Avoiding Unfair FINRA Proceedings: Defending Against FINRA Charges in Delayed Regulatory Proceedings

Although FINRA disciplinary actions are not subject to a formal statute of limitations, they are still governed by a core requirement of fairness, enshrined in the Exchange Act and reinforced by a growing body of case law. The National Adjudicatory Council’s recent decision in Department of Enforcement v. Southeast Investments, N.C., Inc. and Frank Harmon Black, No. 2014039285401r, 2025 FINRA DISCIP. LEXIS 12 (NAC Jun 6, 2025) stands out as a rare and consequential application of that principle. More notably, it marks an uncommon rebuke of FINRA Enforcement itself, with the NAC concluding that procedural delays and discovery failures so undermined the integrity of the proceeding that the most serious charges had to be dismissed.

This post explores the Southeast Investments decision through the lens of “fairness,” grounding the discussion in the foundational SEC cases Jeffrey Ainley Hayden and Mark H. Love. Together, these decisions demonstrate how fairness serves as a functional check on FINRA’s otherwise broad disciplinary reach.

No Statute of Limitations, But a Fairness Backstop

In most areas of law, statutes of limitations serve as a safeguard against stale claims and unjust proceedings. These time limits exist to ensure that claims are brought while evidence is still available and reliable, and to provide individuals and businesses with the peace of mind that they will not be subject to indefinite liability for past conduct. Over time, documents can be lost, memories fade, and witnesses may become unavailable. Statutes of limitations are therefore designed to protect the integrity of the evidentiary process and to uphold the finality of legal disputes.

However, FINRA’s enforcement regime operates without any formal statute of limitations. This gives the regulator significant discretion to bring charges years, sometimes many years, after the alleged misconduct occurred. But critically, the absence of a statute of limitations does not mean that the passage of time is irrelevant. The Securities Exchange Act requires that FINRA, as a registered national securities association, provide a fair procedure in all disciplinary actions. This statutory requirement, found in Sections 6(b)(7) and 15A(b)(8), has been interpreted by the SEC to mean that the fairness of a proceeding can and must limit FINRA’s otherwise boundless enforcement window.

In Jeffrey Ainley Hayden, Exchange Act Release No. 42772, 54 S.E.C. 651, 2000 SEC LEXIS 946 (May 11, 2000), the SEC set aside a disciplinary action brought by the NYSE because of a prolonged and unjustified delay: approximately 14 years after the first and over six years from the last alleged instance of misconduct and more than three years after the Exchange received a voluminous internal sales practice examination report identifying serious concerns about Hayden’s conduct. Although the SEC did not find specific prejudice in the traditional evidentiary sense, it concluded that the overall delay rendered the proceeding inherently unfair and violated fundamental due process expectations. The SEC emphasized that self-regulatory organizations have a duty not only to prosecute misconduct but also to ensure that their disciplinary procedures do not undermine the integrity of the process itself.

In Mark H. Love, Exchange Act Release No. 49248, 57 S.E.C. 315, 2004 SEC LEXIS 318 (Feb. 13, 2004), the SEC again addressed the issue of delay in regulatory enforcement. Although the NASD filed its complaint more than seven years after Love first referred a customer to the outside investment opportunity and approximately six-and-a-half years after the last investment was made, the Commission ultimately found that the proceeding was fair. It noted that NASD had learned of Love’s potential misconduct approximately four years before it filed the complaint and had formally commenced its investigation about three-and-a-half years before doing so.

While acknowledging the extended timeline, the SEC declined to adopt a rigid or mechanical standard for when a delay becomes unfair. Instead, it reiterated that fairness requires a contextual, fact-specific assessment, focusing not solely on the length of time but on whether the respondent’s ability to defend themselves has been meaningfully impaired. In Love’s case, the Commission found no such impairment. Although Love argued that faded memories and the death or unavailability of witnesses prejudiced his defense, the SEC noted that the critical facts were undisputed, and Love’s own testimony remained materially consistent throughout the proceedings. The Love decision illustrates how fairness, rather than the passage of time alone, is the ultimate measuring stick.

Southeast Investments: A Rare Victory for Respondent Rights

In Southeast Investments, the NAC dismissed the most serious misconduct charges against the firm and its principal, Frank Harmon Black, following a remand from the SEC. The charges that Black fabricated documents and lied under oath led to a bar and significant fines. Yet the SEC vacated those findings, not because the conduct was condoned, but because FINRA Enforcement’s discovery violations deprived respondents of a fair hearing.

At the heart of the fairness issue was the delayed production of key documentary evidence: FINRA staff notes from a 2013 interview with four former representatives, along with emails and memoranda summarizing those interviews. These documents were not produced to the respondents until after the hearing had concluded. While the Hearing Panel and NAC had previously ruled that this discovery lapse was “harmless error,” the SEC disagreed. It found that the respondents were denied a meaningful opportunity to impeach witness credibility, which was central to the findings of false testimony. The SEC noted that even potentially minor inconsistencies in these documents could have supported a different result if they had been available for cross-examination during the hearing.

