Citations
- 308 F. Supp. 3d 775
Full opinion text
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.
I. Alpine's Business
Alpine is a broker-dealer that primarily provides clearing services for microcap securities traded in the over-the-counter market. 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 provided by the Financial Crimes Enforcement Network ("FinCEN") 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. See Alpine Apr. 11, 2013 WSPs at 152. 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 involving certain types of securities, such as penny stocks ....
Alpine Jan. 5, 2012 WSPs at 40-41. This list is consistent across the WSPs. 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 pre-determined 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 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 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.
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 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. The narrative portion states as follows: 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 [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 $2--,---.--. Alpine Securities is filing a suspicious activity report because this deposit involves a large volume of shares of a low-priced security and also has a high estimated value.
The SAR E support file contains search results indicating that the customer had previously pleaded guilty to conspiracy relating to counterfeiting, and the SEC contends that SAR E was deficient because it failed to disclose that information.
SAR F was filed on May 5, 2014. The narrative states as follows:
[Customer] is a client of [SCA], a firm for which Alpine Securities provides securities clearing services. On or around [date, this customer] deposited a physical stock certificate(s) representing a large quantity (1-,---,--- shares) of [issuer], a low-priced ($.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 low-priced 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. 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 $7,---.--.
The SEC alleges that SAR H is deficient because it fails to disclose a history of stock promotion by the issuer and that a foreign entity was involved in the transaction, both pieces of information contained in the SAR H support file.
SAR J was filed on July 16, 2012. The SAR narrative states that the customer is a client of SCA, and that
[d]ue to the activity within this account, it has been placed on a Heightened Supervisory list. It is policy of Alpine to file a SARs [sic] related to each deposit of securities into accounts of this nature. On or around [date, this customer] deposited a large quantity (6-,---,--- shares) of [issuer], a low-priced ($.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. 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 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 $3--,---.--. [This customer] deposited the shares for the benefit of [the customer's] sub-account [name] who is a resident of Panama.
The SEC alleges that SAR N is deficient because it fails to report that the security at issue had a trading volume of around 100,000 shares per day, more than 600 times smaller than the single deposit reported in the SAR, information contained in the support file.
SAR P was filed on March 6, 2014. The SAR P narrative states that the customer is a client of SCA, and that on a given date the customer
deposited a physical stock certificate(s) representing a large quantity (5--,--- shares) of [issuer], a low-priced ($.55/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 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.
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. These SARs are labeled Missing File SARs 1 through 5. 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 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.
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. The SEC's motion became fully submitted on February 9, 2018. 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 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 two-part framework established in Chevron, U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (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. NLRB, 510 U.S. 317, 324, 114 S.Ct. 835, 127 L.Ed.2d 152 (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, 67 S.Ct. 1760, 91 L.Ed. 1995 (1947) ; see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 221, 109 S.Ct. 468, 102 L.Ed.2d 493 (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 "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, 131 S.Ct. 2254, 180 L.Ed.2d 96 (2011). This kind of deference is referred to as " Auer deference" after Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), but it is "warranted only when the language of the regulation is ambiguous." Christensen v. Harris Cty., 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000). 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, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944) ). This level of deference is referred to as 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, 124 S.Ct. 983, 157 L.Ed.2d 967 (2004) ; Christensen, 529 U.S. at 588, 120 S.Ct. 1655. 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 Millenium 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. See 15 U.S.C. § 78b ; id. § 78q-1. 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 ... 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 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." 17 C.F.R. § 240.17a-8. 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 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 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. 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"). See SAR Narrative Guidance at 3-6; SAR Activity Review, Issue 22, at 39-40; 2012 SAR Instructions at 110-12. The who encompasses 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 low-priced and thinly traded securities" followed by the "[s]ystematic sale of those low-priced securities shortly after being deposited." SAR Activity Review, Issue 15, at 24. 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"). The second became mandatory in 2012 ("2012 Form").
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 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.
Beginning in 2012, FinCEN switched to an e-file system. 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. 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. § 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 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). 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
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 broker-dealer, 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 broker-dealer 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 to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder." FINRA Rule 3310 (2015).
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.
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." 17 C.F.R. § 240.17a-8. 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). Alpine raises two principal issues with Rule 17a-8. First, Alpine argues that the rule itself is not a reasonable interpretation of the Exchange Act, and is therefore invalid. 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-and-comment procedures after the significant 2002 revisions to the 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 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." 15 U.S.C. § 78b ; see also 15 U.S.C. § 78q-1. 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) (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, 110 S.Ct. 1384, 108 L.Ed.2d 585 (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 Regulations." 17 C.F.R. § 240.17a-8. Rather than imposing a separate and competing set of reporting obligations on broker-dealers, 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. 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 Fed.Appx. 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. Accordingly, Alpine's motion for summary judgment is denied. 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 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. See 15 U.S.C. § 78q ; 17 C.F.R. § 240.17a-8. 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 alleges lack certain required information. Within this category are seven subcategories. 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: over 40, over 5 and over 5 million shares, respectively. 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. The narratives for SARs B and C are similarly unhelpful. SAR B states that "Alpine is filing a SAR due to the 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. 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 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. See id. § 1023.320(e)(1)(ii)(A)(2)(i). 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 it was required to file a SAR for these transactions. Alp