United States Securities and Exchange Commission v. Alpine Securities Corporation
Filing
101
OPINION AND ORDER granting in part and denying in part 68 Motion for Partial Summary Judgment; denying 83 Motion for Summary Judgment: The SECs December 6, 2017 motion for partial summary judgment is granted in part. Alpines January 19, 2018 motion for summary judgment and for judgment on the pleadings is denied, and as further set forth in this Opinion. (Signed by Judge Denise L. Cote on 03/30/2018) (LG)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES SECURITIES AND EXCHANGE :
COMMISSION,
:
:
Plaintiff,
:
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-v:
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ALPINE SECURITIES CORPORATION,
:
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Defendant.
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17cv4179(DLC)
OPINION & ORDER
APPEARANCES
For plaintiff United States Securities and Exchange Commission:
Zachary T. Carlyle
Terry R. Miller
U.S. Securities and Exchange Commission
1961 Stout Street, 17th Floor
Denver, CO 80294
For defendant Alpine Securities Corporation:
Maranda E. Fritz
Thompson Hine LLP
335 Madison Avenue, 12th Floor
New York, NY 10017
Brent R. Baker
Aaron D. Lebenta
Jonathan D. Bletzacker
Clyde Snow & Sessions
One Utah Center
201 South Main Street, Suite 1300
Salt Lake City, Utah 84111
DENISE COTE, District Judge:
This litigation addresses the duty of a broker-dealer to
file suspicious activity reports (“SARs”).
The Securities and
Exchange Commission (“SEC”) alleges that Alpine Securities
Corporation (“Alpine”) has violated 17 C.F.R. § 240.17a-8 (“Rule
17a-8”), promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”), by filing fatally deficient SARs or by
failing to file any SAR when it had a duty to do so.
Rule 17a-8
requires compliance with Bank Secrecy Act (“BSA”) regulations
that, inter alia, govern the filing of SARs by broker-dealers.
Because the SEC alleges several thousand violations of Rule
17a-8, the Court invited the parties to move for partial summary
judgment using exemplar SARs.
The SEC has done so, submitting
several SARs in each of four categories that it alleges reveal
violations of Rule 17a-8.
Alpine has submitted its own motion
for summary judgment and for judgment on the pleadings,
principally arguing that the SEC is without authority to enforce
BSA regulations.
For the reasons that follow, the SEC’s motion
is granted in part and Alpine’s motion is denied.
Background
The following facts are taken from the parties’ evidentiary
submissions.
In the sections of this Opinion addressing each
party’s summary judgment motion, inferences are drawn in favor
of the nonmovant.
Insofar as this Opinion addresses Alpine’s
motion for judgment on the pleadings, solely the operative
pleadings are considered.
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I. Alpine’s Business
Alpine is a broker-dealer that primarily provides clearing
services for microcap securities traded in the over-the-counter
market.1
As a clearing broker, Alpine’s role is principally to
prepare trade confirmations, receive and deliver customers’
funds, maintain books and records, and maintain custody of
customer funds and securities.
An introducing broker, in
contrast, is responsible for opening customer accounts, directly
interacting with customers, and executing trades.
An
introducing broker transmits transaction information to a
clearing broker, which then completes the transaction.
For all of the SARs submitted by the SEC in support of its
motion for partial summary judgment, Alpine acted as the
clearing broker.
For a majority of the transactions at issue in
this suit, and all but one of the transactions at issue in the
SEC’s motion, the introducing broker was Scottsdale Capital
Advisors (“SCA”).
SCA and Alpine are owned by the same
individual.
Alpine has an anti-money laundering (“AML”) program
consisting of written standard procedures (“WSPs”).
Alpine
represents that it updates its WSPs to account for guidance
The term “over-the-counter market” is used to describe “the
trading of securities other than on a formal centralized
exchange” such as the New York Stock Exchange. 4 Hazen,
Treatise on the Law of Securities Regulation § 14:3 (2017).
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3
provided by the Financial Crimes Enforcement Network (“FinCEN”)2
and other regulators; the parties have submitted excerpts from
WSPs dated January 2012, April 2013, August 2014, and October
2015.
Alpine’s WSPs relating to the filing of SARs incorporate
regulatory language from 31 C.F.R. § 1023.320 (“Section
1023.320”), the principal regulation at issue in this case,
which requires broker-dealers such as Alpine to file SARs in
certain circumstances.
The WSPs also incorporate relevant
language from guidance documents published by FinCEN regarding
“red flags” that a broker-dealer should investigate if they
appear in a transaction subject to the SAR regulation.
Alpine Apr. 11, 2013 WSPs at 152.
See
These include the following:
The customer (or a person publicly associated with the
customer) has a questionable background or is the
subject of news reports indicating possible criminal,
civil, or regulatory violations.
. . .
The customer engages in suspicious activity involving
the practice of depositing penny stocks, liquidates
them, and wires proceeds. A request to liquidate
shares may also represent engaging in an unregistered
distribution of penny stocks which may also be a red
flag.
. . .
The customer, for no apparent reason or in conjunction
with other “red flags,” engages in transactions
FinCEN is a division of the Department of the Treasury
(“Treasury”) with primary authority for enforcing the BSA
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4
involving certain types of securities, such as penny
stocks . . . .
Alpine Jan. 5, 2012 WSPs at 40-41.3
across the WSPs.
This list is consistent
In addition, the 2014 WSPs give as an example
of “transactions that may be indicative of money laundering”
those involving “heavy trading in low-priced securities” and
“unusually large deposits of funds or securities.”
Alpine Aug.
29, 2014 WSPs at 180.
Alpine’s AML Officer describes its AML procedures as
follows.
For each transaction cleared by Alpine, Alpine
receives from the introducing broker a “due diligence packet”
containing information about the customer and transaction.
The
due diligence packet is transmitted to an Alpine compliance
analyst, who reviews the transaction based on “various predetermined areas of focus” set by Alpine’s AML managers.
In
addition, Alpine created and maintained a “heightened
supervision list,” which Alpine claims to have created
as an aid to Alpine employees conducting AML review,
and to ensure Alpine’s own enhanced scrutiny of
Alpine contends, in response to several portions of the SEC’s
motion, that its customer was the introducing broker and not the
individual or entity whose securities transaction is reported on
Alpine’s SARs. This contention is plainly meritless. Section
1023.320 uses the term “customer” to mean the party conducting
the transaction that is reported. See 31 C.F.R.
§ 1023.320(a)(2)(ii). Further, Alpine’s WSPs also use the term
“customer” to refer to the individual or entity transacting
securities through Alpine. E.g., Alpine Jan. 5, 2012 WSPs at 40
(describing suspicious types of transactions in which a
“customer” engages).
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transactions. The reasons for inclusion on the list
vary and inclusion on the list, or reference to the
list, did not constitute any finding by Alpine that
there was anything criminally suspicious about the
transaction itself. In filing SARs on this basis, and
highlighting the list in the SAR narrative, Alpine was
providing what it understood to be useful information
to regulators, even though a SAR filing was not
required.
Alpine contends that many of the SARs it filed “did not meet the
requirements for when a SAR must be filed” under Section
1023.320, and were merely “voluntary SARs.”
After an Alpine compliance analyst drafted a SAR, the draft
SAR would be sent to Alpine’s AML Officer, Chief Compliance
Officer, and/or a legal analyst for review.
The review process
could include “additional review of the due diligence packet
. . . , additional research on Google of the parties involved,
research of any stock promotions, and review of trading volume,
including discussions with the trading desk if necessary.”
The SEC’s principal allegation in its complaint is that
Alpine’s AML program and WSPs “did not accurately represent what
Alpine did in practice,” and that in reality, Alpine’s AML
program failed to comply with Section 1023.320, and that Alpine
thereby violated Rule 17a-8.
The complaint divides this general
allegation into four categories of failures.
The SEC alleges
that Alpine has (1) failed to include pertinent information in
approximately 1,950 SARs, (2) failed to file additional or
continuing SARs for certain suspicious patterns of transactions
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in approximately 1,900 instances, (3) filed at least 250 SARs
after the 30-day period for filing had elapsed, and (4) failed
to maintain supporting information for approximately 1,000 SARs
as it is required to do for five years after filing.
II. The Exemplar SARs
The SEC moves for summary judgment on 36 SARs, on a number
of different grounds.
For the purposes of this motion, the SEC
first contends that Alpine filed 14 SARs with deficient
narratives.
The SEC has labeled these SARs A through H, J
through N, and P.
A brief summary of each of the 14 SARs
follows.4
SAR A was filed April 24, 2012.
The SAR A narrative states
that the customer “is a client of [SCA], a firm for which Alpine
Securities provides clearing services.
On or around [date, this
customer] deposited a large quantity (4-,---,--- shares) of
[issuer], a low-priced ($0.11/share) security.
This transaction
The SARs have been submitted under seal. Certain information
in the SARs has been omitted from this Opinion to maintain
confidentiality. Section 1023.320 prohibits broker-dealers and
government entities from “disclos[ing] a SAR or any information
that would reveal the existence of a SAR” in all but a few
enumerated instances. 31 C.F.R. § 1023.320(e). Given that a
major purpose of the BSA is to enable law enforcement to react
quickly to evidence of money laundering, SARs are required to be
kept confidential in part to prevent the subject of a SAR from
learning that their transactions were regarded as suspicious.
This Opinion redacts the exact numbers of shares and transaction
values to balance confidentiality concerns with clarity
regarding the rulings on the transactions at issue.
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amounted to approximately $4,---,---.--.”
The SEC alleges that
SAR A insufficiently conveys why the transaction was suspicious,
is deficient because it fails to note the involvement of a shell
company, and improperly fails to disclose that a foreign entity
participated in the transaction; these last two pieces of
information are contained in the SAR A support file.
SAR B was filed on April 28, 2012.
The narrative portion
of the SAR states that the customer
is a client of [SCA], a firm for which Alpine
Securities provides securities clearing services. On
or around [date, this customer] made a DWAC deposit
representing a large quantity (5,---,--- shares) of
[issuer], a low-priced ($.0176/share) security into
brokerage account [number]. The brokerage account is
maintained through Alpine Securities. Alpine is also
filing a SAR due to the heightened sensitivity
surrounding this client. This proposed transaction is
expected to amount to approximately $8-,---.--. [This
customer] acquired the shares as a partial settlement
of $3,---,---.-- owed to them by the issuer. Alpine
is filing a SAR due to the heightened sensitivity
surrounding the client.
No SAR B support file was submitted.
The SEC alleges that
the SAR B narrative is deficient because it does not
disclose why Alpine thought the transaction was suspicious.
SAR C was filed July 6, 2011.
as follows:
The narrative portion states
The customer
is a client of [SCA], a firm for which Alpine
Securities provides securities clearing services. Due
to the activity within this account, it has been
placed on a Heightened Supervisory list. It is policy
of Alpine to file a SARs [sic] related to each deposit
of securities into it’s [sic] account. On or around
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[date, this customer] deposited a large quantity (5,--,--- shares) of [issuer], a low-priced ($0.019/share)
security. This transaction amounted to approximately
$1--,---.--.
The SAR C support file contains information indicating that a
shell company was involved with the transaction, as well as a
foreign entity; the SEC alleges that the narrative was deficient
because it failed to disclose that information or why Alpine
found the transaction suspicious.
SAR D was filed on January 13, 2012.
The narrative states
in relevant part that
[d]ue to the activity within this account, it has been
placed on a Heightened Supervisory list. It is policy
of Alpine to file a SARs [sic] related to each deposit
of securities into accounts of this nature. On or
around [date, this customer] deposited a large
quantity (2,---,---) of [issuer], a low-priced
($.0062/share) security. This transaction amounted to
approximately $1-,---.--.
The SEC alleges that this SAR was deficient because it failed to
include information contained in the SAR support file that the
customer and its CEO were engaged in litigation with the SEC.
SAR E was filed on August 21, 2012.
The narrative reads in
relevant part that
[o]n or about [date, this customer] deposited a large
quantity (2-,---,--- shares) of [issuer], a low-priced
($0.0096/share) security. This transaction amounted
to approximately $2--,---.--. Alpine Securities is
filing a suspicious activity report because this
deposit involves a large volume of shares of a lowpriced security and also has a high estimated value.
The SAR E support file contains search results indicating that
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the customer had previously pleaded guilty to conspiracy
relating to counterfeiting, and the SEC contends that SAR E was
deficient because it failed to disclose that information.
SAR F was filed on May 5, 2014.
