United States Securities and Exchange Commission v. Alpine Securities

982 F.3d 68

• Court: Court of Appeals for the Second Circuit
• Decided: December 4, 2020
• Docket: 19-3272
• Status: Published

Opinion

19-3272 United States Securities and Exchange Commission v. Alpine Securities Corporation

In the United States Court of Appeals For the Second Circuit ________

AUGUST TERM, 2019

ARGUED: MARCH 31, 2020 DECIDED: DECEMBER 4, 2020

No. 19-3272

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,

v.

ALPINE SECURITIES CORPORATION, Defendant-Appellant. ________

Appeal from the United States District Court for the Southern District of New York. ________

Before: WALKER, CABRANES, and SACK, Circuit Judges. ________

The Securities and Exchange Commission (SEC) filed a civil

enforcement action against Alpine Securities Corporation (Alpine), a

registered broker-dealer specializing in penny stocks and micro-cap

securities. The SEC claimed that Alpine’s failure to comply with the 2 No. 19-3272

reporting requirements for filing Suspicious Activity Reports (SARs)

violated the reporting, recordkeeping, and record retention

obligations under Section 17(a), of the Securities Exchange Act of 1934

(Exchange Act), and Rule 17a-8 promulgated thereunder. The district

court granted in part and denied in part the SEC’s motion for

summary judgment and denied Alpine’s motion for summary

judgment.

On appeal, Alpine argues that the district court erred: (1) in

concluding that the SEC has authority to bring an enforcement action

under Section 17(a) and Rule 17a-8 on the basis of Alpine’s failure to

comply with the SAR provisions of the Bank Secrecy Act (BSA); (2) in

concluding that Rule 17a-8 is valid; (3) in concluding that Rule 17a-8

does not violate the Administrative Procedure Act (APA); and (4) in

finding Alpine liable for violations of Section 17(a) and Rule 17a-8 on

the basis of its deficient SAR practices. Alpine further challenges the

district court’s imposition of a civil penalty under the Exchange Act

in the amount of $12 million.

For the reasons that follow, we AFFIRM the judgment of the

district court.

________

RACHEL M. MCKENZIE, Senior Counsel (Michael A. Conley, Solicitor; Daniel Staroselsky, Senior Litigation Counsel, on the brief), for Robert B. Stebbins, General Counsel, Securities and 3 No. 19-3272

Exchange Commission, Washington, D.C., for Plaintiff-Appellee.

MARANDA FRITZ, Thompson Hine LLP, New York, NY (Brent R. Baker, Jonathan D. Bletzacker, Aaron D. Lebenta, Clyde Snow & Sessions, Salt Lake City, UT, on the brief) for Defendant-Appellant.

JOHN M. WALKER, JR., Circuit Judge:

enforcement action against Alpine Securities Corporation (Alpine), a

registered broker-dealer specializing in penny stocks and micro-cap

securities. The SEC claimed that Alpine’s failure to comply with the

reporting requirements for filing Suspicious Activity Reports (SARs)

obligations under Section 17(a), of the Securities Exchange Act of 1934

(Exchange Act), and Rule 17a-8 promulgated thereunder. The District

Court for the Southern District of New York (Denise L. Cote, J.),

granted in part and denied in part the SEC’s motion for summary

judgment and denied Alpine’s motion for summary judgment.

On appeal, Alpine argues that the district court erred: (1) in

concluding that the SEC has authority to bring an enforcement action

under Section 17(a) and Rule 17a-8 on the basis of Alpine’s failure to

comply with the SAR provisions of the Bank Secrecy Act (BSA); (2) in

concluding that Rule 17a-8 is valid; (3) in concluding that Rule 17a-8 4 No. 19-3272

does not violate the Administrative Procedure Act (APA); and (4) in

finding Alpine liable for violations of Section 17(a) and Rule 17a-8 on

the basis of its deficient SAR practices. Alpine further challenges the

district court’s imposition of a civil penalty under the Exchange Act

BACKGROUND

Prior to examining the issues in this case, a brief review of the

relevant statutory and regulatory authority will be helpful.

