FINRA announced today that a FINRA extended hearing panel has expelled Salt Lake City-based broker-dealer Alpine Securities Corp. from FINRA membership, and ordered the firm to pay more than $2.3 million in restitution to customers for converting and misusing customer funds and securities, engaging in unauthorized trading, charging customers unfair prices in securities transactions and unreasonable fees, and making an unauthorized capital withdrawal.
The hearing panel also issued a permanent cease and desist order; specifically, Alpine Securities was ordered to cease and desist from converting or misusing customer funds or securities. The decision resolves charges brought by FINRA's Department of Enforcement in August 2019.
As noted in the decision, at issue in this case was whether Alpine Securities acted properly in response to the firm’s mounting financial challenges. Alpine Securities was one of the largest clearing firms in the United States until 2018. Because of an increase in clearing-related, compliance and legal expenses, its profits declined precipitously in 2018, making it difficult to continue its retail securities business. As a result, Alpine Securities contended, in August 2018, it advised customers that it would stop carrying retail accounts and impose additional fees, including a $5,000 monthly account fee, on retail customers who did not close their accounts.
The decision notes that Alpine Securities provided minimal notice to its customers of its change in business plan and additional fees. Furthermore, because of a change in the firm’s back-office system, reduced staffing, and an inadequate telephone system, customers encountered difficulties reaching the firm to ask questions. Many customers encountered difficulties logging into their accounts online and were unable to reach Alpine Securities staff to resolve issues.
After a 19-day hearing, the panel found that:
- Alpine Securities’ $5,000 monthly account fee, 1 percent per day illiquidity and volatility fee, and $1,500 certificate withdrawal fee were unreasonable and the $5,000 fee was applied in a discriminatory manner;
- The firm’s appropriation of customer positions valued at $1,500 or less for one penny per position and 2.5 percent market-making/execution fee resulted in unfair prices and commissions;
- The firm converted and misused customer funds and securities by removing customer securities it improperly deemed “abandoned” and “worthless” and seizing customer securities to cover debits related to excessive and unreasonable fees;
- The firm engaged in unauthorized trading by moving customers’ securities from customer accounts to firm accounts without customer authorization, purportedly to cover outstanding debits and because the firm improperly identified the securities as “worthless,” and by moving customers’ securities from customer accounts to the firm’s abandoned securities accounts without customer authorization because the firm improperly identified the accounts as “abandoned;” and
- The firm executed an unauthorized capital withdrawal.
The decision cited multiple examples demonstrating that none of the firm’s customers authorized the firm’s transfers of their securities or seizures of cash to cover the $5,000 monthly fee. In one example, the firm charged a $5,000 monthly account fee on Dec. 31, 2018, and redeemed funds from that customer’s linked money market fund on Jan. 2, 2019. To cover the unpaid $3,396 (for the $5,000 fee), the firm moved the customer’s marketable securities to the liquidate-to-cover-customer-debits account. Moreover, the hearing panel found some customers paid some or all of the $5,000 fee because they were forced to do so in order to regain possession of their other holdings, but no customer authorized a removal of funds and securities to cover the unreasonable fee. In most instances, the customers were not even aware of the $5,000 monthly account fee, let alone that the firm was taking their cash and securities to cover it. The panel decision asserted, “The firm’s treatment of its customers demonstrates Alpine Securities’ intent.”
Unless the hearing panel's decision is appealed to FINRA's National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel's decision becomes final after 45 days.
About FINRA
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
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