## Facts

- Alpine Securities Corporation was a registered, self-clearing broker-dealer specializing in penny stocks and micro-cap securities.
- Broker-dealers are subject to Bank Secrecy Act (BSA) regulations requiring Suspicious Activity Reports (SARs) and retention of supporting documentation.
- Exchange Act § 17(a) authorizes the SEC to require broker-dealers to make and keep records and file reports; SEC Rule 17a-8 requires broker-dealers to comply with certain BSA reporting and recordkeeping duties.
- The SEC alleged that, from at least May 2011 through December 2015, Alpine repeatedly failed to comply with SAR-related obligations, including:
  - failing to file SARs for suspicious transactions,
  - filing SARs late,
  - omitting material red flags and other required information from SARs, and
  - failing to maintain or retain SAR supporting records.
- The district court granted partial summary judgment for the SEC, found numerous violations of § 17(a) and Rule 17a-8, imposed a permanent injunction, and assessed a $12 million civil penalty.
- Alpine appealed, challenging the SEC’s authority, the validity of Rule 17a-8, alleged Administrative Procedure Act (APA) defects, and the liability and penalty determinations.

## Issues

1. Whether the SEC may bring an enforcement action under Exchange Act § 17(a) and Rule 17a-8 based on a broker-dealer’s noncompliance with BSA SAR requirements.
2. Whether Rule 17a-8 is a valid exercise of the SEC’s § 17(a) authority or an impermissible attempt to enforce the BSA contrary to its statutory enforcement scheme.
3. Whether Rule 17a-8 violates the APA.
4. Whether the district court erred in finding Alpine liable and in imposing injunctive relief and a $12 million civil penalty.

## Decision

- The Second Circuit affirmed the district court’s judgment in full.
- The SEC has authority under § 17(a) and Rule 17a-8 to prosecute broker-dealer failures to satisfy SAR-related duties that Rule 17a-8 incorporates.
- Rule 17a-8 is within the SEC’s statutory authority and is not invalid merely because it incorporates obligations that also exist under Treasury/FinCEN’s BSA regulations.
- Alpine’s APA challenges failed.
- The district court’s liability findings, permanent injunction, and $12 million civil penalty were upheld.

## Legal Principles

- Exchange Act § 17(a) authorizes the SEC to impose and enforce broker-dealer recordkeeping and reporting duties in the public interest and for investor protection.
- An SEC rule may lawfully incorporate by reference reporting and recordkeeping obligations that also arise under another federal regulatory regime, and SEC enforcement of the SEC rule is not the same as enforcing the other regime’s statute.
- Overlapping federal regulatory schemes may coexist: Treasury/FinCEN may enforce the BSA, while the SEC may enforce securities-law requirements that incorporate BSA-based duties.
- Broker-dealer SAR compliance obligations include timely filing, inclusion of required information (including known red flags), and retention of supporting documentation; failures may support injunctive relief and substantial civil penalties.

## Conclusion

The Second Circuit held that the SEC can enforce broker-dealer SAR-related duties through Exchange Act § 17(a) and Rule 17a-8, rejected challenges to Rule 17a-8 under statutory and APA theories, and affirmed findings of widespread SAR compliance failures and the resulting injunction and $12 million penalty.


SEC v. Alpine Sec. Corp., 982 F.3d 68 (2d Cir. 2020)