i. The Bank Secrecy Act

Congress enacted the Foreign Transactions Reporting Act of

1970, or Bank Secrecy Act (BSA), in 1970 due to concerns over (1) the

adequacy of records retained by domestic financial institutions, (2)

the failure of such institutions to report to the government large

deposits and withdrawals of currency,1 and (3) the use of foreign

financial institutions to evade “domestic criminal, tax, and regulatory

enactments.” 2

1California Bankers Ass’n v. Shultz, 416 U.S. 21, 27-28 (1974). 2Id.; see also Ratzlaf v. United States, 510 U.S. 135, 138 (1994) (“Congress enacted the Currency and Foreign Transactions Reporting Act (Bank Secrecy Act) in 1970, Pub.L. 91–508, Tit. II, 84 Stat. 1118, in response to increasing use of banks and other institutions as financial intermediaries by persons engaged in criminal activity. The Act imposes a variety of reporting requirements on individuals and institutions regarding foreign and domestic financial transactions.”). 5 No. 19-3272

The BSA authorizes the Secretary of the Treasury to mandate

certain recordkeeping and reporting requirements for United States

financial institutions. 3 In enacting the BSA, Congress concluded that

such records and reports “have a high degree of usefulness in

criminal, tax, or regulatory investigations or proceedings.” 4

When the BSA was initially enacted, Treasury regulations only

required broker-dealers to retain records and file reports relating to

domestic and foreign transactions above a certain dollar amount. 5 In

2001, however, Congress amended the BSA through the USA

PATRIOT Act to require the Treasury, after consultation with the SEC

and Board of Governors of the Federal Reserve System, to publish

regulations requiring broker-dealers to report suspicious

transactions. 6 The Secretary of the Treasury delegated that

responsibility to the Financial Crimes Enforcement Network

(FinCEN) within the Treasury Department. 7

In 2002, FinCEN promulgated 31 C.F.R. § 1023.320, which

requires every broker-dealer to file a report of any suspicious

3California Bankers Ass’n, 416 U.S. at 26. 4Id. (citing 12 U.S.C. §§ 1829b(a)(2), 1951; 31 U.S.C. § 1051). 5 See id. at 30-38.

6 Financial Crimes Enforcement Network; Amendment to the Bank

Secrecy Act Regulations–Requirement that Brokers or Dealers in Securities Report Suspicious Transactions, 67 Fed. Reg. 44,048 (July 1, 2002) (SAR Regulation Adopting Release). 7 Treasury Order 180-01(a)-(b); Financial Crimes Enforcement Network,

67 Fed. Reg. 64,697 (Oct. 21, 2002). 6 No. 19-3272

transaction relevant to a possible violation of law or regulation.

Specifically, broker-dealers must file a SAR if a transaction “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):” (1)

“[i]nvolves funds derived from illegal activity;” (2) is designed,

“whether through structuring or other means, to evade” the BSA and

its regulations; (3) “[h]as no business or apparent lawful purpose;” or

(4) “[i]nvolves use of the broker-dealer to facilitate criminal activity.” 8

Section 1023.320 also requires broker-dealers to retain a copy of any

SAR filed “for a period of five years from the date of filing” and to

“make all supporting documentation available to FinCEN or any

Federal, State, or local law enforcement agency, or any Federal

regulatory authority that examines the broker-dealer for compliance

with the Bank Secrecy Act, upon request.” 9

Upon the issuance of this regulation, FinCEN announced that

the “regulation of the securities industry in general and of broker-

dealers in particular relies on both the Securities and Exchange

8 31 C.F.R. § 1023.320(a)(2). 9 31 C.F.R. § 1023.320(d). 7 No. 19-3272

Commission . . . and the registered securities associations and

national securities exchanges.” 10

ii. The Exchange Act

The Exchange Act delegates to the SEC broad authority to

regulate brokers and dealers in securities. 11 Section 17(a) of the

Exchange Act authorizes the SEC to promulgate rules to carry out

Section 17(a)’s requirement that brokers and dealers “make and keep

for prescribed periods such records . . . 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.” 12

In 1981, the SEC promulgated Rule 17a-8 under Section 17(a).