The narrative states as
follows:
[Customer] is a client of [SCA], a firm for which
Alpine Securities provides securities clearing
services. On or around [date, this customer]
deposited a physical stock certificate(s) representing
a large quantity (1-,---,--- shares) of [issuer], a
low-priced ($.0033/share) security into brokerage
account [number]. The brokerage account is maintained
through Alpine Securities. Alpine is filing this SAR
because of the potentially suspicious nature of
depositing large volumes of shares involving a lowpriced security(ies). This proposed transaction is
expected to amount to approximately $4-,---.--. . . .
[This customer] purchased a convertible note for $1-,--.-- pursuant to an [agreement] on [date]. [This
customer] converted $1,---.-- dollars into 1- million
shares. Alpine is also filing a SAR as, shortly
thereafter, the shares are worth about 33 times their
purchase price, which may be potentially suspicious.
The SAR F support file includes information indicating that the
customer had a history of being investigated by the SEC for
misrepresentations, and the SEC alleges that Alpine was required
to include this information.
SAR G was filed on March 8, 2013.
The narrative states
[Customer] is a client of [SCA], a firm for which
Alpine Securities provides securities clearing
services. It is Alpine’s policy to file a SAR for
each security deposited into the account because of
the heightened sensitivity around this particular
account as this account historically makes deposits of
large volumes of low-priced securities. For that
reason this transaction may be suspicious in nature.
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On or around [date, this customer] deposited a
physical stock certificate(s) representing a large
quantity (6,---,--- shares) of [issuer], a low-priced
($0.0062/share) security, into brokerage account
[number]. The brokerage account is maintained through
Alpine Securities. This transaction amounted to
approximately $4-,---.--.
The SAR G support file contains information indicating that no
company website was found for the issuer, that the issuer was
not current in its SEC filings, that the over-the-counter
markets placed a stop signal on the issuer’s stock, and that
there was a history of stock promotion.
The SEC alleges that
this SAR is deficient because Alpine did not include this
information.
SAR H was filed on August 26, 2013.
The narrative states
that the customer
is a client of [SCA], a firm for which Alpine
Securities provides securities clearing services. It
is Alpine’s policy to file a SAR for each security
deposited into the account because of the heightened
sensitivity around this particular account as this
account historically makes deposits of large volumes
of low-priced securities. For that reason this
transaction may be suspicious in nature. On or around
[date, the customer] deposited a physical stock
certificate(s) representing a large quantity (1-,---,-- shares) of [issuer], a low-priced ($0.0006/share)
security, into brokerage account [number]. The
brokerage account is maintained through Alpine
Securities. This transaction amounted to
approximately $7,---.--.
The SEC alleges that SAR H is deficient because it fails to
disclose a history of stock promotion by the issuer and that a
foreign entity was involved in the transaction, both pieces of
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information contained in the SAR H support file.
SAR J was filed on July 16, 2012.
The SAR narrative states
that the customer is a client of SCA, and that
[d]ue to the activity within this account, it has been
placed on a Heightened Supervisory list. It is policy
of Alpine to file a SARs [sic] related to each deposit
of securities into accounts of this nature. On or
around [date, this customer] deposited a large
quantity (6-,---,--- shares) of [issuer], a low-priced
($.0002/share) security. This transaction amounted to
approximately $1-,---.--.
The SEC alleges that SAR J was deficient because the narrative
does not disclose that the stock had been promoted, information
contained in the SAR J support file.
SAR K was filed on May 6, 2013.
The narrative states that
the customer in question is a client of SCA, and that Alpine
files
a SAR for each security deposited into the account
because of the heightened sensitivity around this
particular account as this account historically makes
deposits of large volumes of low-priced securities.
For that reason this transaction may be suspicious in
nature. On or around [date, this customer] deposited
a physical stock certificate(s) representing a large
quantity (1-,---,--- shares) of [issuer], a low-priced
($0.001/share) security, into brokerage account
[number]. The brokerage account is maintained through
Alpine Securities. This transaction amounted to
approximately $1-,---.--.
The SEC alleges that SAR K is deficient because it does not
report that the issuer’s website is not currently functioning,
information contained in the SAR K support file.
SAR L was filed on June 7, 2013.
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The narrative recites
that the customer is a client of SCA, and that it is
Alpine’s policy to file a SAR for each security
deposited into the account because of the heightened
sensitivity around this particular account as this
account historically makes deposits of large volumes
of low-priced securities. For that reason this
transaction may be suspicious in nature. On or around
[date, the customer] deposited a physical stock
certificate(s) representing a large quantity (2,---,-- shares) of [issuer], a low-priced ($0.003/share)
security, into brokerage account [number]. The
brokerage account is maintained through Alpine
Securities. This transaction amounted to
approximately $8,---.--.
The SEC alleges that SAR L is deficient because it does not
report that the issuer’s corporate registration was in default,
information contained in the SAR L support file.
SAR M was filed on April 17, 2013.
The SAR M narrative
reports that the customer is client of SCA and that
[i]t is Alpine’s policy to file a SAR for each
security deposited in to the account because of the
heightened sensitivity around this particular account
as this account historically makes deposits of large
volumes of low-priced securities. For that reason
this transaction may be suspicious in nature. On or
around [date, this customer] deposited a physical
stock certificate(s) representing a large quantity
(5,---,--- shares) of [issuer], a low-priced
($0.0159/share) security, into brokerage account
[number]. The brokerage account is maintained through
Alpine Securities. This transaction amounted to
approximately $1-,---.--. [This customer] acquired
the shares from a promissory note dated [date] in the
principal amount of $1-,---.-- issued to [the
customer]. The note is specifically disclosed in 10Q
filed [date] period ending [date]. [This customer]
converted the entire note into 5,---,--- shares
pursuant to the notice of conversion dated [date].
The SEC alleges that because the SAR M narrative does not report
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that the average shares traded per day over the last three
months for the security was 59,108, roughly one hundred times
smaller than the single deposit reported in SAR M, SAR M is
deficient.
SAR N was filed on June 6, 2013.
The SAR narrative states
that the customer is a client of SCA, and that on a given date,
the customer
deposited a physical stock certificate(s) representing
a large quantity (6-,---,--- shares) of [issuer], a
low-priced ($0.0055/share) security into brokerage
account [number]. The brokerage account is maintained
through Alpine Securities. The entity is a foreign
broker-dealer. Alpine is filing this SAR because of
the potentially suspicious nature of depositing large
volumes of shares involving a low-priced
security(ies). This transaction amounted to
approximately $3--,---.--. [This customer] deposited
the shares for the benefit of [the customer’s] subaccount [name] who is a resident of Panama.
The SEC alleges that SAR N is deficient because it fails to
report that the security at issue had a trading volume of around
100,000 shares per day, more than 600 times smaller than the
single deposit reported in the SAR, information contained in the
support file.
SAR P was filed on March 6, 2014.
The SAR P narrative
states that the customer is a client of SCA, and that on a given
date the customer
deposited a physical stock certificate(s) representing
a large quantity (5--,--- shares) of [issuer], a lowpriced ($.55/share) security into brokerage account
[number]. The brokerage account is maintained through
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Alpine Securities. Alpine is filing this SAR because
of the potentially suspicious nature of depositing
large volumes of shares involving a low-priced
security(ies). This proposed transaction is expected
to amount to approximately $2--,---.--. The shares
stem from debt owed to [the customer] from the issuer.
[This customer] converted a $2-,---.-- portion of the
debt into the 5--,--- shares. Alpine is also filing a
SAR as the shares represent a potential large return
on the investment, which may be suspicious.
The SEC alleges that SAR P is deficient because it fails to
report that the average trading volume is 10,971, roughly fifty
times smaller than the deposit reported in the SAR, information
found in the support file.
The SEC also moves for summary judgment on the ground that
Alpine failed to file necessary SARs for three of its customers
who engaged in patterns of deposit-and-liquidation transactions
that are suspicious as a matter of law; the SEC refers to these
customers as Customers A, B, and C.
The SEC has submitted the
SARs that Alpine did file as Customer A SARs 1 through 5,
Customer B SARs 1 through 5, and Customer C SARs 1 and 2.
Each
of these SARs notes that the customer has deposited a large
number of certificates of a penny stock.
The SEC has also
submitted charts that it alleges represent subsequent sales of
shares in that same penny stock.
The SEC alleges that the
pattern of a large deposit of securities followed by successive
sales of a large proportion of that deposit required Alpine to
file SARs reporting those sales.
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The SEC further moves for summary judgment on five SARs it
alleges were filed late; these SARs are labeled Late SARs 1
through 5.
Each of these five SARs was filed between 189 and
211 days after the underlying transaction.
Lastly, the SEC moves for summary judgment on five SARs for
which it alleges Alpine has not maintained support files for
five years, as it is required to do.
Missing File SARs 1 through 5.
These SARs are labeled
The SEC has submitted the SARs
and alleges that Alpine did not produce any support files for
those SARs when requested to do so by the SEC in 2016.
Procedural History
The SEC filed this action on June 5, 2017.
On August 3,
Alpine moved to dismiss under Rules 12(b)(2) and 12(b)(3) for
lack of personal jurisdiction and improper venue, or to transfer
venue to the District of Utah under 28 U.S.C. § 1404(a).
The
August 3 motion to dismiss or to transfer was denied at a
conference on September 15.
Alpine answered the complaint on September 29, 2017, and
filed an amended answer on October 27.
On November 13, the SEC
filed a motion to strike affirmative defenses of estoppel,
waiver, and unclean hands asserted in Alpine’s amended answer.
The November 13 motion to strike was granted January 12, 2018.
A Scheduling Order of September 15, 2017 set the discovery
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schedule, which is ongoing.
Fact discovery was scheduled to
conclude on March 30, 2018.
Expert reports and disclosures of
expert testimony were due to be served by April 20, and
identification of rebuttal experts and disclosure of their
expert testimony to be served by May 11.
Any motion for summary
judgment, or a joint pretrial order, is due July 13, 2018.5
As invited by the Court, the SEC moved for partial summary
judgment on December 6, 2017.
In connection with its motion,
and pursuant to an Order of December 13, the SEC submitted 36
SARs under seal as examples of the four categories of Rule 17a-8
violations it asserts.
on February 9, 2018.
The SEC’s motion became fully submitted
Alpine moved for summary judgment and for
judgment on the pleadings on January 19.
Alpine’s motion became
fully submitted on February 26.
Discussion
The parties have cross-moved for summary judgment.
“On a
motion for summary judgment, the court must resolve all
ambiguities and draw all permissible factual inferences in favor
of the party against whom summary judgment is sought.”
Dufort
On March 21, the parties jointly sought to extend this schedule
by 21 days. The Court denied the motion on March 22 insofar as
it sought to extend the July 13 date on which summary judgment
motions or pretrial materials are due, but permitted the parties
to extend the interim dates on consent.
5
17
v. City of New York, 874 F.3d 338, 347 (2d Cir. 2017) (citation
omitted).
“For the court to grant summary judgment, the movant
must show that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.”
Nick’s Garage, Inc. v. Progressive Cas. Ins. Co., 875 F.3d 107,
113 (2d Cir. 2017) (citation omitted).
In assessing a motion for judgment on the pleadings under
Rule 12(c), Fed. R. Civ. P., the court “accept[s] all factual
allegations in the complaint as true and construe[s] them in the
light most favorable to the non-moving party.”
Latner v. Mt.
Sinai Health Sys., Inc., 879 F.3d 52, 54 (2d Cir. 2018).
This
is the “same standard as that applicable to a motion under Rule
12(b)(6).”
Mantena v. Johnson, 809 F.3d 721, 727 (2d Cir. 2015)
(citation omitted).
An agency to which Congress has delegated authority to
administer a statute is entitled to judicial deference to its
views of the statute it administers.
If an agency promulgates a
regulation and complies with the notice-and-comment procedures
defined in the Administrative Procedure Act (“APA”), 5 U.S.C.
§ 500, et seq., a court reviews the regulation under the twopart framework established in Chevron U.S.A. Inc. v. Nat. Res.
Def. Council, Inc., 467 U.S. 837 (1984).
Formal adjudications
by an agency are also binding on a court if the agency view
passes Chevron review.
See, e.g., ABF Freight Sys., Inc. v.
18
NLRB, 510 U.S. 317, 324 (1994).
Giving an agency the power to
regulate via adjudication as well as via rulemaking implies the
power to govern conduct prospectively, via rules and
retrospectively, in the form of adjudications.
See SEC v.
Chenery Corp., 332 U.S. 194, 201-02 (1947); see also Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204, 221 (1988) (Scalia, J.,
concurring) (defining adjudication as “that form of
administrative action where retroactivity is not only
permissible but standard”).
