HIGH NOON for FINRA.

DESPITE A HISTORY OF SECURITIES VIOLATIONS, SHADY BUSINESS PRACTICES AND MILLIONS IN INVESTOR LOSSES, SHOOT-FROM-THE-HIP BROKER JOHN JOSEPH HURRY IS TRYING TO TAKE DOWN THE REGULATORY SHERIFF POLICING HIS INDUSTRY. A TALE OF GOOD, BAD AND UGLY BEHAVIOR.

- SERGEI KLEBNIKOV AND MATT SCHIFRIN

FINRA is a private, not-for-profit entity run and funded by the same securities industry it is charged with licensing and policing. Such self-regulatory organizations (SROs) have been a part of U.S. markets since the Philadelphia Stock Exchange was formed in 1790. When Congress created the SEC in 1934, it preserved a key role for SROs while putting them under the new federal agency’s thumb.

It’s hard to overstate how important Finra is to the securities business. It licenses and oversees 628,000 brokers and 3,300 firms including Charles Schwab, Merrill Lynch and Fidelity. It has 4,300 employees and a budget (mostly funded by its members) of $1.5 billion—rivaling the SEC’s 5,000 employees and $2.2 billion budget. Last year Finra received 11,000 investor complaints, barred or suspended 435 individuals and nine firms from the industry and referred 623 fraud and insider trading cases to the feds for prosecution. Finra is the frontline, but it is not the last word—because it’s a private organization, its disciplinary decisions can be appealed to the SEC and ultimately to the courts.

Two obscure securities firms, a Utah-based clearing operation called Alpine Securities and an Arizona brokerage, Scottsdale Capital Advisors, are taking full advantage of that structure. The two companies have brought a new and potentially lethal legal weapon to their enforcement battle with Finra: a challenge to its powers on constitutional grounds. Both outfits are owned by John Joseph Hurry, a 57-year old financial minnow who has morphed into Finra’s white whale. For years it has tried unsuccessfully to shut him down.