Rule 17a-8, instead of duplicating the reporting and retention

requirements of the BSA, incorporated those requirements by

mandating that every registered broker or dealer “who is subject to

the requirements of the Currency and Foreign Transactions Reporting

Act of 1970 [Bank Secrecy Act] shall comply with the reporting,

recordkeeping and record retention requirements of chapter X of title

31 of the Code of Federal Regulations.” 13 Chapter X of Title 31

10 SAR Regulation Adopting Release, 67 Fed. Reg. at 44,049. 11 See 15 U.S.C. § 78b; id. § 78q–1.

12 15 U.S.C. § 78q(a)(1).

13 17 C.F.R. § 240.17a-8. 8 No. 19-3272

concerns the Treasury’s rules for brokers or dealers in securities,

including FinCEN’s SAR requirements under Section 1023.320.

The SEC observed that by not duplicating the existing BSA

Treasury requirements, Rule 17a-8 would impose “no burden on

competition.” 14 The SEC further specified that the Rule was not

confined to any specific identifiable reports and records so as to allow

for any revisions to reporting requirements that the Treasury may

adopt in the future.15 No comments were received from the public in

response to the proposed rule. 16 In 2011, the SEC amended Rule 17a-

8 to make clear that it still considered the Treasury’s reporting

obligations, which at that point included the SAR reporting

requirement, as promoting the goals of the Exchange Act. 17

iii. Current Enforcement Action

Alpine is a registered broker-dealer and Financial Industry

Regulatory Authority (FINRA) member that “acts as a clearing

firm.” 18 Over the years, the SEC and FINRA, which is overseen by the

SEC, found numerous deficiencies in Alpine’s SAR reporting

standards and submissions. In 2012, FINRA found that Alpine failed

14 Recordkeeping by Brokers and Dealers, 46 Fed. Reg. 61,454, 61,455 (Dec. 17, 1981) (Rule 17a-8 Adopting Release). 15 Id.

16 Id.

17 Technical Amendments to Rule 17a-8: Financial Recordkeeping and

Reporting of Currency and Foreign Transactions, 76 Fed. Reg. 11,327 (Mar. 2, 2011). 18 App’x 48, 50. 9 No. 19-3272

to file SARs over a two-month and a four-month period in 2011 and

that many SARs that Alpine did file were inadequate. In 2015, the

SEC found that for half of the SARs it reviewed, Alpine failed to

provide a clear and complete description of the financial activity

reported and that frequently Alpine was intentionally trying to

obscure the suspicious nature of that activity.

On June 5, 2017, the SEC filed this civil action against Alpine to

enforce reporting and recordkeeping requirements of the securities

laws. The SEC alleged that, through non-compliant SAR practices,

Alpine violated the reporting, recordkeeping, and record retention

obligations under Section 17(a) and Rule 17a-8. The SEC moved for

partial summary judgment, submitting SARs to exemplify the

categories of Section 17(a) and Rule 17a-8 violations it was alleging.

Alpine cross-moved for summary judgment, principally arguing that

the SEC lacked authority to bring such a suit because the Treasury

had sole authorization to enforce the BSA requirements.