“Step One of Chevron analysis requires the court to
determine whether Congress has directly spoken to the precise
question at issue.
If the intent of Congress is clear, that is
the end of the matter; for the court, as well as the agency,
must give effect to the unambiguously expressed intent of
Congress.”
Lawrence + Memorial Hosp. v. Burwell, 812 F.3d 257,
264 (2d Cir. 2016) (citation omitted).
If the statute is
ambiguous or silent on the question, however, “[t]he question
for the reviewing court . . . is whether the agency’s answer to
the interpretive question is based on a permissible construction
of the statute.”
Catskill Mountains Chapter of Trout Unlimited,
Inc. v. EPA, 846 F.3d 492, 520 (2d Cir. 2017) (citation
omitted).
“The agency’s view need not be the only possible
interpretation, nor even the interpretation deemed most
reasonable by the courts,” so long as the interpretation is
19
“reasonable” and not “not arbitrary, capricious, or manifestly
contrary to the statute.”
Id. (emphasis in original) (citation
omitted).
Similarly, a court must defer to an agency’s
“interpretation of its own regulations unless that
interpretation is plainly erroneous or inconsistent with the
regulation.”
Nat. Res. Def. Council v. EPA, 808 F.3d 556, 569
(2d Cir. 2015) (citation omitted).
This is true even if the
agency’s interpretation of its regulation was not promulgated
through formal procedures prescribed by the APA, but, for
example, is advanced in a legal brief.
See Talk Am., Inc. v.
Mich. Bell Tel. Co., 564 U.S. 50, 59 (2011).
This kind of
deference is referred to as “Auer deference” after Auer v.
Robbins, 519 U.S. 452 (1997), but it is “warranted only when the
language of the regulation is ambiguous.”
Cty., 529 U.S. 576, 588 (2000).
Christensen v. Harris
If a regulation is unambiguous,
the clear meaning of the regulation controls and may not be
overridden by an inconsistent agency interpretation.
See id.
An agency may announce an interpretation of a statute it
administers in a variety of ways that do not receive Chevron
deference but that nonetheless receive “a respect proportional
to [their] power to persuade.”
United States v. Mead Corp., 533
U.S. 218, 235 (2001) (quoting Skidmore v. Swift & Co., 323 U.S.
134, 140 (1944)).
This level of deference is referred to as
20
Skidmore deference.
A less formal agency interpretation of this
nature is often referred to as “guidance,” although whether it
is entitled to Auer deference or merely Skidmore deference
depends both on the ambiguity of the agency regulation and on
whether the guidance is interpreting the statute, in which case
it is merely persuasive, or the regulation, in which case Auer
deference may be appropriate.
See, e.g., Alaska Dep’t of Envtl.
Conservation v. EPA, 540 U.S. 461, 487-88 (2004); Christensen,
529 U.S. at 588.
The weight given to a guidance document of
this sort “in turn depends on, inter alia, the thoroughness
evident in its consideration, the validity of its reasoning, and
its consistency with earlier and later pronouncements.”
Catskill Mountains, 846 F.3d at 509 (citation omitted).
This
kind of agency action can take many forms, including agency
opinion letters, policy statements, agency manuals, and
enforcement guidelines.
See New York v. Next Millennium Realty,
LLC, 732 F.3d 117, 125 n.8 (2d Cir. 2013).
I. The SAR Regulatory Framework
The Exchange Act delegates to the SEC broad authority to
regulate brokers and dealers in securities.
§ 78b; id. § 78q-1.
See 15 U.S.C.
A broker is “any person engaged in the
business of effecting transactions in securities for the account
of others.”
Id. § 78c(a)(4)(A).
A dealer is “any person
engaged in the business of buying and selling securities . . .
21
for such person’s own account through a broker or otherwise.”
Id. § 78c(a)(5)(A).
Brokers and dealers may not engage in the
business of buying and selling securities unless they register
with the SEC.
See id. § 78o.
Because of their importance to the national markets,
broker-dealers are subject to a number of regulations, both
state and federal, administered by a variety of organizations.
See generally 1 Hazen, Treatise on the Law of Securities
Regulation § 1:12 (2017).
Although the SEC is the primary
federal regulator of broker-dealers, SEC oversight is
“supplemented by a system of self regulation” also created by
the Exchange Act.
4 id. § 14:7.
The self-regulatory
organization (“SRO”) that governs broker-dealers such as Alpine
is the Financial Industry Regulatory Authority (“FINRA”), the
successor organization to the National Association of Securities
Dealers (“NASD”).
See generally Fiero v. FINRA, Inc., 660 F.3d
569, 571 & n.1 (2d Cir. 2011).
Section 17(a) of the Exchange Act mandates that
[e]very . . . registered broker or dealer. . . shall
make and keep for prescribed periods such records,
furnish such copies thereof, and make and disseminate
such reports as the Commission, by rule, prescribes as
necessary or appropriate in the public interest, for
the protection of investors, or otherwise in
furtherance of the purposes of this chapter.
15 U.S.C. § 78q(a)(1).
In 1981, the SEC promulgated with notice
22
and comment Rule 17a-8, which provides that “[e]very registered
broker or dealer . . . shall comply with the reporting,
recordkeeping and record retention requirements of chapter X of
title 31 of the Code of Federal Regulations.”
§ 240.17a-8.
17 C.F.R.
That title contains regulations promulgated by the
Treasury and FinCEN under the BSA.
FinCEN and the Treasury promulgated, with notice and
comment, Section 1023.320, which defines a broker-dealer’s
obligation to file SARs.
In pertinent part, it reads as
follows:
A transaction requires reporting under the terms of
this section if it is conducted or attempted by, at,
or through a broker-dealer, it involves or aggregates
funds or other assets of at least $5,000, and the
broker-dealer knows, suspects, or has reason to
suspect that the transaction (or a pattern of
transactions of which the transaction is a part):
(i) Involves funds derived from illegal activity or is
intended or conducted in order to hide or disguise
funds or assets derived from illegal activity
(including, without limitation, the ownership, nature,
source, location, or control of such funds or assets)
as part of a plan to violate or evade any Federal law
or regulation or to avoid any transaction reporting
requirement under Federal law or regulation;
(ii) Is designed, whether through structuring or other
means, to evade any requirements of this chapter or of
any other regulations promulgated under the Bank
Secrecy Act;
(iii) Has no business or apparent lawful purpose or is
not the sort in which the particular customer would
normally be expected to engage, and the broker-dealer
knows of no reasonable explanation for the transaction
after examining the available facts, including the
23
background and possible purpose of the transaction; or
(iv) Involves use of the broker-dealer to facilitate
criminal activity.
31 C.F.R. § 1023.320(a)(2) (emphasis supplied).
The regulations define “transaction” broadly.
The
definition states that a transaction is
a purchase, sale, loan, pledge, gift, transfer,
delivery, or other disposition, and with respect to a
financial institution includes a deposit, withdrawal,
transfer between accounts, exchange of currency, loan,
extension of credit, purchase or sale of any stock,
bond, certificate of deposit, or other monetary
instrument, security, contract of sale of a commodity
for future delivery, option on any contract of sale of
a commodity for future delivery, option on a
commodity, purchase or redemption of any money order,
payment or order for any money remittance or transfer,
purchase or redemption of casino chips or tokens, or
other gaming instruments or any other payment,
transfer, or delivery by, through, or to a financial
institution, by whatever means effected.
Id. § 1010.100(bbb)(1) (emphasis supplied).
These regulations
are found in chapter X of title 31 of the Code of Federal
Regulations, so compliance is required by Rule 17a-8.
As is plain from its text, Section 1023.320 requires
reporting in broadly defined situations.
In targeting all
possible types of illegal activity, the regulation covers a
large range of conduct such that it is susceptible to a number
of interpretations.
Due to the breadth of Section 1023.320,
FinCEN’s interpretation of Section 1023.320 as expressed in
guidance and other documents is entitled to deference and is
24
binding so long as it is reasonable and is consistent with
earlier and later pronouncements.
The BSA’s regulations do not define “pattern of
transactions.”
In the notice of final rule published in the
Federal Register with the implementation of Section 1023.320,
however, FinCEN explained that
[t]he language in the rule requiring the reporting of
patterns of transactions is not intended to impose an
additional reporting burden on broker-dealers.
Rather, it is intended to recognize the fact that a
transaction may not always appear suspicious standing
alone. In some cases, a broker-dealer may only be
able to determine that a suspicious transaction report
must be filed after reviewing its records, either for
the purposes of monitoring for suspicious
transactions, auditing its compliance systems, or
during some other review. The language relating to
patterns of transactions is intended to make explicit
the requirement that FinCEN believes implicitly exists
in the suspicious transaction reporting rules for
banks: if a broker-dealer determines that a series of
transactions that would not independently trigger the
suspicion of the broker-dealer, but that taken
together, form a suspicious pattern of activity, the
broker-dealer must file a suspicious transaction
report.
FinCEN, Amendment to the Bank Secrecy Act Regulations-Requirement that Brokers or Dealers in Securities Report
Suspicious Transactions, 67 Fed. Reg. 44,048, 44,051 (July 1,
2002) (“FinCEN Section 1023.320 Notice”) (emphasis supplied).
The current form of Section 1023.320 was promulgated in
2002, after the USA PATRIOT ACT of 2001 significantly increased
the scope of the Bank Secrecy Act.
25
See USA PATRIOT ACT of 2001,
Pub. L. No. 107-56, 115 Stat. 272 (“Patriot Act”).
As relevant
here, Congress specifically found that money laundering was
being used to finance terrorist organizations, and sought to
increase reporting of transactions that potentially involved
money laundering.
See id., sec. 302, 115 Stat. at 296-98.
The Treasury has delegated enforcement of the BSA to
FinCEN, and FinCEN has issued a number of guidance documents
interpreting Section 1023.320.
See Treasury Order 180-01,
Financial Crimes Enforcement Network, 67 Fed. Reg. 64,697 ¶ 3
(Oct. 21, 2002).
In guidance documents, FinCEN indicates that
SARs should include the who, what, when, why, where, and how of
the suspicious activity (the “Five Essential Elements”).6
See
SAR Narrative Guidance at 3-6; SAR Activity Review, Issue 22, at
39-40;7 2012 SAR Instructions at 110-12.8
The who encompasses
FinCEN guidance refers to the who, what, where, when, and why,
as the “five essential elements” of a SAR narrative, but also
adds that a sixth element, “the method of operation (or how?)[,]
is also important.” FinCEN, Guidance on Preparing a Compete &
Sufficient Suspicious Activity Report Narrative 3 (2003), https:
//www.fincen.gov/sites/default/files/shared/
sarnarrcompletguidfinal_112003.pdf (“SAR Narrative Guidance”).
For clarity, this Opinion follows FinCEN in calling these the
Five Essential Elements of a SAR.
7 FinCEN, The SAR Activity Review: Trends, Tips & Issues, Issue
22 (Oct. 2012), https://www.fincen.gov/sites/default/files/
shared/sar_tti_22.pdf.
6
FinCEN, FinCEN Suspicious Activity Report (FinCEN SAR)
Electronic Filing Instructions (2012), https://www.fincen.gov/
sites/default/files/shared/FinCEN%20SAR%20
ElectronicFilingInstructions-%20Stand%20Alone%20doc.pdf.
8
26
the “occupation, position or title . . . , and the nature of the
suspect’s business(es),” the what includes “instruments or
mechanisms involved” such as wire transfers, shell companies,
and “bonds/notes,” and the why includes “why the activity or
transaction is unusual for the customer; consider[ing] the types
of products and services offered by the [filer’s] industry, and
the nature and normally expected activities of similar
customers.”
SAR Narrative Guidance at 3-4.
The obligation to
identify involved parties extends to all “subject(s) of the
filing,” and “filers should include as much information as is
known to them about the subject(s).”
SAR Activity Review, Issue
22, at 39.
Examples of relevant information listed by FinCEN include
“bursts of activities within a short period of time,” SAR
Narrative Guidance at 5, whether foreign individuals, entities,
or jurisdictions are involved, 2012 SAR Instructions at 112, or
the involvement of unregistered businesses, SAR Narrative
Guidance at 5.
A common scenario identified by FinCEN as
suspicious involves a “[s]ubstantial deposit . . . of very lowpriced and thinly traded securities” followed by the
“[s]ystematic sale of those low-priced securities shortly after
27
being deposited.”
SAR Activity Review, Issue 15, at 24.9
FinCEN
has explained that “[t]ransactions like these are red flags for
the sale of unregistered securities, and possibly even fraud and
market manipulation,” and firms need to “investigate[]
thoroughly” such questions as “the source of the stock
certificates, the registration status of the shares, how long
the customer has held the shares and how he or she happened to
obtain them, and whether the shares were freely tradable.”
