Types Of SEC Cases: Suspicious Activity Report Violations
SEC Charges Clearing Firm With Thousands Of Suspicious Activity Report Violations
The SEC charged a Salt Lake City based broker-dealer with breaking federal securities laws for thousands of transactions in which it committed suspicious activity report violations.
In its court Complaint, the SEC alleged that Alpine Securities Corporation (“Alpine”), which acts as a self-clearing firm for microcap over-the-counter (“OTC”) stock transactions, broke federal securities laws through the way in which it cleared transactions that were used in manipulative schemes to harm investors.
Broker-dealers and other financial institutions are required to file suspicious activity reports (“SARs”) on any suspicious transactions that are conducted through their businesses.
The SEC’s complaint asserted that Alpine regularly failed to file suspicious activity reports for transactions that it flagged as suspicious.
For transactions where Alpine did file SARs reports, the SEC alleged that Alpine habitually neglected to include any explanation of the information that caused Alpine to determine the basis for the suspicious activity that triggered the SARs submission. The U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has stated that such explanations are critical. Failures to provide such explanations constitute suspicious activity report violations.
Based on these allegations, the SEC charged Alpine with thousands of suspicious activity report violations under the Securities Exchange Act of 1934.
In a press release, the Director of the SEC’s Denver Regional Office stated:
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.
Failure To Follow Compliance Program Contributed To Suspicious Activity Report Violations
Alpine maintained a bank secrecy compliance program that included written supervisory procedures, and formal and informal training for its employees. However, according to the court Complaint, Alpine did not follow its own written procedures.
The SEC alleged that Alpine committed suspicious activity report violations by routinely and systematically failing to identify and report known suspicious activity in its SARs filings. According to the SEC, Alpine’s suspicious activity report violations included:
- Systematically omitting from at least 1,950 SARs material, “red-flag” information that it was aware of 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. This included at least 1,150 SARs that contained only the customer name, date of deposit, dollar value of deposit, and the name of the security deposited;
- SARs were filed in approximately 1,900 instances in which stock was deposited at Alpine. But no SARs were filed for subsequent related transactions such as the liquidations of that stock, or the transfers of funds resulting from those liquidations, even though Alpine had previously identified the deposits of those securities as suspicious; and
- Failing to file at least 250 SARs within the required 30 days after the date the suspicious activity was detected.
Disgorgement And Penalties
The SEC sought permanent injunctions against Alpine that would enjoin the Firm from engaging in the transactions, acts, practices, and courses of business alleged in the court Complaint. The Commission also sought civil penalties under the Exchange Act and any other relief the Court deemed appropriate.
Whistleblowers Can Report Suspicious Activity Report Violations And Money Laundering To The SEC
This case illustrates some types of misconduct that could give rise to SEC whistleblower cases if reported to the Commission through the SEC whistleblower program.
However, the SEC has not made any public statement as to whether this case was itself an actual SEC whistleblower case. The SEC Office of the Whistleblower posts Notices of Covered Action (“NoCA”) for Commission actions where a final judgment or order results in monetary sanctions exceeding $1 million. The NoCA list does not disclose if a particular Enforcement action was brought as the result of an SEC whistleblower case, tip, complaint, or referral being filed with the Commission.
For more information about suspicious activity report violations and money laundering, click on the links below:
- The SEC’s court Complaint in SEC v. Alpine. (External link to the SEC’s website.)
- The SEC’s Press Release announcing the charges in SEC v. Alpine. (External link to the SEC’s website.)