The district court granted the SEC’s motion in part, but

deferred its resolution of categories of allegedly deficient SARs

pending discovery and additional briefing. The district court also

denied Alpine’s motion, rejecting Alpine’s argument that the SEC was

improperly enforcing the BSA and upholding the SEC’s authority to 10 No. 19-3272

enforce the reporting and recordkeeping provisions of the Exchange

Act on the basis of non-compliance with SAR requirements. 19

The district court determined that Rule 17a-8 was a reasonable

interpretation of the Exchange Act because the SEC concluded that

the SARs, which assist the Treasury Department in targeting illegal

securities transactions, would also serve to protect investors by

providing information relevant to determining whether there is any

market manipulation. 20 The district court further found that nothing

in the Exchange Act or the BSA expressly precluded FinCEN and the

SEC from exercising concurrent regulatory and enforcement

authority. 21

The district court also rejected Alpine’s argument that the SEC

violated the APA when promulgating Rule 17a-8. Specifically, the

district court noted that the “text of the regulation itself, as well as the

SEC’s 1981 notice of final rule, unambiguously demonstrate[d] the

SEC’s intent [that] the nature of the Rule 17a-8 reporting obligation

[would] evolve over time through the Treasury’s regulations.” 22 The

district court observed that Rule 17a-8’s evolving nature “made

United States Sec. & Exch. Comm'n v. Alpine Sec. Corp., 308 F. Supp. 3d 19

775, 789 (S.D.N.Y. 2018), reconsideration denied, No. 17CV4179(DLC), 2018 WL 3198889 (S.D.N.Y. June 18, 2018), and reconsideration denied, No. 17CV4179(DLC), 2019 WL 4071783 (S.D.N.Y. Aug. 29, 2019). 20 Id. at 796.

21 Id.

22 Id. at 797. 11 No. 19-3272

government more efficient by incorporating the obligations that had

been and would be imposed by the Treasury.” 23

After discovery and additional briefing, the SEC moved for

summary judgment as to Alpine’s liability for thousands of Rule 17a-

8 violations based on deficient SARs reporting and recordkeeping

practices. Evaluating the specific violations alleged, the district court

granted summary judgment to the SEC as to 2,720 violations of Rule

17a-8 on the basis of Alpine’s SARs reporting and recordkeeping

practices in three categories: submitting SARs with deficient

narratives, failing to submit SARs on deposit-and-sales patterns, and

failing to retain support files for SARs. The district court denied

summary judgment as to hundreds of other alleged violations by

Alpine, which the SEC then declined to prosecute further. 24

The district court then imposed a $12 million civil penalty and

enjoined Alpine from future violations of Section 17(a) and Rule 17a-

8. This appeal followed.

DISCUSSION

On appeal, Alpine argues (1) this enforcement action is invalid

because the SEC lacks authority to enforce the SAR provisions of the

Id. 23

24 See, e.g., United States Sec. & Exch. Comm'n v. Alpine Sec. Corp., 354 F.

Supp. 3d 396, 430-31, 443 (S.D.N.Y. 2018), reconsideration denied, No. 17CV4179(DLC), 2019 WL 4071783 (S.D.N.Y. Aug. 29, 2019). 12 No. 19-3272

BSA; (2) Rule 17a-8, which requires compliance with BSA

requirements, is invalid because it is not a reasonable interpretation

of the Exchange Act; (3) Rule 17a-8 is invalid because its promulgation

did not comply with the APA; and (4) the district court erred in

finding that Alpine violated Section 17(a) and Rule 17a-8 on the basis

of SAR compliance. Alpine further argues that the district court erred

in imposing a civil penalty of $12 million on Alpine.

We review motions for summary judgment de novo. 25

I. The SEC Has Authority to Enforce Section 17(a) of the

Exchange Act Through This Civil Action

Alpine first contends that the SEC is not authorized to bring

this civil enforcement action because the Treasury Department has

sole authority to enforce the BSA. We disagree.

This enforcement action was brought solely under Section 17(a)

of the Exchange Act and Rule 17a-8 promulgated thereunder. This

suit therefore falls within the SEC’s independent authority as the

primary federal regulator of broker-dealers to ensure that they

comply with reporting and recordkeeping requirements of those

provisions. 26 The fact that Rule 17a-8 requires broker-dealers to

25See United States v. Epskamp, 832 F.3d 154, 160 (2d Cir. 2016) (quoting Roach v. Morse, 440 F.3d 53, 56 (2d Cir. 2006)); Mario v. P & C Food Mkts, Inc., 313 F.3d 758, 763 (2d Cir. 2002). 26 See, e.g., VanCook v. SEC, 653 F.3d 130 (2d Cir. 2011) (enforcement

action for violation of Section 17(a)). 13 No. 19-3272

adhere to the dictates of the BSA in order to comply with the

recordkeeping and reporting provisions of the Exchange Act does not

constitute SEC enforcement of the BSA. We thus reject Alpine’s

argument that the SEC is enforcing the BSA, and not the Exchange

Act.

