SEC Charges Clearing Firm with Failing to Comply With Anti-Money Laundering Laws

The Securities and Exchange Commission (SEC) charged Alpine Securities Corporation, a Salt Lake City-based clearing firm, with securities law violations related to its anti-money laundering program through its alleged practice of clearing transactions for microcap stocks that were used in manipulative schemes to harm investors.  Based on the allegations contained in the SEC Complaint, Alpine acts as a clearing firm for many microcap over-the-counter (“OTC”) stock transactions.  Since 2011, Alpine has cleared thousands of deposits of microcap securities, most of them involving Scottsdale Capital Advisors Corp. (“Scottsdale”) as the introducing broker, and many of which were used as part of various stock manipulation and other schemes.

To help detect potential securities law and money laundering violations, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms.  The SEC’s complaint alleges that Alpine Securities Corporation routinely and systematically failed to file SARs for stock transactions that it flagged as suspicious and that when it did file SARs, Alpine Securities allegedly frequently omitted the very information that formed the bases for Alpine knowing, suspecting, or having reason to suspect that a transaction was suspicious.

Additionally, the SEC noted that while Alpine had a BSA Compliance Program,  Alpine’s program did not accurately represent what Alpine did in practice. As implemented in practice, Alpine’s policies and procedures did not result in the filing of SARs in the manner required by the BSA and by Alpine’s BSA Compliance Program. Alpine routinely and systematically failed to identify and report suspicious activity in its SAR filings of which it was aware.  To this end, Alpine’s failures included:

  • Systematically omitting from at least 1,950 SARs material, “red-flag” information of which it was aware and was required to report under its own BSA Compliance Program, such as a customer or issuer’s criminal or regulatory history, evidence of stock promotion, or whether a customer was a foreign financial institution, including at least 1,150 SARs which included only the customer name, date of deposit, dollar value of deposit, and the name of the security deposited;
  • Filing SARs only on the deposit of stock in approximately 1,900 instances in which the stock was subsequently liquidated, but failing to file required SARs on subsequent related transactions such as the liquidation, or transfer of funds resulting from the liquidation, even though it had identified the deposit of the security as suspicious; and
  • Failing to file at least 250 SARs within the required 30 days after the date the suspicious activity was detected.

“As alleged in our complaint, by failing to file SARs, Alpine Securities deprived regulators and law enforcement of critically important information often related to trades in microcap securities used to investigate potentially serious misconduct,” said Julie Lutz, Director of the SEC’s Denver Regional Office.

Ultimately, the enforcement  action is a reminder to the financial industry that anti-money laundering programs remain important to the regulators, and the failure to keep an eye on anti-money laundering issues will result in enforcement action.