RIA Compliance Blog
On June 5, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Southern District of New York against Alpine Securities Corporation (“Alpine”), a Salt Lake City-based broker-dealer. The complaint alleges that Alpine failed to file Suspicious Activity Reports (“SARs”) in the manner prescribed by the Bank Secrecy Act (“BSA”). According to the SEC’s complaint, Alpine’s alleged misconduct “facilitated illicit actors’ evasion of scrutiny by U.S. regulators and law enforcement, and provided them with access to the markets they might otherwise have been denied.”
The BSA obligates a broker-dealer to file SARs with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to report transactions that the broker-dealer knows or suspects involve funds obtained from illegal activities or that were used to conceal such activities. Broker-dealers are also obligated, under the “SAR Rule” (31 C.F.R. § 1023.320), to file SARs if they know or suspect that a transaction’s purpose was to evade BSA obligations or that the transaction did not have an obvious business or lawful purpose. Broker-dealers are also required to file SARs if they know or suspect that a transactions’ purpose is to instigate criminal activity. In addition, both FinCEN, under the SAR Rule, and the Financial Industry Regulatory Authority (“FINRA”), under FINRA Rule 3310, require that broker-dealers establish and enforce anti-money laundering programs that are tailored to guarantee compliance with the BSA and its regulations. Since Alpine was a FINRA-member firm, it was obligated to comply with FINRA’s rule regarding the adoption and enforcement of an anti-money laundering program.
The SEC alleged that while Alpine had adopted an anti-money laundering compliance program, it did not adequately put this compliance program into practice. For example, evidence showed that Alpine’s records included information revealing incidents of “money laundering, securities fraud, or other illicit financial activities relating to [Alpine’s] customers and their transactions.” These constituted so-called “material red flags” and were required to be reported in Alpine’s SARs. However, the SEC alleged that at least 1,950 of Alpine’s SARs did not report these material red flags. Evidence also showed that Alpine filed SARs on about 1,900 deposits of a security, but did not file SARs upon the subsequent liquidation of deposits.
The SEC also alleged that Alpine did not file approximately 250 SARs in a timely fashion. The SAR Rule provides that a SAR must be filed within 30 calendar days after the date a broker-dealer discovers information that could be “a basis for filing” a SAR. The SEC alleged that from December 2011 through May 2012, Alpine filed approximately 250 SARs after the 30-day time period had elapsed.
The SEC also alleged that in 2012, FINRA performed an examination of Alpine and discovered that the SARs it examined did not conform with FinCEN’s rules. According to the SEC, Alpine did not take any adequate measures to remedy the deficiencies FINRA found. The SEC also found that in 2015, the Office of Compliance Inspections and Examinations (“OCIE”) concluded that Alpine’s compliance program still did not conform to the BSA’s requirements. Evidence showed that even after Alpine received a deficiency letter from OCIE, it still did not take adequate measures to remedy the problems in its compliance program.
The SEC’s complaint requests that the court issue an injunction permanently restraining Alpine from further violating Section 17(a) of the Securities Exchange Act of 1934 and that Alpine be required to pay civil money penalties.
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