Id.
To implement its suspicious activity reporting system,
FinCEN issued, after notice and comment, two forms relevant to
Alpine’s conduct.
The first, form SAR-SF, was mandatory from
2002 until 2012 (“2002 Form”).10
The second became mandatory in
2012 (“2012 Form”).11
The 2002 Form contains instructions and a checklist that
directs filers to include a number of pieces of information when
filing a SAR.
The instructions state that the narrative
section of the report is critical. The care with
which it is completed may determine whether or not the
described activity and its possible criminal nature
are clearly understood by investigators. Provide a
FinCEN, The SAR Activity Review: Trends, Tips & Issues, Issue
15 (May 2009), https://www.fincen.gov/sites/default/files/shared
/sar_tti_15.pdf.
10 See FinCEN, Proposed Collection, Comment Request, Suspicious
Activity Report by the Securities and Futures Industry, 67 Fed.
Reg. 50,751 (Aug. 5, 2002).
9
See FinCEN, Proposed Collection, Comment Request, Bank Secrecy
Act Suspicious Activity Report Database Proposed Data Fields, 75
Fed. Reg. 63,545 (Oct. 15, 2010).
11
28
clear, complete and chronological description . . . of
the activity, including what is unusual, irregular or
suspicious about the transaction(s), using the
checklist below as a guide.
2002 Form at 4 (emphasis in original).
The checklist has 22
items, each directing filers to include a specific type of
information.
The following items are particularly relevant to
the present motions:
h. Indicate whether the suspicious activity is an
isolated incident or relates to another transaction.
i. Indicate whether there is any related litigation.
If so, specify the name of the litigation and the
court where the action is pending.
. . .
l. Indicate whether U.S. or foreign currency and/or
U.S. or foreign negotiable instrument(s) were
involved. If foreign, provide the amount, name of
currency, and country of origin.
. . .
o. Indicate any additional account number(s), and any
foreign bank(s) account number(s) which may be
involved.
p. Indicate for a foreign national any available
information on subject’s passport(s), visa(s), and/or
identification card(s). Include date, country, city
of issue, issuing authority, and nationality.
q. Describe any suspicious activities that involve
transfer of funds to or from a foreign country, or
transactions in a foreign currency. Identify the
country, sources and destinations of funds.
Id.
29
Beginning in 2012, FinCEN switched to an e-file system.12
The SEC has submitted excerpts from a document entitled “FinCEN
Suspicious Activity Report (FinCEN SAR) Electronic Filing
Requirements.”
This document, dated October 2012, directs that
“[f]ilers must provide a clear, complete, and concise
description of the activity, including what was unusual or
irregular that caused suspicion.”
2012 SAR Instructions at 111.
The document contains a checklist similar in all material
respects to the checklist on the 2002 Form.13
See id. at 111-12.
A broker-dealer is required to “maintain a copy of any SAR
filed and the original or business record equivalent of any
supporting documentation for a period of five years from the
date of filing the SAR.”
31 C.F.R. § 1023.320(d).
If multiple
broker-dealers are involved in a transaction, “[t]he obligation
to identify and properly and timely to report a suspicious
transaction rests with each broker-dealer involved . . .
provided that no more than one report is required to be filed by
the broker-dealers involved in a particular transaction (so long
as the report filed contains all relevant facts).”
Id.
SARs submitted by the SEC filed on the 2012 Form do not
themselves contain instructions. The parties have not indicated
in their submissions whether FinCEN’s e-filing website contains
such instructions on the screens where SARs are submitted.
13 The 2012 Form does not state, however, that filers should
indicate additional bank account numbers or foreign bank account
numbers that may be involved.
12
30
§ 1023.320(a)(3).
SARs must be filed “no later than 30 calendar days after
the date of the initial detection by the reporting broker-dealer
of facts that may constitute a basis for filing a SAR under this
section.”
Id. § 1023.320(b)(3).
Where no suspect of the
potentially illegal activity can be immediately identified, a
broker-dealer may take an additional 30 days to attempt to
identify a suspect.
Id. § 1023.320(b)(3).
In addition, “[a]
broker-dealer may also file with FinCEN a report of any
suspicious transaction that it believes is relevant to the
possible violation of any law or regulation but whose reporting
is not required by this section.”
Id. § 1023.320(a)(1).
Broker-dealers are required to file SARs for continuing
activity that follows the original SAR.
For instance, FinCEN
guidance provides that a “continuing report should be filed on
suspicious activity that continues after an initial FinCEN SAR
is filed,” and that “[f]inancial institutions . . . may file
SARs for continuing activity after a 90 day review with the
filing deadline being 120 days after the date of the previously
related SAR filing.”
2012 SAR Instructions at 84.
“Continuing
reports must be completed in their entirety” and the narrative
section “should include all details of the suspicious activity
for the 90-day period encompassed by the report, and only such
data from prior reports as is necessary to understand the
31
activity.”
Id.
Moreover, “[a]n amended report must be filed on
a previously-filed FinCEN SAR . . . whenever new data about a
reported suspicious activity is discovered and circumstances
will not justify filing a continuing report.”
Id. at 83.
Finally, broker-dealers are required to maintain written
AML policies that define how the broker-dealer detects potential
money laundering and files SARs.
This requires broker-dealers
to engage in “ongoing customer due diligence,” which includes
(i) Understanding the nature and purpose of customer
relationships for the purpose of developing a customer risk
profile; and
(ii) Conducting ongoing monitoring to identify and report
suspicious transactions and, on a risk basis, to maintain
and update customer information . . . includ[ing]
information regarding the beneficial owners of legal entity
customers.
31 C.F.R. § 1023.210(b)(5).14
These duties to maintain ongoing
reviews of customers and transactions are in addition to a
broker-dealer’s obligation to verify the identities of its
customers such that it is able “to form a reasonable belief that
it knows the true identity of each customer” based on
FINRA similarly requires broker-dealers to “use reasonable
diligence, in regard to the opening and maintenance of every
account, to know (and retain) the essential facts concerning
every customer and concerning the authority of each person
acting on behalf of such customer.” FINRA Rule 2090 (2012),
http://finra.complinet.com/en/display/display_main.html?rbid=
2403&element_id=9858. FINRA Rule 2090 relates to the obligation
of broker-dealers to be aware of their customers’ investment
objectives when recommending securities. See generally 5 Hazen,
Treatise on the Law of Securities Regulation § 14:138 (2017).
14
32
the broker-dealer’s assessment of the relevant risks,
including those presented by the various types of
accounts maintained by the broker-dealer, the various
methods of opening accounts provided by the brokerdealer, the various types of identifying information
available and the broker-dealer’s size, location and
customer base.
Id. § 1023.220(a)(2).
In 2002, FinCEN delegated its BSA authority over brokerdealer AML programs to the SEC.
FinCEN, Anti-Money Laundering
Programs for Financial Institutions, 67 Fed. Reg. 21,110 (Apr.
29, 2002) (interim final rule effective April 24, 2002); see
also 31 C.F.R. § 1023.210(c) (requiring a broker-dealer AML
program to “[c]ompl[y] with the rules, regulations, or
requirements of its self-regulatory organization governing such
programs”).
The SEC then delegated this authority to SROs, and
approved AML best practices submitted by the SROs.
See SEC,
Order Approving Proposed Rule Changes Relating to Anti-Money
Laundering Compliance Programs, 67 Fed. Reg. 20,854 (Apr. 26,
2002).
FINRA Rule 3310 currently governs its members’ AML
programs.
See SEC, Order Approving Proposed Rule Change to
Adopt FINRA Rule 3310 (Anti-Money Laundering Compliance Program)
in the Consolidated FINRA Rulebook, SEC Release No. 60645, 2009
WL 2915633 (Sept. 10, 2009).
Rule 3310 requires member firms to
have a written AML policy that receives approval from FINRA’s
senior management and that “[e]stablish[es] and implement[s]
policies, procedures, and internal controls reasonably designed
33
to achieve compliance with the Bank Secrecy Act and the
implementing regulations thereunder.”
FINRA Rule 3310 (2015).15
II. Alpine Motion for Summary Judgment and for Judgment on the
Pleadings
Alpine moves for summary judgment principally on the ground
that the SEC is not authorized to enforce BSA regulations via
Rule 17a-8.
Alpine also moves for judgment on the pleadings on
the ground that the SEC’s complaint fails to plead that Alpine
willfully or recklessly violated BSA regulations.
For the
reasons that follow, Alpine’s motion for summary judgment and
for judgment on the pleadings is denied.
A. Alpine Motion for Summary Judgment
Alpine makes two related arguments in support of summary
judgment.
First, it argues that in the instant action the SEC
is suing under the BSA, a statute it is not authorized to
enforce.
Because the gravamen of the SEC’s complaint is
Alpine’s alleged failure to comply with the BSA SAR regulation,
Alpine argues that this suit is not actually brought under Rule
17a-8, despite what the complaint itself says.
Alpine is
incorrect.
Found at http://finra.complinet.com/en/display/display_main.
html?rbid=2403&element_id=8656. The current version of Rule
3310 was adopted in 2015. The version of the rule that was
effective between 2011 and 2015 is materially the same. See
FINRA Rule 3310 (2011), http://finra.complinet.com/en/display/
display_main.html?rbid=2403&record_id=11859.
15
34
The SEC promulgated Rule 17a-8.
The plain text of that
rule requires broker-dealers to “comply with the reporting,
recordkeeping and record retention requirements of chapter X of
title 31 of the Code of Federal Regulations.”
§ 240.17a-8.
17 C.F.R.
Alpine does not contest that the SEC has
enforcement authority to pursue violations of the Exchange Act.
Since this suit is brought pursuant to the Exchange Act,
Alpine’s first argument fails.
This leads to Alpine’s second argument.
Alpine contends
that even if this suit is brought under Rule 17a-8, that rule is
an impermissible interpretation of Section 17(a) of the Exchange
Act, 15 U.S.C. § 78q(a).
with Rule 17a-8.
Alpine raises two principal issues
First, Alpine argues that the rule itself is
not a reasonable interpretation of the Exchange Act, and is
therefore invalid.16
Second, Alpine argues that to the extent
Rule 17a-8 was ever a valid interpretation of the statute, the
failure to update the regulation or to engage in notice-andcomment procedures after the significant 2002 revisions to the
To some extent, Alpine’s papers can be read to assert that the
SEC lacks jurisdiction to enforce suspicious activity reporting
regulations. “[T]he distinction between jurisdictional and
nonjurisdictional interpretations” of statutory ambiguity is “a
mirage.” City of Arlington v. FCC, 569 U.S. 290, 297 (2013).
Accordingly, insofar as the question is whether the Exchange Act
confers jurisdiction on the SEC over suspicious transaction
reporting, the same framework of analysis supplies the rule of
decision. See New York v. FERC, 783 F.3d 946, 953 (2d Cir.
2015).
16
35
relevant part of Title 31 precludes the SEC from enforcing Rule
17a-8 against Alpine for its allegedly deficient SARs.
Each
contention is addressed in turn.
The validity of an agency’s regulation interpreting a
statute is judged by the familiar two-part test derived from
Chevron.
The Exchange Act provides that entities, including
brokers and dealers, subject to the Exchange Act
shall make and keep for prescribed periods such
records, furnish such copies thereof, and make and
disseminate such reports as the Commission, by rule,
prescribes as necessary or appropriate in the public
interest, for the protection of investors, or
otherwise in furtherance of the purposes of this
chapter.
15 U.S.C. § 78q(a)(1) (emphasis supplied).
Under Chevron step
one, this regulation expressly commits to the SEC discretion to
determine which reports are “necessary or appropriate” to
further the goals of the Exchange Act, and empowers the SEC to
promulgate rules defining recordkeeping and reporting
obligations of broker-dealers.
Id.
This express delegation of rulemaking authority satisfies
the Chevron test.
Even if it were necessary to proceed to
Chevron’s step two, the SEC has easily shown that Rule 17a-8,
which requires compliance with certain BSA regulations, is a
reasonable interpretation of Section 17(a) of the Exchange Act.
It has shown that the duty to file a SAR is reasonably
“necessary or appropriate in the public interest, for the
36
protection of investors, or otherwise in furtherance of the
purposes of” the Exchange Act.
Id.
SARs are reports that
assist law enforcement in detecting whether transactions have
“no apparent or lawful purpose,” or involve “funds derived from
illegal activity,” “structuring or other means” of evading
requirements of the BSA, or the “facilitat[ion] of illegal
activity.”
