SEC Charges BD For Repeated AML Violations

The Commission filed its second action this year centered on the failure of a broker-dealer to file SARs. The first was In the Matter of Windsor Street Capital, LP, Adm. Proc. File No. 3-17813 (Jan. 25, 2017). That action is being set for hearing. The second was brought earlier this week. SEC v. Alpine Securities Corporation (S.D.N.Y. Filed June 5, 2017). This case is in litigation.

Alpine Securities is a Salt Lake based registered broker dealer. Much of its business involves clearing microcap stock transactions for other firms. The broker has a history of disciplinary actions with FINRA. In 2011 Alpine was acquired by John Hurry, the owner of Scottsdale Capital Advisors Corporation, an Arizona based broker dealer that introduces clients to Alpine.

Alpine is subject to the Bank Secrecy Act. The Act requires broker-dealers to file suspicious activity reports or SARs with FinCEN to report a transaction involving at least $5,000 where the broker knows or suspects that: 1) it involves funds derived from illegal activity or that were used to disguise such activity; 2) were designed to evade BSA requirements; 3) had no apparent business or lawful purpose; or 4) involved the use of the broker to facilitate criminal activity. FinCEN’s regulations require that the filer include a clear description of the activity on the form. That description is essential to purpose for which the form is filed.

Alpine implemented the BSA and FinCEN requirements by maintaining written supervisory procedures. Those procedures cautioned all employees to be diligent and active participants in the firm’s anti-money laundering program. The system specifically identified red flags to suggest potentially wrongful activity. Those included: 1) A customer who for no apparent reason, or in conjunction with other red flags, engaged in certain transactions such as penny stock trading; 2) a customer who engaged in suspicious activity such as depositing penny stock, liquidating it and wiring out the funds; or 3) customers, issuers or others with questionable back grounds or that are subject of news reports of possible regulatory violations or criminal activity. Alpine largely ignored its system.

Since 2011 much of the firm’s business has come from Scottsdale. That firm was disciplined by FINRA in 2011 for filing deficient SARs. Many of the firm’s customers have also been charged with violations of the securities laws. Those include transactions that have been cleared by Alpine. Nevertheless, Alpine seldom closed Scottsdale related accounts or declined transactions. To the contrary Alpine permitted the customers to engage in suspicious transacts and filed thousands of SARs each year – more than any other broker dealer. Alpine charged fees that were significantly higher than those of other clearing firms.

Despite the dictates of its compliance system, Alpine had a standard procedure which called for the use of two templates for SARs. One identified basic information about the account holder, the number of shares involved, the issuer and an estimated price per share. The other required the identification of the securities deposited, the client, the date and the approximate amount involved. The templates did not call for a factual description of the transaction as dictated by the firm’s compliance system.

Beginning in May 2012 FINRA conducted an examination of Alpine. After reviewing 823 SARs the regulator concluded that all were substantively inadequate. None furnished a description of the reason the activity was suspicious. Alpine took no meaningful steps to remedy the deficiencies.

Three years later, in April 2015, the Commission’s Office of Compliance Inspections and Examinations conducted an examination. The deficiencies identified by FINRA continued. A deficiency letter was issued. Alpine’s conduct continued unabated. Over the period the broker filed almost 2,000 SARs that failed to identify the material facts regarding the suspicious activity. The firm also failed to identify when stock deposited was liquidated in 1,900 transactions as required and repeatedly filed forms late. These repeated failures were directly contrary to the firm’s compliance system requirements. The Commission’s complaint alleges violations of Exchange Act Section 17(a).