When the matter returned to the NAC, the panel faced a new procedural reality. Nearly a decade had passed since the underlying conduct, and more than nine years had elapsed since FINRA began its examination. By that time, at least two of the key witnesses - the former registered representatives whose credibility was central to the false testimony allegations - had died. Another was no longer associated with any FINRA member firm, and the remaining witness's availability for further proceedings was uncertain. The evidentiary landscape had deteriorated to the point where meaningful fact-finding was no longer feasible. Recognizing that respondents had been denied the opportunity to cross-examine these witnesses with the benefit of documents that were improperly withheld until after the original hearing, the NAC concluded that respondents could no longer be afforded a fair opportunity to defend themselves. The long passage of time and inability to successfully mount a defense had irreparably compromised the proceeding, and the NAC dismissed the remanded causes of action.

The outcome in Southeast Investments is a significant application of the fairness principles articulated in Hayden and further refined in Love, demonstrating how those standards operate when both delay and evidentiary deterioration converge to undermine a respondent’s ability to defend. In Jeffrey Ainley Hayden, the SEC held that a proceeding may be deemed inherently unfair based solely on excessive delay, even in the absence of a specific showing of prejudice. The Commission explicitly stated that it “could not find, as a factual matter, that Hayden's ability to mount an adequate defense was impaired by the Exchange’s delay.” Nevertheless, it concluded that the Exchange’s prolonged inaction violated its statutory obligation to ensure the fairness and integrity of its disciplinary process. The delay of more than 14 years from the first instance and six years from the last instance of the alleged misconduct, and over three years from when the Exchange was placed on notice, was, in the Commission’s words, “inherently unfair,” and warranted vacatur of the disciplinary action.

The Love decision, issued several years later, refined this standard. There, the SEC emphasized that while there is no statute of limitations for FINRA disciplinary actions, the fairness inquiry must be grounded in context and fact. The Commission declined to adopt any mechanical rule based on the mere passage of time and instead focused on whether the delay had meaningfully impaired the respondent’s ability to defend against the charges. In Love, the respondent’s testimony had remained materially consistent over time, the key facts were not disputed, and the SEC found no actual prejudice. Thus, the proceeding was upheld as fair despite a multi-year delay between the conduct and the formal charges.

Southeast Investments synthesizes these two lines of authority and held that the proceeding would be unfair “because of the unavailability of witnesses and the extraordinary length of time that has passed since the pertinent events at issue in this case.” (Emphasis added.) In holding so, the NAC applied Hayden’s recognition that delay, in some cases, can erode the procedural integrity of the proceeding itself. But it also incorporated Love’s instruction to assess whether the respondent’s ability to present a defense had been compromised. In Southeast Investments, both conditions were met. Not only had nearly a decade passed since the alleged misconduct, but the record showed that two key witnesses had died, one had left the industry, and the credibility of their testimony, central to the original findings, could no longer be tested. Moreover, FINRA Enforcement’s failure to timely produce key documents had deprived the respondents of the opportunity to impeach these witnesses during the original hearing. The NAC concluded that any further attempt to adjudicate the remanded causes of action would be fundamentally unfair.

In doing so, Southeast Investments reaffirms the SEC’s long-standing commitment to procedural fairness, while illustrating that fairness is not a static doctrine. Instead, it is a flexible principle shaped by evolving circumstances, grounded in both precedent and practical reality, and ultimately focused on ensuring that respondents are not forced to defend themselves in proceedings where meaningful defense has become impossible.

Why Southeast Investments Matters

The Southeast Investments decision underscores that fairness in FINRA proceedings is not a rhetorical flourish or just an aspirational ideal. It is a substantive and enforceable right, grounded in the statutory framework of the Exchange Act and reaffirmed by decades of SEC precedent. In the absence of a formal statute of limitations, fairness serves as the essential procedural backstop. It protects respondents from prejudicial delay, ensures the integrity of the adjudicative process, and reminds regulators that procedural shortcuts cannot be cured by good intentions.

This decision is particularly noteworthy because such outcomes are rare. FINRA and the SEC typically resist dismissing enforcement actions based solely on procedural defects. Yet Southeast Investments shows that when the cumulative effect of delay, lost evidence, and denied discovery reaches a certain threshold, dismissal is not only warranted but necessary.

At AMW Law PLLC, we have deep experience representing financial professionals in FINRA enforcement actions, with a keen eye on procedural integrity and respondent rights. If you or your firm is the subject of a FINRA investigation or complaint, ensuring that your right to a fair process is protected is just as critical as defending the underlying allegations.

To speak with a FINRA defense attorney who understands the process from all sides, including defense, enforcement, and arbitration, contact us today.