31 C.F.R. § 1023.320(a)(2).
The purposes of the
Exchange Act are to protect the national securities market and
“safeguard[] . . . securities and funds related thereto.”
U.S.C. § 78b; see also 15 U.S.C. § 78q-1.
15
It is reasonable to
conclude that the same reports that help the Treasury target
illegal securities transactions for its purposes also help
protect investors by providing information to the SEC that may
be relevant to whether a stock or a market is being manipulated
in violation of the nation’s securities laws.
Alpine resists this conclusion by arguing that the SEC may
not incorporate the regulations of another agency.
Not
surprisingly, Alpine does not cite any authority to support that
counter-intuitive proposition.
Instead, Alpine presents a
parade of horribles -- such as the SEC enforcing broker-dealers’
tax-filing obligations through Section 17(a) -- or relies on
cases where a statute expressly excluded certain remedies or
actions.
See, e.g., United States ex rel. Lissack v. Sakura
Global Capital Mkts., Inc., 377 F.3d 145, 152 (2d Cir. 2004)
37
(False Claims Act has express bar stating that it does not apply
to claims brought under the Internal Revenue Code.).
Moreover, neither the Exchange Act nor the BSA expressly
precludes joint regulatory authority by FinCEN and the SEC over
the reporting of potentially suspicious transactions.
And
Alpine itself cites at least one case where Congress’s silence
regarding whether a state remedy precluded a concurrent federal
remedy was held not to bar concurrent remedies.
See Adams Fruit
Co. v. Barrett, 494 U.S. 638, 649-50 (1990) (declining to defer
to agency conclusion that federal statute was preempted by state
law and holding that both state and federal remedies were
available to migrant workers).
Alpine’s second contention is that, regardless of whether
Rule 17a-8 could be a validly promulgated regulation, the SEC
never properly solicited public comment on Rule 17a-8 as it
relates to the expanded BSA regulation of broker-dealers upon
the enactment of the Patriot Act.
Alpine’s position is
unpersuasive.
First, the text of the regulation itself, as well as the
SEC’s 1981 notice of final rule, unambiguously demonstrate the
SEC’s intent for the nature of the Rule 17a-8 reporting
obligation to evolve over time through the Treasury’s
regulations.
The text of the rule simply incorporates the
entirety of “chapter X of title 31 of the Code of Federal
38
Regulations.”
17 C.F.R. § 240.17a-8.
Rather than imposing a
separate and competing set of reporting obligations on brokerdealers, the SEC made government more efficient by incorporating
the obligations that had been and would be imposed by the
Treasury.
As the notice of final rule states:
“[t]he rule does
not specify the required reports and records so as to allow for
any revisions the Treasury may adopt in the future.”
SEC,
Recordkeeping by Brokers and Dealers, 46 Fed. Reg. 61,454,
61,455 (Dec. 17, 1981).
Moreover, FinCEN saw Rule 17a-8 the way the SEC does,
namely that Rule 17a-8 was promulgated to impose the same
obligations on broker-dealers under the Exchange Act as the
Treasury imposed under the BSA, including any changes to those
obligations over time.
The notice of final rule for the
original version of Section 1023.320 acknowledged that the scope
of the SEC’s Rule 17a-8 would include the new BSA broker-dealer
regulations:
The SEC adopted rule 17a-8 in 1981 under the
Securities and Exchange Act of 1934 (“Exchange Act”),
which enables the SROs, subject to SEC oversight, to
examine for BSA compliance. Accordingly, both the SEC
and SROs will address broker-dealer compliance with
this rule.
FinCEN Section 1023.320 Notice, 67 Fed. Reg. at 44,049.
Finally, in a formal adjudication the SEC has announced its
view that Rule 17a-8 encompasses the post-2002 BSA regulations.
39
See In re Bloomfield, SEC Release No. 9553, 2014 WL 768828, at
*15-*17 (Feb. 24, 2014), vacated in part on other grounds, In re
Gorgia, SEC Release No. 9743, 2015 WL 1546302 (Apr. 8, 2015)
(vacating sanctions as to one individual who died during the
pendency of the administrative proceedings), aff’d, 649 F. App’x
546, 549 (9th Cir. 2016).
It has also issued several settled
orders expressing its view that a broker-dealer’s failure to
file SARs violates Rule 17a-8.
See In re Biremis Corp., SEC
Release No. 68456, 2012 WL 6587520, at *13 (Dec. 18, 2012); see
also In re Oppenheimer & Co., FinCEN Assessment No. 2015-01
(Jan. 26, 2016), https://www.fincen.gov/sites/default/files/
enforcement_action/Oppenheimer_Assessment_20150126.pdf; In re
Oppenheimer & Co., SEC Release No. 3621, 2015 WL 331117, at *8
(Jan. 27, 2015).
These expressions of the SEC’s view have been
consistent over the years and Alpine has not presented any
contrary SEC position that would undermine the agency’s
interpretation of Rule 17a-8.
summary judgment is denied.
Accordingly, Alpine’s motion for
Rule 17a-8 is a valid
interpretation of the Exchange Act, and validly encompasses the
suspicious activity reporting obligation of Section 1023.320.
B. Alpine Motion for Judgment on the Pleadings
In addition to its motion for summary judgment, Alpine
moves for judgment on the pleadings.
Alpine asserts that the
SEC failed to plead that it negligently or willfully violated
40
the BSA, as required to prove a violation of that statute.
Given the foregoing analysis, Alpine’s motion for judgment
on the pleadings is easily denied.
This suit is brought solely
under the Exchange Act, specifically under Section 17(a) and
Rule 17a-8.
Although Alpine’s intent is relevant to the remedy
if the SEC carries its burden of proving a violation of Rule
17a-8, see 15 U.S.C. § 78u(d)(3), neither Section 17(a) nor Rule
17a-8 includes a separate element of scienter.17
§ 78q; 17 C.F.R. § 240.17a-8.
See 15 U.S.C.
Accord Stead v. SEC, 444 F.2d
713, 716-17 (10th Cir. 1971) (holding that a defendant’s
knowledge that a securities transaction was not recorded was
sufficient to show a violation of Section 17(a) of the Exchange
Act).
In those provisions of the Exchange Act in which Congress
has imposed a scienter requirement for a violation to be found,
it has done so expressly with language not found in Section
17(a).
III. SAR Narratives Missing Information
The remainder of this Opinion addresses the SEC’s motion
for summary judgment.
The SEC’s first category of alleged
violations consists of SARs whose narrative sections the SEC
Alpine’s suggestion that this holding would deprive it of
constitutionally required notice is meritless, as it is plain
from the text of Rule 17a-8 and the Exchange Act’s penalty
provisions that liability may be imposed without regard to
scienter.
17
41
alleges lack certain required information.
are seven subcategories.
Within this category
The SEC has submitted 14 SARs in
support of this branch of its motion.
Each subcategory of SARs
is addressed in turn.
A. Basic Customer and Suspiciousness Information
The SEC contends that Alpine omitted some of the Five
Essential Elements in the narratives of SARs A, B, and C.
The
SEC is correct.
SARs A and C were completed on the 2002 Form.
The 2002
Form warns that the narrative section of the report is
“critical.”
It instructs the filer to “[p]rovide a clear,
complete and chronological description . . . of the activity,
including what is unusual, irregular or suspicious about the
transaction(s), using [a] checklist” also found on the form.
The 2012 SAR Instructions contains the same instruction.
Each of the three narratives at issue reports an enormous
deposit of shares in a penny stock:
million shares, respectively.
over 40, over 5 and over 5
But, none of the narratives
describe who the client is by, for instance, describing the
nature of its business.
The SAR A narrative also fails to
describe why the transaction is unusual for the customer’s
business or to convey why Alpine thought the transaction was
suspicious.
unhelpful.
The narratives for SARs B and C are similarly
SAR B states that “Alpine is filing a SAR due to the
42
heightened sensitivity surrounding the client” without
explaining what led to that heightened sensitivity.
SAR C
states that “[i]t is the policy of Alpine to file a SAR[]
related to each deposit of securities into it[]s account”
without explaining why Alpine adopted the policy of filing a SAR
for every deposit made by that customer.
The SEC has carried
its burden to show that three SARs are deficient as a matter of
law for their failure to describe the “who” and “why” of the
transaction, and to describe why the underlying transactions
were suspicious.
Alpine does not argue that it was not required to include
information on the SARs regarding the Five Essential Elements,
that the three SARs included such information, or that the SARs
A, B, or C otherwise met the requirements of the law for
completeness.
Instead, Alpine opposes the entry of summary
judgment with three other arguments.18
First, it states that
summary judgment is not warranted because the SEC has not
offered evidence that Alpine knew or suspected that the
transaction at issue was criminal.
But, as described above, the
SEC has no burden to prove scienter to show a violation of Rule
17a-8.
Moreover, Section 1023.320 itself imposes an objective
Alpine makes many of these arguments in opposition to each of
the prongs of the SEC’s summary judgment motion. To the extent
they are rejected here, they are also rejected in connection
with Alpine’s arguments regarding the remaining SARs.
18
43
test:
a SAR must be filed when the broker-dealer has “reason to
suspect” that the transaction requires the filing.
31 C.F.R.
§ 1023.320(a)(2).
Second, Alpine argues that it was entitled to rely on SARs
filed by the introducing broker for the transaction, and that
the SEC has the burden to disprove the existence of such a SAR.
While Alpine is correct that it may rely on such SARs, it
carries the burden of showing that an introducing broker filed
SARs and that the filed SARs were complete.
Section 1023.320 explicitly places that burden on Alpine.
It provides that
[t]he obligation to identify and properly and timely
report a suspicious transaction rests with each
broker-dealer involved in the transaction, provided
that no more than one report is required to be filed
by the broker-dealers involved in a particular
transaction (so long as the report filed contains all
relevant facts).
31 C.F.R. § 1023.320(a)(3) (emphasis supplied).
Section
1023.320 also provides that introducing and clearing brokers who
file joint SARs may share the SARs with each other.
§ 1023.320(e)(1)(ii)(A)(2)(i).
See id.
Alpine has not provided any
evidence that any joint filings were made, that the introducing
brokers for these transactions filed the necessary SARs, or that
any filed SARs were sufficiently complete to meet the law’s
requirements for disclosure.
Finally, Alpine argues that the SEC has failed to show that
44
it was required to file a SAR for these transactions.
Alpine
contends that it routinely filed voluntary SARs when it was not
required to file any SAR and that that practice included these
three SARs.19
It is certainly true that Section 1023.320 allows
for the voluntary filing of SARs, that is, the filing of a SAR
even when a filing is not required by law.
§ 1023.320(a)(1).
See 31 C.F.R.
It is noteworthy, however, that none of the
three SARs (or any of the SARs at issue on this motion)
indicates that it is being filed voluntarily and not because of
any legal duty to make a filing.
Accordingly, it would have
been unreasonable for Alpine to assume that FinCEN and the SEC
would know the SAR was simply a “voluntary” filing.20
The
reporting requirements set out in the law are not casual.
The
SAR framework allocates scarce government resources to protect
public security by placing the burden of compliance, and of
distilling a wide range of possibly relevant information into a
Alpine has not offered admissible evidence that such a policy
or practice was in place in 2011 and 2012 when SARs A, B and C
were filed, and has not offered any evidence that these three
SARs were filed pursuant to such a practice, even if it were in
place. Because this Opinion is intended to provide guidance to
the parties, it proceeds to the merits of this argument.
19
It is worth noting that the SEC has represented that the SARs
presented on this motion are representative of thousands of
similar SARs. To the extent it is able to show a pattern of
suspicious trading activity for which SARs were filed, the
inference that each of those filings was “voluntary” will be
undermined.
20
45
SAR narrative, on broker-dealers.
As the 2002 Form explains:
“the care with which [the SAR] is completed may determine
whether or not the described activity and its possible criminal
nature are clearly understood by investigators.”
The burden rests on the SEC, however, to prove that a SAR
was required to be filed.
It would appear that this will not be
an onerous task in connection with the SARs at issue here, each
of which reflected an enormous deposit of shares in a penny
stock and, as reflected in Alpine’s files, had other indicia of
suspicious activity.21
Nonetheless, because the SEC’s motion
assumed that Alpine had a duty to file each of the 14 SARs, this
Opinion will not reach this contested issue.
It will assume,
for the purposes of that portion of the SEC’s motion which
addresses the adequacy of a SAR’s narrative, that the SARs were
required to be filed.