II. Rule 17a-8, Which Requires Compliance with BSA

Requirements, Is a Reasonable Interpretation of

Section 17(a) of the Exchange Act

Alpine next challenges the validity of Rule 17a-8, which

requires compliance with BSA requirements, on that basis that it is

not a reasonable interpretation of the Exchange Act.

We review questions of statutory interpretation de novo. 27

Because this issue centers on an agency’s interpretation of a statute,

we turn to the analytical framework established in Chevron, U.S.A. Inc.

v. Nat. Res. Def. Council, Inc. 28 “[A] reviewing court must first ask

whether Congress has directly spoken to the precise question at

issue.” 29 Only if the statute is ambiguous or silent on the question

need a court proceed in the analysis. If Congress has not clearly

See United States v. Epskamp, 832 F.3d 154, 160 (2d Cir. 2016) (quoting 27

Roach v. Morse, 440 F.3d 53, 56 (2d Cir. 2006)) 28 467 U.S. 837 (1984).

29 Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

132 (2000) (internal quotation marks omitted) (quoting Chevron, 467 U.S. at 842). 14 No. 19-3272

spoken, “a reviewing court must respect the agency’s construction of

the statute so long as it is permissible.” 30

The Exchange Act expressly delegates to the SEC the authority

to determine which reports from covered entities, including brokers

and dealers, are “necessary or appropriate” to further the goals of the

Exchange Act. The SEC, pursuant to that authority, may promulgate

rules defining the recordkeeping and reporting obligations of broker-

dealers that the SEC deems necessary to pursue those statutory

aims. 31

That is exactly what the SEC has done by promulgating Rule

17a-8. The Exchange Act aims to protect the national securities

market and “safeguard[] . . . securities and funds related thereto.” 32

The SEC determined that the SARs, which assist the Treasury

Department in targeting illegal securities transactions, would also

serve to further the aims of the Exchange Act by protecting investors

and helping to guard against market manipulation. For example,

SARs facilitate the SEC’s effective enforcement with regard to market

abuses associated with penny stock trading. 33 The SEC thus

30Id. (citing INS v. Aguirre-Aguirre, 526 U.S. 415, 424 (1999)). 31 15 U.S.C. § 78q(a)(1).

32 15 U.S.C. § 78b; see also 15 U.S.C. § 78q–1.

33 See Ronald S. Bloomfield, Robert Gorgia, & John Earl Martin, Sr., S.E.C.

Release No. 9553 (Feb. 27, 2014), vacated in part on other grounds, Robert Gorgia, S.E.C. Release No. 9743 (Apr. 8, 2015) (“Penny stocks present risks of trading abuses due to the lack of publicly available information about the 15 No. 19-3272

promulgated Rule 17a-8, which requires compliance with those BSA

regulations. In promulgating Rule 17a-8, the SEC acted pursuant to

an express delegation of rulemaking authority. We thus hold that the

SEC’s interpretation of Section 17(a), as expressed in Rule 17a-8, is

reasonable. 34

Alpine contends that in authorizing the Treasury to regulate

suspicious activity in recordkeeping and reporting by broker-dealers

under the BSA, Congress has precluded the SEC from regulating

recordkeeping and reporting under the Exchange Act.

When “[c]onfronted with two Acts of Congress allegedly

touching on the same topic, this Court is not at ‘liberty to pick and

choose among congressional enactments’ and must instead strive ‘to

penny stock market in general and the price and trading volume of particular penny stocks.”); see also Testimony Before the S. Comm. on Banking, Housing and Urban Affairs, 2002 WL 169600 (Jan. 29, 2002) (Annette L. