Alpine Securities argues SEC copied FINRA case

Alpine Securities, a brokerage firm struggling expulsion from FINRA and is pursuing legal action against its last two CEOs, has a new skirmish: a separate SEC case that it says should be industry-wide.

Salt Lake City-based Alpine Securities has had mixed results in its long and repeated run-ins with regulators. A subsidiary under common ownership prevailed last year over FINRA when the SEC quashed a previous enforcement case. However, the brokerage also coughed up a $12 million civil penalty due to a federal court ruling in another SEC case. to accuse the anti-money laundering chess firm. And a different judge quickly threw Alpine’s lawsuit against FINRA last year alleging Zoom hearings violated his rights.

Its current SECOND and FINRA business revolves around conducting the business as a brokerage that clears trades in small company stocks, known in the industry as “small cap”, “micro cap” or “emerging market” securities. “. Regulators allege Alpine charged exorbitant monthly fees of $5,000 per customer and carried out unauthorized transactions worth $54 million. The attorney representing the company said regulators simply had a “distaste for trading in micro-cap markets,” resulting in a flood of litigation against Alpine.

“Alpine was one of the few companies that was willing to execute these microcap trades. What we were doing was trying to figure out how to continue to operate in a radically different regulatory environment,” the lawyer said. Maranda Fritz, referring to deposit requirements that forced the company to hold more money in the bank for each transaction and, according to Alpine, made it impossible to work with retail customers.

“It makes absolutely no sense that the SEC thinks this is a good use of time,” she said. “We don’t have double jeopardy rights in this regulatory environment.”

Alpine has over $10 million in net equity on its balance sheet, according as of its last disclosure to the SEC. An unaudited statement in late March, said he had $1.5 million, plus several more million in an escrow account in case he had to pay restitution in the FINRA decision that Alpine is appealing. Last September, the SEC released an earlier FINRA case that began in 2015 and would have barred Alpine owner John Hurry from the industry. Instead, an SEC administrative panel ruled that FINRA’s National Arbitration Board had “incorrectly applied legal standards” in the case.

Alpine’s argument that the microcap brokerage business is becoming prohibitive contains at least a kernel of truth among industry experts like longtime recruiter Jon Henschen of Henschen & Associates.

Anything as “high risk” as microcap stocks “swimming against the tide” of recent execution cases, Henschen said. He notes that there are “a lot of Utah puff companies that have come and gone,” but Alpine posted a significant amount of net equity in the record last year. However, he faces a tough climb in his quest to defeat the Regulators.

“FINRA will always spend them more in case of litigation,” Henschen said. “It’s hard to swim against the wave of lawyers who can sue you.”

The SEC and FINRA are attacking Alpine in two different cases, with Alpine appealing its March eviction by an administrative committee of FINRA which ordered him to pay $2.3 million compensation for “unreasonable” costs. FINRA first filed the case three years ago. The ruling earlier in the year cited some of the same allegations as the SEC case, though it widely took Alpine to task over the charges it said were “unfair” and “applied in a discriminatory manner.”

Alpine’s handling of the closure of retail customer accounts in May and June 2019 has come under scrutiny in the SEC case, which the regulator deposit on August 10 in federal court in Las Vegas. The company sold $268,000 of securities from accounts it deemed “worthless” due to increased net capital requirements and transferred tens of millions of dollars of securities from 545 client accounts it declared “abandoned” under his own control, according to the investigators. Alpine only returned the money after several complaints and a FINRA investigation, according to the SEC.

The company says it sent messages to retail customers for nine months informing them of the higher fees and explaining how to close their accounts. Fritz, Alpine’s attorney, said the brokerage “immediately reversed the transactions” after the $54 million was transferred to accounts it controlled. In an Aug. 9 filing that is part of its appeal of FINRA’s decision, Alpine faulted former CEO Chris Doubek for taking actions that were “not directed by or known to the property.”

The panel’s March decision contained “erroneous factual assertions layered on top of unsubstantiated legal assumptions,” the filing said. “And these errors are then amplified by the severe and unprecedented sanction imposed on Alpine.”

Efforts to contact Doubek, who is charged in the SEC case this month alongside current Alpine chief operating officer Joseph Walsh, have failed.

Alpine has filed civil lawsuits and arbitration claims seeking the return of $1.3 million, according to Doubek and a hijacked company accomplice, according to its financial communication. A jury in federal court in Tampa, Fla., awarded him $932,000 in damages based on unjust enrichment allegations against pre-Doubek CEO Chris Frankel, the document says. Frankel has denied those allegations and is challenging the decision on procedural grounds.

Financial advisers should be aware of the Alpine saga, in case they get caught up in a similar standoff with regulators, Fritz said.

“The SEC is absolutely replicating a FINRA case that we have litigated for so many years,” she said. “They’re doing everything they can to essentially shut down the microcaps markets, and a lot of what’s happening to Alpine is a result of that.”