The summary judgment submissions of both the SEC and Alpine
assume a fact-finder’s knowledge of the penny stock market, and
manipulation of that market, as well as various other market and
broker-dealer practices. In any subsequent summary judgment
motion and at any trial, the parties will be required to offer
admissible lay and/or expert testimony on many of the subjects
with which they have assumed familiarity for purposes of this
preliminary summary judgment motion. The parties’ decisions not
to include expert declarations with this preliminary summary
judgment motion may be explained by the fact that the initial
expert disclosures are not due until at least April 20.
Accordingly, even when it seems self-evident that Alpine had a
legal obligation to file the SARs at issue in this section of
the summary judgment motion, this Opinion will not reach the
issue.
21
46
As explained above, SARs A, B, and C each lack basic
information regarding the Five Essential Elements.
Accordingly,
the SEC has carried its burden of showing that each SAR was
deficient as a matter of law.
B. Criminal or Regulatory History
The SEC contends that SARs D, E, and F are deficient as a
matter of law because Alpine failed to include the relevant
regulatory or criminal history of the customer in the SARs’
narratives.
SARs D and E are on the 2002 Form, which
specifically instructs the filer to “[i]ndicate whether there is
any related litigation[, and i]f so, specify the name of the
litigation and the court where the action is pending.”
A
materially similar instruction appears in the 2012 SAR
Instructions.
FinCEN guidance from 2009 also explains that one
common failure of broker-dealers in their suspicious activity
reporting is
[i]nadequate due diligence conducted once potentially
suspicious activity is identified; for example, a firm
may fail to use readily available public information
about a customer’s criminal or regulatory history when
evaluating potentially suspicious activity for a SARSF filing.
SAR Activity Review, Issue 15, at 24.
In the case of each of these three SARs, Alpine’s own files
for the SARs contained information that the customer was the
subject of criminal or regulatory proceedings.
47
The SARs,
however, did not include that information.
The SAR D support
file shows an SEC complaint against the customer and its CEO.
The SAR E support file includes a news article regarding the
customer’s guilty plea to conspiracy related to counterfeiting.
The SAR F support file notes the individual has an “SEC history
for misrepresentation and misappropriation of funds.”
Moreover, the narratives for each of these SARs contain
minimal information other than describing an enormous deposit of
shares in a penny stock.
SAR D recites that the customer
deposited roughly 2 million shares, and “has been placed on a
Heightened Supervisory list” and that “[i]t is the policy of
Alpine to file a SAR[] related to each deposit of securities
into accounts of this nature.”
SAR E notes only that the
customer deposited over 27 million shares of a penny stock.
SAR
F explains that the customer deposited 15 million shares of a
penny stock, purchased a convertible note, and that “the shares
are worth about 33 times their purchase price, which may be
potentially suspicious.”
Again, assuming that the SEC has established that Alpine
had a duty to file each of these SARs, it has easily carried its
burden of showing that each of them was deficient as a matter of
law for its omission of the criminal or regulatory history of a
related party.
This constituted a violation of Rule 17a-8,
through its violation of Section 1023.320(a)(2).
48
The
information in Alpine’s files not only provided Alpine with
“reason to suspect” that the transactions were among those for
which it was required to make a filing, but also constituted
specific information that Alpine was required to include in the
SAR narratives.
This duty to describe the regulatory and
criminal history of the customer is contained in the 2002 Form
and the 2012 SAR Instructions, as well as the FinCEN Narrative
Guidance.
The information omitted from these three SARs was
also responsive to the Five Essential Elements of these
transactions.
Alpine has not argued that it was free to omit the
information because this particular information did not
constitute information responsive to any of the Five Essential
Elements, or because the information did not relate to Alpine’s
separate duty to report criminal and regulatory history.
Nor
has it argued more generally that the omitted information would
not be important for an understanding of the transactions.
Instead, Alpine argues that the regulatory and criminal history
of each of these customers was a matter of public record.
This
argument fails.
To the extent Alpine has a duty to file a SAR, it has a
duty to file one that complies with the reporting requirements
described above.
The law does not recognize any exception to
that duty based on a determination that the government may also
49
know through other sources the very information that Alpine was
required to report.22
The SEC has shown that it is entitled to
summary judgment on SARs D, E, and F.
C. Shell Company Involvement or Derogatory History of Stock
The SEC argues that SARs A and C are deficient because
their narratives do not state that a shell company was involved
in the transaction.
It contends that SAR G omitted certain
other issuer information.
FinCEN guidance explains that “[m]ost shell companies are
formed by individuals and businesses for legitimate purposes.”
FinCEN Shell Company Guidance at 1.23
This guidance advises that
a SAR “narrative should use the term ‘shell,’ as appropriate.”
Id. at 5.
The guidance lists, among several examples of
suspicious activity FinCEN has observed in SARs, the “inability
to obtain . . . information necessary to identify originators or
beneficiaries of wire transfers.”
Id. at 3-5.
It also
instructs that a company being a “suspected shell entit[y]” is
one of many “common patterns of suspicious activity.”
SAR
While it would not be a defense to the charged violation of
Rule 17a-8, Alpine does not provide any evidence in support of
an assertion that the reason it omitted the information was
because it believed the information was already known to the
SEC.
22
FinCEN, FIN-2006-G014, Potential Money Laundering Risks
Related to Shell Companies (Nov. 9, 2006), https://www.fincen.
gov/sites/default/files/guidance/AdvisoryOnShells_FINAL.pdf.
23
50
Narrative Guidance at 5.
Assuming that the SEC proves that Alpine was required to
file SARs A, C, and G, the SEC has carried its burden to show
that the omission of the customer information from the SARs at
issue here was a violation of law.
SARs A, C, and G report
transactions where a customer deposited, respectively, over 40,
5, and 6 million shares of a penny stock.
The SARs’ narratives
do not disclose the involvement of a shell company or provide
other information that would help a regulator understand either
the customer or the transaction at issue.
Alpine’s file for SAR
A indicates that the issuer of the deposited stock was a shell
company, and the file for SAR C indicates that the issuer had
been a shell company within the last year.
Alpine’s file for
SAR G indicates that the issuer was not current in its SEC
filings, that no company website was found for the issuer, and
that the over-the-counter market’s website for the issuer marked
its stock with a stop sign.
The SEC has shown that Alpine’s failure to disclose in the
three SAR narratives the above-described information about the
issuer and customer was a violation of law.
In each instance,
the omitted information was necessary to describe the Five
Essential Elements.
Given the paucity of information in the SAR
narratives for SARs A and C, the identity of the customer as a
shell entity engaged in a large deposit of penny stock shares
51
was particularly critical.
Similarly, the lack of current SEC
filings, a stop sign on a website listing the stock, and lack of
an issuer website were obvious red flags for the penny stock
transaction reported in SAR G.
These facts raise serious
questions about whether the issuer of the shares in the
transaction reported in SAR G was a bona fide entity, and
whether the transaction involved fraud.
Alpine does not contend that the omitted information in the
three SARs is not responsive to the Five Essential Elements, and
therefore a required element of a SAR.
It makes essentially
three other arguments, none of which is persuasive.
First, Alpine argues that, in light of FinCEN guidance
stating that shell company involvement is not always suspicious,
the involvement of a shell company in these transactions did not
make them suspicious.
But, if the SEC, using all the
information on the SAR and in Alpine’s possession, shows that
Alpine was required to file a SAR for the transaction, then the
SEC has shown that Alpine was required to disclose in both SARs
A and C that the suspicious transactions were in fact conducted
through a shell company.
As is true with most if not all facts
generating suspicion, the presence of a shell company may serve
not only to identify the transaction as suspicious, thereby
triggering the duty to file a SAR, but may also be a required
fact to report in the SAR.
Any complete description of the
52
facts responsive to the Five Essential Elements would so demand.
Alpine’s conclusory argument to the contrary is insufficient to
escape summary judgment.
With respect to SAR G, Alpine points out that the SEC has
not explained in support of its motion what an OTC Market “stop”
signal for trading in a stock means.
Alpine is correct:
the
SEC has assumed the Court’s familiarity with the significance of
that market action.
Alpine argues as well that Alpine’s
inability to locate a website for or confirm the existence of an
issuer “is indicative of nothing.”
Again, assuming that the SEC
establishes that Alpine had a duty to file SAR G, then the SEC
has carried its burden to show the stop order and the absence of
a website for the issuer were facts that Alpine had to disclose
in the SAR.
They are at the very least responsive to the Five
Essential Elements.
SAR G explains that the customer
“historically makes deposits of large volumes of low-priced
securities,” and that this transaction was for another such
deposit.
Alpine has failed to offer any evidence or persuasive
argument to raise a question of fact regarding its obligation to
add two other important pieces of information for this very
transaction:
there was no website for the issuer and there was
a stop in place for trading shares for that issuer.
D. Stock Promotion
The SEC contends that SARs G, H, and J are deficient for
53
their failure to describe the evidence of stock promotion
activity that appears in Alpine’s files for these SARs.
It
contends that such evidence is relevant to whether a transaction
may be a component of a pump-and-dump scheme.
In a pump-and-
dump scheme, conspirators manipulate the price and volume of a
particular stock through the dissemination of false and
misleading promotional materials.
See Fezzani v. Bear, Stearns
& Co., 716 F.3d 18, 21 (2d Cir. 2013) (scheme in which a
security appeared to be “the subject of an active, rising
market” but where in fact “the market was principally a series
of artificial trades” is a “paradigmatic ‘pump and dump’
scheme”).
In 2016, the SEC concluded that SARs were deficient,
in violation of Rule 17a-8, because they omitted an “additional
red flag[] that should have further raised suspicions concerned
[a customer’s] trading,” namely that the entity “knew or should
have known that two of the issuers were the subject of
promotional campaigns at the time of [the customer’s] trading.”
In re Albert Fried & Co., SEC Release No. 77971, 2016 WL
3072175, at *5 (June 1, 2016) (emphasis supplied).24
The SAR narratives for SARs G, H, and J state that it is
“Alpine’s policy to file a SAR for each security deposited into
Although the adjudication occurred in 2016, the decision is
entitled to deference as an authoritative and reasoned
interpretation of Rule 17a-8.
24
54
the account.”
Each SAR describes a transaction involving a
sizable deposit of a penny stock:
over 6 million shares in SAR
G; over 13 million in SAR H; and 60 million shares in SAR J.
No
other information is included in the narrative.
The SAR G support file includes screenshots of Google
search results indicating that stock promotion was occurring.
The SAR H support file includes four pages of screenshots of
websites indicating that the stock at issue was being promoted
by a third party.
The SAR J support file contains news articles
that reveal that the stock was being promoted.
Alpine acknowledges that evidence of stock promotion
activity is relevant if connected to a “pump and dump” scheme.
Accordingly, should the SEC establish that Alpine had a duty to
file these three SARs, it has carried its burden to show that
Alpine was required to add to the SAR narrative the evidence of
stock promotion activity that appeared in Alpine’s files.
The
three transactions reported in SARs G, H, and J involved
deposits of many millions of shares of a penny stock; evidence
of stock promotion is particularly relevant to a transaction of
this type because the combination is suggestive of illegal
activity.
As a result, the SEC is entitled to summary judgment
on SARs G, H, and J.
E. Unverified Issuers
The SEC argues that SARs G, K, and L were defective for
55
failing to include critical information about the issuers of
securities that was contained in the Alpine files for these
SARs.
FinCEN guidance identifies unregistered and unlicensed
businesses as indicative of suspicious transactions.
It states
that suspicious activity “common[ly]” includes transactions
involving “parties and businesses that do not meet the standards
of routinely initiated due diligence and anti-money laundering
oversight programs (e.g., unregistered/unlicensed businesses).”
SAR Narrative Guidance at 5.
As explained above, when a SAR is
filed, it must include information about each of the Five
Essential Elements of the suspicious activity, which includes
“what” is involved in the transaction.
Underscoring this duty,
a 2012 issue of the SAR Activity Review directs filers to
“include as much information as is known to them about the
subject(s)” of a SAR.
SAR Activity Review, Issue 22, at 39.
SARs G, K, and L each report a large deposit of a penny
stock.
SAR G reports a deposit of over 6 million shares; SAR K,
over 11 million shares; and SAR L, nearly 3 million shares.
three SARs reported very little additional information.
The
Each of
them explained that it was Alpine’s policy to file a SAR for
every deposit by this customer, but added no information about
the issuer of the securities for that transaction.
Each SAR
support file for these SARs, however, indicates that an Alpine
employee was unable to locate basic information about the issuer
56
whose stock was deposited.
For SARs G and K, the files indicate
that Alpine could not locate a company website for the issuer.
For SAR L, Alpine’s file indicates that the issuer’s corporate
registration was in default.
The SEC has shown that if Alpine
was required to file any of these SARs, then it was required by
law to include in its SAR the fact that it could not locate such
information concerning an issuer.
Alpine argues that, as a general matter, the absence of a
website for an issuer or an issuer’s failure to renew its
incorporation is “indicative of nothing.”
It does not address
the omission of this information in the context of what was and
was not included in each of these SARs.
Considering the
entirety of the narrative portion of these three SARs, the SEC
has shown that the failure to include this information about the
issuers was a violation of Rule 17a-8.
These were deposits of
enormous quantities of penny stocks with absolutely no
indication in the SAR itself that there was also a problem with
the issuer.
Accordingly, the SEC is entitled to summary
judgment as to SARs G, K, and L with respect to the omissions
regarding the issuers.
F. Low Trading Volume
The SEC contends that SARs M, N, and P are defective for
their failure to disclose the low trading volume in the shares
that these SARs reported were being deposited with Alpine.
57
The
2002 Form and 2012 SAR Instructions required disclosures in the
narrative of those circumstances that make the filing of a SAR a
necessity.
When a SAR was filed, as indicated repeatedly above,
the filer had to include information responsive to the Five
Essential Elements.
A 2009 issue of the SAR Activity Review
notes that one element of a transaction that is suspicious and
should be reported is a “[s]ubstantial deposit, transfer or
journal of very low-priced and thinly traded securities.”
Activity Review, Issue 15, at 24.
SAR
Accordingly, three elements
for such events must be reported: the substantial deposit of a
security, the low price of the security, and the low trading
volume in the security.
These three SARs each reported a deposit of a very large
quantity of shares of a penny stock.
The SAR support files for
SARs M, N, and P each included relevant information regarding
the third element:
the low trading volume.
SARs’ narratives included that fact.
Yet, none of these
SAR M’s narrative reports
a deposit of almost million shares of a low-priced security, but
omits that the average trading volume over the last three months
is 59,108, smaller than the single deposit by a factor of ten.
SAR N’s narrative lists a deposit of over 60 million shares of a
low-priced security, but does not include the fact that the
trading volume was 101,100 per day, a tiny fraction of the
single deposit reported in SAR N.
58
SAR P’s narrative notes a
deposit of 500,000 shares of a low-priced security, but states
nothing about the trading volume, reported in the support file
to be 10,971 per day.
Thus, the reported deposit was 45 times
larger than the average trading volume.
The SEC has demonstrated its entitlement to summary
judgment as to SARs M, N, and P.
The sizable deposits, when
combined with the low trading volume of a low-priced security,
constitute red flags.
Alpine had a duty to disclose in the SAR
the reasons that made the filing necessary.
It did not do so.
Alpine does not argue that SARs M, N, and P were properly
completed.
It does not contest that it had a duty to report low
trading volume in the narrative sections of these three SARs if
it had a duty to file these SARs.
Instead, it contends that the
SEC has a burden to show that manipulative trading such as “wash
trades” was actually occurring in order for the SEC to prevail
on its claim that Alpine had a duty to file a SAR.
Alpine is
incorrect.
Under Section 1023.320, Alpine had a duty to report a
transaction when, as the regulated broker-dealer, it had “reason
to suspect that a transaction (or a pattern of transactions)
. . . [i]nvolves”, among other things, the use of the brokerdealer to facilitate criminal activity.
The duty to report is
not triggered by the existence of a government investigation,
and the SEC has no burden at trial, when it has charged a
59
violation of Rule 17a-8, to show that manipulative trading was
actually occurring.
Indeed, the entire regulatory scheme is set
up to bring to the government’s attention suspicious activity of
which it might otherwise be unaware.
Whether the government is
aware or not of criminality, or able to confirm criminality or
not, the duty to report suspicious activity exists.
Thus, the
SEC has shown that it is entitled to summary judgment because
SARs M, N, and P were defective as a matter of law.
G. Foreign Involvement
In the seventh and final category, the SEC contends that
SARs A, C, and H are defective because they failed to disclose
the involvement of a foreign individual or entity in the
transaction.
The 2002 Form used for SARs A and C states that
the filer should “[i]ndicate whether U.S. or foreign currency
and/or U.S. or foreign negotiable instrument(s) were involved.
If foreign, provide the amount, name of currency, and country of
origin.”
The 2002 Form also states that “foreign bank(s)
account number(s)” should be included, as should “passport(s),
visa(s), and/or identification card(s)” belonging to an involved
“foreign national.”
The 2012 SAR Instructions contain a
materially identical instruction.
Both instructions also state
that filers should “identify the country, sources, and
destinations of funds” if funds have been “transfer[red] to or
from a foreign country.”
60
FinCEN guidance from 2003 also emphasizes that the
involvement of a foreign entity or individual must be included
in a SAR.
It states that a SAR should
[s]pecify if the suspected activity or transaction(s)
involve a foreign jurisdiction. If so, provide the
name of the foreign jurisdiction, financial
institution, address and any account numbers involved
in, or affiliated with the suspected activity or
transaction(s).
SAR Narrative Guidance at 4.
SARs A, C, and H each report a large deposit of shares of a
penny stock.
SAR A lists a foreign address for Alpine’s
customer, but omits information in the support file that
identifies foreign correspondent accounts in two foreign
jurisdictions that were involved in the underlying transaction.
SAR C provides a foreign address for the customer in the
“subject information” boxes of the SAR, but omits from the
narrative section any reference to the foreign nature of the
transaction, much less that the country in question has been
identified as a jurisdiction of primary concern for money
laundering activity.
SAR H does not disclose any foreign
involvement with the transaction, omitting that the deposited
shares were purchased by the customer through a transfer of
funds to a foreign bank account, information that appears in
Alpine’s files.
The SEC has carried its burden of showing that, to the
61
extent Alpine was required to file a SAR for these transactions,
it was required to include in the narrative sections for the
SARs the information about the foreign connections to the
transactions that it had in its files.
SARs A, C, and H each
reflect enormous deposits of shares of penny stocks with a very
opaque discussion in the narrative section of the SAR of the
reasons for filing the SAR.
The narrative does not comply with
either the requirement to report on the Five Essential Elements,
or the more specific duty to report the foreign connections to
the transactions.
As described above, these duties of
disclosure apply specifically to the narrative section of the
SAR.
Unlike its response in connection with each of the other
deficiencies discussed above, Alpine’s opposition to this
portion of the SEC’s motion switches gears and does discuss the
three individual SARs and the identified deficiencies in the
context of those individual SARs.
None of its arguments,
however, raises a question of fact regarding its obligation to
add the omitted information about the foreign connections to the
transactions.
First, with respect to SARs A and C, it asserts that the
foreign entity was the “introducing broker”, and that it
identified its foreign location in the “subject information”
boxes of the SARs.
But, the SAR identifies the foreign entity
62
at issue as the customer and not the introducing broker.
And,
as explained above, a broker-dealer is required by law to
include information constituting the Five Essential Elements and
foreign connections to the transaction in the narrative section
of any SAR that the filer is required to file.
Correctly
reporting an address in a “subject information” box does not
excuse compliance with the law’s additional obligations to
identify why a transaction is suspicious in the narrative
section of the SAR.
Next, Alpine argues that it had no obligation to report in
the foreign connection to the transaction in the narrative
section of SAR C since SAR C’s narrative indicated that Alpine
had placed the customer on a “Heightened Supervisory list” and
as a matter of policy Alpine filed a SAR for each deposit of
securities made by that customer.
This opaque reference to
Alpine’s internal policy for that customer did not relieve
Alpine of its obligation under the law to provide information in
the SAR’s narrative regarding each of the Five Essential
Elements for, as well as the foreign connections to, the
specific transaction.
Finally, with respect to SAR H, Alpine does not dispute
that it failed to disclose that the customer had purchased the
deposited shares by transferring funds to a foreign bank
account.
It argues only that the disclosure was unnecessary
63
because the support file did not show a foreign wire transfer
after the shares were deposited, and the prior transfer did not
“involve” Alpine.
These distinguishing features did not relieve
Alpine of the obligation to report the foreign connection to the
transaction.
Nothing in the law, which is recited above,
confines the reporting requirements for foreign connections to
those specific transactions in which the broker-dealer
participated or to occurrences after the reported transaction.
As a result, the SEC is entitled to summary judgment on SARs A,
C, and G on the ground that Alpine failed to include information
regarding the transaction’s foreign connections in the SAR
narrative.
H. Summary
In this section of the Opinion, the Court has assumed that
Alpine had a duty to file the 14 SARs at issue.
Assuming that
obligation, the Opinion has addressed seven categories of
omissions in the narratives of the SARs on which the SEC’s
summary judgment motion has focused.
In each instance, the
Opinion has concluded, following an examination of the specific
SAR’s narrative section, that Alpine had a duty under the law to
include the omitted information that is the subject of the SEC
motion, and that the SAR, as filed, violated the law’s
disclosure requirements for suspicious transactions.
A broker-dealer must complete a SAR narrative that contains
64
sufficient information for a regulator to understand what is
suspicious about the reported activity.
Any analysis of a Rule
17a-8 claim that a particular SAR is deficient in this regard is
necessarily a context-specific analysis.
If a SAR had had a
fulsome disclosure of the Five Essential Elements and other
information pertinent to the transaction that the law requires a
broker-dealer to disclose, then the omission of repetitive or
cumulative information found in the broker-dealer’s files might
raise a question of fact regarding an alleged violation of Rule
17a-8.
As the descriptions of the individual SARs has shown,
however, Alpine’s SARs were woefully inadequate.
Alpine has not
shown that there is any question of fact regarding its
compliance with the law’s disclosure requirements.
The SEC is
therefore entitled to summary judgment regarding information
omitted from SARs A, B, C, D, E, F, G, H, J, K, L, M, N, and P.
IV. Deposit-and-Liquidate Patterns
The SEC contends that Alpine violated Rule 17a-8 and
Section 1023.320(a)(2) when it failed to file new or continuing
SARs in connection with liquidations of share positions.
Alpine
filed SARs for large deposits of shares by three customers, but
no additional SARs when they sold off a large proportion of
those deposits in transactions within a month or so of the
deposit.
In support of its motion, the SEC submitted three
charts summarizing the transactions, along with SARs that Alpine
65
filed for the customers’ deposits.
The three customers are referred to as Customers A, B, and
C.
Customer A deposited over 12 million shares of a penny stock
in February 2012, then sold, in a series of 12 transactions, 10
million shares of that same security in February and March 2012.
The pattern then repeated itself in April through August 2012,
with the customer depositing a very large number of shares in
the same security and, within weeks, selling a large proportion
of those shares in a series of smaller transactions.
Alpine
timely filed SARs on the deposits by Customer A, but not on the
sales of the deposited shares.
Similarly, Customer B and
Customer C each deposited a large number of physical
certificates of a penny stock, then sold an almost equal amount
of shares in that security in a series of small transactions
over the weeks immediately following the deposit.
The SEC has shown that it is entitled to summary judgment
to the extent it carries its burden of showing the existence of
the deposit-and-sales patterns on which it relies.
The
applicable regulations state that a broker-dealer must report a
transaction if the transaction “or a pattern of transactions of
which the transaction is a part” meets certain criteria.
C.F.R. § 1023.320(a)(2).
31
As noted above, the notice of final
rule published by FinCEN explains that the “pattern of
transactions” phrase was included in the regulation so that if a
66
broker-dealer determines that a series of transactions, “taken
together, form a suspicious pattern of activity, the brokerdealer must file a suspicious transaction report.”
Section 1023.320 Notice, 67 Fed. Reg. at 44,051.
FinCEN
Similarly,
FinCEN has identified as suspicious a “[s]ubstantial deposit
. . . of very low-priced and thinly traded securities,” followed
by the “[s]ystematic sale of those low-priced securities shortly
after being deposited.”
(footnote omitted).
SAR Activity Review, Issue 15, at 24
This guidance explains that these
transactions present “red flags for the sale of unregistered
securities, and possibly even fraud and market manipulation.”
Id.
And the same issue of the SAR Activity Review notes that
“transactions involv[ing] the deposit of physical certificates
. . . have their own red flags, such as [the risk that] the
shares were not issued in the name of the customer, or were
recently issued or sequentially numbered.”
Id. at 24-25.
Alpine argues that the SEC has not shown that the sell-offs
by these three customers are sales of the very same physical
securities that had been deposited, and that as a result they
are not suspicious as a matter of law.25
Alpine is wrong.
