August 14, 2019
Alpine Securities Corporation (Alpine), a broker-dealer based in Salt Lake City, Utah, was recently named respondent in a Complaint brought forth by FINRA for allegedly converting and misusing customers’ securities, including implementing a series of exorbitant and arbitrary fees.
In July 2018, John Hurry, who acquired Alpine in 2011, was barred from associating with FINRA member firms in any capacity following its finding that he had created a broker-dealer overseas to evade federal securities laws in his Scottsdale office.
In December 2018, the court granted an SEC motion for summary judgment, concluding that Alpine had failed to file thousands of suspicious activity reports (SARs) and had filed thousands of other SARs with deficient information. The SEC filed a Motion for Remedies requesting that the court impose a $22 million fine against Alpine.
Now, FINRA alleges that Alpine instituted a $5,000 monthly account fee, which represented an increase of approximately 60,000% from the firm’s prior $100 annual account fee. Alpine then used these fees to convert customer funds. Alpine also pressured its customers into re-certificating their shares, applying a 100% or 200% markup to the DTC certificate withdrawal fee, and charged them an “illiquidity and volatility fee” through which the firm collected at least $1 million. To satisfy the significant debits the customers’ incurred in their accounts, Alpine told them that it would liquidate their securities or transfer them to proprietary Alpine accounts. In June 2019 alone, Alpine transferred over $950,000 in customer securities to these proprietary accounts.
FINRA further alleges that in early 2019, Alpine deemed any customer securities valued at $1,500 or less to be “worthless,” which it claimed entitled the securities to be purchased by Alpine for one penny per position. According to the Complaint, Alpine purchased or moved nearly $910,000 of these “worthless” customer securities, thus converting millions of shares of securities from its customers for its own benefit and only informed the customers of this activity after the fact. Alpine allegedly backdated a letter to customers and mailed it to the customers a full ten days after taking their securities without their knowledge or authorization. When customers received the letter, many attempted to contact the firm, but Alpine had closed its office, limited access to customers’ accounts on its web portal, and only provided a generic email address for customer contact, though Alpine was largely unresponsive to the customers’ questions.
FINRA also alleges in the Complaint that Alpine has been looting the firm since early 2019. Specifically, Alpine effected six capital withdrawals totaling approximately $2.8 million by claiming to make expense payments to affiliates. First, Alpine amended its pre-existing loan agreement with its affiliate lender, Alpine Securities Holding Corporation (Alpine Holding), to dramatically increase its payments for its line of credit. Then Alpine paid its affiliated landlord, SCAP 9 LLC (SCAP) over $600,000 in response to SCAP’s purported request for payment of “common area maintenance” charges, in addition to the monthly rent and insurance coverage.
Alpine violated FINRA Rule 2150 for converting customer funds, FINRA Rule 2150 for misusing customer assets, FINRA Rule 2010 for unauthorized trading, FINRA Rule 2121 for implementing unfair prices and commissions, FINRA Rule 2122 for unreasonable and discriminatory fees, and FINRA Rule 4110(c) for unauthorized capital withdrawals.