state actors. In Section IV, the Article analyzes lower court decisions that have addressed the general topic of state action in the context of SROs. Finally, in Section V, the Article concludes that SROs are state actors when they enforce federal law. This conclusion not only follows from the Supreme Court\u27s extensive state action jurisprudence, but is also bolstered by the common sense argument that a dual system for enforcement of federal securities laws—one providing full constitutional protections and the other providing no such constitutional protections—is illogical. This dual enforcement system, which can lead to outcome determinative results based solely upon the prosecutorial forum, has a recognized historical foundation but is unsupported by current state action jurisprudence

Directional emission from asymmetric resonant cavities

Asymmetric resonant cavities (ARCs) with highly non-circular but convex cross-sections are predicted theoretically to have high-Q whispering gallery modes with very anisotropic emission. We develop a ray dynamics model for the emission pattern and present numerical and experimental confirmation of the theory.Comment: 7 pages LaTeX, 3 postscript figure

A Sparse Matrix Approach for Simultaneous Quantification of Nystagmus and Saccade

The vestibulo-ocular reflex (VOR) consists of two intermingled non-linear subsystems; namely, nystagmus and saccade. Typically, nystagmus is analysed using a single sufficiently long signal or a concatenation of them. Saccade information is not analysed and discarded due to insufficient data length to provide consistent and minimum variance estimates. This paper presents a novel sparse matrix approach to system identification of the VOR. It allows for the simultaneous estimation of both nystagmus and saccade signals. We show via simulation of the VOR that our technique provides consistent and unbiased estimates in the presence of output additive noise