Alpine’s argument that the transactions are not suspicious
Alpine argues further that the SEC must show that Alpine
subjectively thought the transactions were suspicious before it
can make out a violation. As described above, Rule 17a-8
contains no scienter element.
25
67
as a matter of law because the liquidations are not necessarily
related to the deposit of physical certificates misses the point
of the relevant FinCEN guidance.
The three customers at issue
here dramatically increased their holdings in a penny stock with
a deposit of physical certificates -- activity which FinCEN
indicates independently raises concerns -- and then sold off
most of those holdings over a few weeks in a number of discrete,
small transactions.
That pattern of transactions requires
supplemental reporting as a matter of law, and the SEC is
entitled to summary judgment to the extent that it proves that
such a pattern occurred and that Alpine failed to file SARs
reflecting that trading.
Next, Alpine asserts that the SEC has improperly supported
its motion with three charts that the SEC claims to have
prepared based on data provided by Alpine without disclosing
what data was used.
As provided by the Federal Rules,
voluminous data may be summarized in a chart.
Rule 1006, Fed.
R. Evid., provides that “[t]he proponent may use a . . . chart
. . . to prove the content of voluminous writings . . . that
cannot be conveniently examined in court.”
But the proponent
“must make the originals or duplicates available for examination
or copying, or both, by other parties at a reasonable time and
place.”
Id.; see United States ex rel. Evergreen Pipeline
Constr. Co. v. Merritt Meridian Constr. Corp., 95 F.3d 153, 163
68
(2d Cir. 1996).
The SEC has shown it is entitled to summary
judgment on these transactions, conditioned upon its ability to
demonstrate to Alpine, and if necessary to this Court, that its
charts are accurate.
V. Late-Filed SARs
The SEC contends Alpine violated the law by filing five
SARs late, specifically between 189 and 211 days late.
Alpine
argues that it was entitled to file a SAR up to 30 days after
conducting an appropriate review, and the SEC has not shown when
Alpine conducted its review.
Alpine’s view, if adopted, would
allow broker-dealers to delay review of transactions
indefinitely and thereby delay the filing of SARs indefinitely.
The regulatory scheme does not support that somewhat startling
proposition.
As described below, a broker-dealer must conduct
an ongoing due diligence review of transactions.
It must
promptly initiate a review upon identification of unusual
activity that warrants investigation.
thereafter to file a SAR.
It generally has 30 days
Accordingly, the SEC has shown it is
entitled to summary judgment.
The starting point for the analysis of the deadline for
filing a SAR is again Section 1023.320, which requires a covered
transaction to be reported when the broker-dealer “knows,
suspects, or has reason to suspect” that the transaction is a
covered transaction.
Broker-dealers have an ongoing duty to
69
scrutinize all transactions they conduct.
BSA regulations
require broker-dealers to “maintain[] a written anti-money
laundering program that,” inter alia, “[i]ncludes . . .
[a]ppropriate risk-based procedures for conducting ongoing
customer due diligence,” including “[c]onducting ongoing
monitoring to identify and report suspicious transactions.”
31
C.F.R. § 1023.210(b)(5)(ii) (emphasis supplied); see also 31
C.F.R. § 1023.220(a)(2) (requiring a broker-dealer to be able to
“form a reasonable belief that it knows the true identity of
each customer” based on types of accounts, the methods of
account opening, and identification documents).
Through a series of regulatory delegations, SROs review and
approve their member organizations’ AML policies; Alpine’s AML
policy was approved by FINRA.
See SEC, Order Approving Proposed
Rule Changes Relating to Anti-Money Laundering Compliance
Programs, 67 Fed. Reg. 20,854 (Apr. 26, 2002).
FINRA requires
member firms to have a written AML policy that receives approval
from FINRA’s senior management and that “[e]stablish[es] and
implement[s] policies, procedures, and internal controls
reasonably designed to achieve compliance with the Bank Secrecy
Act and the implementing regulations thereunder.”
FINRA Rule
3310 (2015), http://finra.complinet.com/en/display/display_main.
html?rbid=2403&element_id=8656.
As relevant here, Section 1023.320 provides that a “SAR
70
shall be filed no later than 30 calendar days after the date of
the initial detection by the reporting broker-dealer of facts
that may constitute a basis for filing a SAR under this
section.”
31 C.F.R. § 1023.320(b)(3).
The Federal Register
notice explaining the final rule used slightly different
phrasing, requiring a SAR to be filed “[w]ithin 30 days after a
broker-dealer becomes aware of a suspicious transaction.”
FinCEN Section 1023.320 Notice, 67 Fed. Reg. at 44,054.
Alpine’s FINRA-approved WSPs state that Alpine will file a SAR
“within 30 days of becoming aware of the suspicious
transaction.”
FINRA also publishes a template AML program for small firms
such as Alpine.
Given that FINRA is the ultimate delegee of
FinCEN’s authority to approve AML programs, this document is
probative of whether an AML program complies with the BSA.
FINRA template states that
The
The phrase “initial detection” does not mean the
moment a transaction is highlighted for review. The
30-day . . . period begins when an appropriate review
is conducted and a determination is made that the
transaction under review is “suspicious” within the
meaning of the SAR requirements.
FINRA, Anti-Money Laundering Template for Small Firms 37-38
(2010), http://www.finra.org/industry/anti-money-launderingtemplate-small-firms.
With this explanation, firms are
encouraged to flag transactions liberally for review without
71
fear of triggering the 30-day reporting requirement.
FinCEN has also issued guidance related to this question in
two publications of the SAR Activity Review.
In one, FinCEN has
said that
[t]he phrase “initial detection” should not be
interpreted as meaning the moment a transaction is
highlighted for review. There are a variety of
legitimate transactions that could raise a red flag
simply because they are inconsistent with an
accountholder’s normal account activity. A real
estate investment (purchase or sale), the receipt of
an inheritance, or a gift, for example, may cause an
account to have a significant credit or debit that
would be inconsistent with typical account activity.
The institution’s automated account monitoring system
or initial discovery of information, such as systemgenerated reports, may flag the transaction; however,
this should not be considered initial detection of
potential suspicious activity. The 30-day (or 60-day)
period does not begin until an appropriate review is
conducted and a determination is made that the
transaction under review is “suspicious” within the
meaning of the SAR regulations.
A review must be initiated promptly upon
identification of unusual activity that warrants
investigation. The timeframe required for completing
review of the identified activity, however, may vary
given the situation. According to the FFIEC’s 2005
Bank Secrecy Act/Anti-Money Laundering Examination
Manual, “an expeditious review of the transaction or
the account is recommended and can be of significant
assistance to law enforcement. In any event, the
review should be completed in a reasonable period of
time.”41 What constitutes a “reasonable period of
time” will vary according to the facts and
circumstances of the particular matter being reviewed
and the effectiveness of the SAR monitoring,
While the FFIEC BSA/AML Examination Manual is specific to the
banking industry, this piece of guidance is also applicable to
other industries with suspicious activity reporting
requirements.
41
72
reporting, and decision-making process of each
institution. The key factor is that an institution
has established adequate procedures for reviewing and
assessing facts and circumstances identified as
potentially suspicious, and that those procedures are
documented and followed.
FinCEN, The SAR Activity Review: Trends, Tips & Issues, Issue
10, at 45-46 (May 2006), https://www.fincen.gov/sites/default/
files/shared/sar_tti_10.pdf (other footnote omitted) (emphasis
supplied).
In another relevant publication, FinCEN indicated
that
[t]he time to file a SAR starts when a firm, in the
course of its review or on account of other factors,
is able to make the determination that it knows, or
has reason to suspect, that the activity or
transactions under review meet one or more of the
definitions of suspicious activity. Specifically, the
30-day (or 60-day) period does not begin until an
appropriate review is conducted and a determination is
made that the transaction under review is “suspicious”
within the meaning of the SAR regulations. Of course,
a review must be initiated promptly and completed in a
reasonable period of time. Firms should maintain some
type of record reflecting the date the transaction was
deemed suspicious.
SAR Activity Review, Issue 15, at 15-16 (footnote omitted)
(emphasis supplied).
With this exposition in mind, the FinCEN guidance (on which
Alpine and the SEC both rely) does not support the position
Alpine takes, namely that Alpine was entitled to an
indeterminate amount of time to initiate review of a transaction
before the 30- or 60-day reporting period began.
The FinCEN
guidance specifically states that the time begins when an entity
73
such as Alpine “is able to make the determination that it . . .
has reason to suspect[] that the activity or transactions under
review meet one or more of the definitions of suspicious
activity.”
Id. at 15 (emphasis supplied).
Further, the FinCEN
guidance emphasizes that “a review must be initiated promptly
and completed in a reasonable period of time.”
supplied).
Id. (emphasis
And again, the BSA regulation on broker-dealer AML
programs -- the regulatory document out of the many canvassed
above that defines AML obligations with the most specificity -states that a broker-dealer must engage in “ongoing monitoring
to identify and report suspicious transactions.”
31 C.F.R.
§ 1023.210(b)(5)(ii).
The information that triggered the duty to file a SAR was
available to Alpine at the very time that the five transactions
reported in these SARs occurred.
This included that each
transaction was a large deposit of a penny stock and that the
account was flagged for heightened review.
Three of the SARs
themselves state that it is Alpine’s practice to file SARs for
transactions from the accounts at issue.
Alpine had a duty to
file these SARs, therefore, within 30 days of the transactions.
Alpine does not dispute that the SARs were filed between
189 and 211 days after the transactions reflected in the SARs.
It does not identify any recently-acquired information regarding
the transaction that converted it from one for which no SAR was
74
required to one that required a SAR.
While it contends, without
any admissible evidentiary support, that the AML officer
responsible for reviewing these transactions determined that the
transactions were not suspicious and did not require a SAR, as
described above, negligence provides no defense to a violation
of Rule 17a-8.
Alpine also represents that it filed the SAR
within 30 days of a re-examination of the transactions,
following discussions with FINRA.
But, for the reasons
explained above, this late filing violated Section
1023.320(b)(3), which requires the filing to be within 30 days,
and thereby violated Rule 17a-8.
Accordingly, the SEC is
entitled to summary judgment on the five late-filed SARs.
VI. Missing Supporting Documents
The SEC contends that Alpine has not produced the
supporting documentation for five SARs, which the law required
it to maintain and produce upon request.
This portion of the
SEC’s motion concerns five SARs that were filed by Alpine with
FinCEN between October 2013 and April 2015.
The SEC made
requests for the supporting documentation for these SARs
beginning in 2016.
Alpine asserts that it timely supplied the
supporting documentation in response to the SEC’s requests.
Section 1023.320 is cast in mandatory terms and requires
two acts:
the maintenance of records for five years after a SAR
is filed, and the production of such records at the request of a
75
federal regulatory agency such as the SEC.
§ 1023.320(d).
See 31 C.F.R.
A failure to either maintain or produce a SAR’s
supporting documentation, then, violates Section 1023.320 and,
as a result, violates Rule 17a-8 as well.
Alpine agrees that it
was required to maintain “all documents or records that
assisted” Alpine “in making the determination that certain
activity required a SAR filing”, citing FinCEN guidance from
June 2007.
FinCEN, FIN-2007-G003, Suspicious Activity Report
Supporting Documentation (June 13, 2007),
https://www.fincen.gov/resources/statutes-regulations/guidance/
suspicious-activity-report-supporting-documentation.
This
guidance explains that “[w]hat qualifies as supporting
documentation depends on the facts and circumstances of each
filing,” and includes examples of “transaction records, new
account information, tape recordings, e-mail messages, and
correspondence.
While items identified in the narrative of the
SAR generally constitute supporting documentation, a document or
record may qualify as supporting documentation even if not
identified in the narrative.”
Id.
Summary judgment is denied.
The SEC has not produced
evidence of a search of the 2016 document production that failed
to locate the supporting documents.
In the event the SEC
produces such evidence at trial, Alpine will have an opportunity
to identify the supporting documents for those SARs that it
76
produced to the SEC in 2016.
To the extent that Alpine seeks to
avoid liability on this claim by relying on a more recent
production of supporting files in the course of discovery, that
effort is futile.
Alpine was required to produce the files when
they were requested in 2016.
Of course, the exchange of
pretrial interrogatories between the parties may eliminate this
dispute with the identification by Alpine by Bates number or
otherwise of the specific documents it asserts that it provided
to the SEC in 2016 that support these five SARs.
Conclusion
The SEC’s December 6, 2017 motion for partial summary
judgment is granted in part.
Alpine’s January 19, 2018 motion
for summary judgment and for judgment on the pleadings is
denied.
Dated:
New York, New York
March 30, 2018
____________________________
DENISE COTE
United States District Judge
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