FINRA Extended Hearing Panel Expels Alpine Securities and Orders $2.3 Million in Restitution
On March 24th, the Financial Industry Regulatory Authority (“FINRA”) announced that a FINRA extended hearing panel has expelled Salt Lake City-based broker-dealer Alpine Securities Corp from FINRA membership and ordered the firm to pay more than $2.3 million in restitution to customers for converting and misusing customer funds and securities, engaging in unauthorized trading, charging customers unfair prices in securities transactions and unreasonable fees, and making an unauthorized capital withdrawal.
The hearing panel also issued a permanent cease and desist order; specifically, Alpine Securities was ordered to cease and desist from converting or misusing customer funds or securities. The decision resolves charges brought by FINRA’s Department of Enforcement in August 2019.
According to details in the decision, Alpine Securities was one of the largest clearing firms in the United States until 2018. Because of an increase in clearing-related, compliance and legal expenses, its profits declined precipitously in 2018, making it difficult to continue its retail securities business. As a result, Alpine Securities contended, in August 2018, it advised customers that it would stop carrying retail accounts and impose additional fees, including a $5,000 monthly account fee, on retail customers who did not close their accounts.
The decision notes that Alpine Securities provided minimal notice to its customers of its change in business plan and additional fees. Furthermore, because of a change in the firm’s back-office system, reduced staffing, and an inadequate telephone system, customers encountered difficulties reaching the firm to ask questions. Many customers encountered difficulties logging into their accounts online and were unable to reach Alpine Securities staff to resolve issues.
After a 19-day hearing, the panel found that:
- Alpine Securities’ $5,000 monthly account fee, 1 percent per day illiquidity and volatility fee, and $1,500 certificate withdrawal fee were unreasonable and the $5,000 fee was applied in a discriminatory manner;
- The firm’s appropriation of customer positions valued at $1,500 or less for one penny per position and 2.5 percent market-making/execution fee resulted in unfair prices and commissions;
- The firm converted and misused customer funds and securities by removing customer securities it improperly deemed “abandoned” and “worthless” and seizing customer securities to cover debits related to excessive and unreasonable fees;
- The firm engaged in unauthorized trading by moving customers’ securities from customer accounts to firm accounts without customer authorization, purportedly to cover outstanding debits and because the firm improperly identified the securities as “worthless,” and by moving customers’ securities from customer accounts to the firm’s abandoned securities accounts without customer authorization because the firm improperly identified the accounts as “abandoned;” and
- The firm executed an unauthorized capital withdrawal.
The decision cited multiple examples demonstrating that none of the firm’s customers authorized the firm’s transfers of their securities or seizures of cash to cover the $5,000 monthly fee.
Unless the hearing panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel’s decision becomes final after 45 days.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 200 E. Palmetto Park Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, by email [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.