FINRA bans Alpine Securities for charging $5k monthly fees without consent

Rick Steves

None of the firm’s customers authorized the firm’s transfers of their securities or seizures of cash to cover the $5,000 monthly fee.

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FINRA has expelled Salt Lake City-based broker-dealer Alpine Securities Corp. from membership and ordered the firm to pay more than $2.3 million in restitution to customers.

Alpine Securities was banned by the regulator for converting and misusing customer funds and securities, engaging in unauthorized trading, charging customers unfair prices in securities transactions and unreasonable fees, and making an unauthorized capital withdrawal.

At issue in this case was whether Alpine Securities acted properly in response to the firm’s mounting financial challenges due to an increase in clearing-related, compliance and legal expenses.

Alpine Securities was one of the largest clearing firms in the United States but profits declined precipitously in 2018, making it difficult to continue its retail securities business.

In August 2018, Alpine Securities advised customers that it would stop carrying retail accounts and impose additional fees, including a $5,000 monthly account fee, on retail customers who did not close their accounts.

FINRA concluded the broker provided minimal notice to its customers of its change in business plan and additional fees. In addition, customers encountered difficulties reaching the firm to ask questions due to understaffing and an inadequate telephone system, and overall changes to the back-office.

Many customers also encountered difficulties logging into their accounts online and were unable to reach Alpine Securities staff to resolve issues.

After a 19-day hearing, the panel found that:

Alpine Securities’ $5,000 monthly account fee, 1 percent per day illiquidity and volatility fee, and $1,500 certificate withdrawal fee were unreasonable and the $5,000 fee was applied in a discriminatory manner;
The firm’s appropriation of customer positions valued at $1,500 or less for one penny per position and 2.5 percent market-making/execution fee resulted in unfair prices and commissions;
The firm converted and misused customer funds and securities by removing customer securities it improperly deemed “abandoned” and “worthless” and seizing customer securities to cover debits related to excessive and unreasonable fees;
The firm engaged in unauthorized trading by moving customers’ securities from customer accounts to firm accounts without customer authorization, purportedly to cover outstanding debits and because the firm improperly identified the securities as “worthless,” and by moving customers’ securities from customer accounts to the firm’s abandoned securities accounts without customer authorization because the firm improperly identified the accounts as “abandoned;” and
The firm executed an unauthorized capital withdrawal.

None of the firm’s customers authorized the firm’s transfers of their securities or seizures of cash to cover the $5,000 monthly fee.

Moreover, the hearing panel found some customers paid some or all of the $5,000 fee because they were forced to do so in order to regain possession of their other holdings, but no customer authorized a removal of funds and securities to cover the unreasonable fee.

In most instances, the customers were not even aware of the $5,000 monthly account fee, let alone that the firm was taking their cash and securities to cover it.

Alpine Securities can still appeal to FINRA’s National Adjudicatory Council (NAC) and the decision can be called for review by the NAC. The decision becomes final after 45 days.

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