Alpine Securities Corporation (Alpine), a penny stock broker, recently lost its years-long battle to curtail what it called Securities and Exchange Commission (SEC) "enforcement" of certain Bank Secrecy Act (BSA) recordkeeping requirements on broker-dealers, when the US Supreme Court denied Alpine's petition for certiorari regarding a 2019 SEC action against Alpine for failing to file Suspicious Activity Reports (SARs). As we explained in our previous post about Alpine's petition, the penny stock broker argued that the SEC did not have the statutory authority under the Securities Exchange Act of 1934 (Exchange Act) to apply the SAR filing requirements in the BSA on broker-dealers because, among other reasons, Congress expressly delegated BSA enforcement authority to the US Department of Treasury, not to the SEC. Thus, according to Alpine, the SEC's use of SAR recordkeeping requirements as the predicate for an enforcement action amounted to exercising powers that Congress never granted it.
While the Court did not shed light on the merits of its denial, the effect is a clear signal to Alpine and other broker-dealers: for now, the SEC has the authority under Section 17(a) of the Exchange Act (and Rule 17a-8) to enforce BSA recordkeeping requirements, including suspicious activity reporting, on broker-dealers.
SEC's Focus on Broker-Dealer AML Compliance
Of course, the denial of Alpine's petition to curtail SEC enforcement of SAR-related actions comes amidst the Commission's broader focus on prioritizing broker-dealer compliance with anti-money laundering (AML) provisions within the BSA. As we have previously described, the Commission recently has been successful in bringing SAR-related actions under the Exchange Act against broker-dealers, such as Alpine and GWFS Equities Inc., who fail to comply with SAR recordkeeping requirements.
SEC "Enforcement" of SAR Requirements on Broker-Dealers Is Likely to Stay
SAR recordkeeping compliance has long been viewed as low-hanging fruit for regulators, who can identify non-compliance with the rules relatively easily. Many broker-dealers also are simply unaware of the enforcement risk they face if their suspicious activity monitoring and reporting policies and procedures are not properly designed. Alpine's case solidifies compliance with Rule 17a-8 as a core area of SEC enforcement interest.
While the Supreme Court did not expressly endorse the interpretation that Section 17(a) of the Exchange Act grants the SEC the authority to enforce BSA recordkeeping requirements, the Court certainly did not take the opportunity to review this putative "overreach" by the SEC at this time, as it did in Liu v. SEC, 140 S. Ct. 1936 (2020). This denial of certiorari, combined with the Commission's recent successes in SAR-related enforcement actions, may well embolden the Commission to continue prioritizing and bringing enforcement actions against broker-dealers based on violations of SAR recordkeeping requirements. At a minimum, broker-dealers should review their AML policies and procedures to ensure that they incorporate guidance and expectations of the regulators (including procedures that ensure sufficient and complete SAR narratives) and provide training to firm personnel on their AML obligations.
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