FINRA today announced that a FINRA-extended hearing panel expelled Salt Lake City-based broker/dealer Alpine Securities Corp. and ordered it to pay more than $2.3 million in restitution to customers for converting and misusing customer money, engaging in unauthorized trades, charging customers unreasonable fees, and unfair prices for securities transactions, and making an unauthorized withdrawal of capital.
A permanent cease-and-desist order was also issued by the hearing panel. In particular, Alpine Securities was directed to stop converting customer funds or securities and cease all further misuses. This decision resolves the charges against FINRA’s Department of Enforcement.
The decision noted that the issue was whether Alpine Securities had acted correctly in response to the firm’s increasing financial difficulties. Alpine Securities was the United States’ largest clearing firm until 2018. Its profits plummeted in 2018 due to an increase in legal, clearing-related, and compliance expenses. This made it difficult for the company to continue the retail securities business. Alpine Securities claimed that in August 2018, it informed customers that it would cease carrying retail accounts and would impose additional fees on customers who didn’t close their accounts.
It was found that Alpine Securities did not provide adequate notice to customers about its changes in a business plan or additional fees. Customers also had difficulty reaching Alpine Securities because of changes in the firm’s back-office system, reduced staffing, and an insufficient telephone system. Customers often had trouble logging in to their online accounts and couldn’t reach Alpine Securities staff for assistance.
After a 19-day hearing, the panel determined that:
- Alpine Securities’ monthly account fee of $5,000, 1 percent per-day illiquidity/volatility fee, and $1,500 certificate withdrawal fee was unjustifiable. The $5,000 fee was also applied discriminatorily.
- 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 misappropriated customer funds and securities. It removed customer securities it incorrectly considered “abandoned” or “worthless” and seized customer securities to pay excessive and unreasonable fees.
- The firm engaged in unauthorized trading by moving customer securities from the customer accounts to firm accounts without customer authorization. This was purported to cover outstanding debts, and because the firm incorrectly identified the securities as “worthless”, and by moving customer securities from the customer account to the firm’s abandoned securities accounts. The firm also improperly identified these accounts as “abandoned”;
- The firm made an unauthorized capital withdrawal.
Multiple examples were cited in the decision to show that no customer authorized the firm to transfer their securities or seize cash to pay the monthly $5,000 fee. One example: The firm charged a $5,000 monthly fee for the account on December 31, 2018. It then redeemed funds from the linked money market fund of that customer on January 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. The hearing panel also found that some customers had to pay a portion or all of $5,000 to recover their assets. However, no customer was authorized to remove funds or securities in order to cover the unreasonable fee. The majority of customers didn’t know that there was a $5,000 monthly account fee. Nor did they know that the firm would take their cash and securities in order to pay it. The panel ruled that Alpine Securities’ treatment of customers was consistent with its intent.
Unless the decision of the hearing panel is appealed to FINRA’s National Adjudicatory Council, (NAC), or called for review by NAC, the hearing panel’s final decision becomes final after 45-days.
