Second Post in a Two-Part Series
Opinion Stresses Importance of Narrative Sections and Supporting Documentation for SARs
In our first post in this series, we discussed the Securities and Exchange Commission’s (“SEC”) enforcement action against Alpine Securities, Inc. (“Alpine”), a clearing broker that provides services for microcap securities traded in the over-the-counter market, and in particular Alpine’s continued challenge to the SEC’s authority to enforce alleged violations of the Bank Secrecy Act (“BSA”). Judge Denise Cote of the Southern District of New York has repeatedly rejected that argument and, on December 11, granted partial summary judgement in the SEC’s favor, finding in part that the SEC indeed has the authority not only to exam for, but also to enforce, alleged BSA violations.
In this post, we turn to the court’s very detailed findings in support of its grant of summary judgment in favor of the SEC as to most of the case, finding that Alpine committed thousands of violations relating to Suspicious Activity Reports, or SARs. Specifically, the court found as a matter of summary judgment that Alpine was liable, among other things, for thousands of violations of Rule 17a-8 of the Securities Exchange Act of 1934 (“Exchange Act”), which obligates a broker-dealer to comply with certain regulations promulgated under the BSA, including 31 C.F.R. § 1023.320 (“Section 1023.320”), which dictates how a broker-dealer must file SARs.
Although the decision clearly carries significant implications for the SEC’s case against Alpine, it also may serve as a potential bellwether for other broker-dealers who transact microcap securities. The district court’s opinion sets forth extremely detailed findings regarding a variety of SAR-related failures, including alleged failures to (i) provide adequate narrative descriptions in SARs actually filed; (ii) file required SARs; (iii) file SARs on time; and (iv) maintain adequate supporting documentation regarding decisions whether to file a SAR. The opinion also underscores the dangers in AML/BSA compliance of relying on templates and mechanistic or “cookie cutter” processes. It is not enough to simply file SARs defensively – rather, once a decision to file a SAR has been made, each SAR must be supported and contain adequate detail. Continue Reading Court Decision Reinforces SAR Obligations of Penny Stock Clearing Brokers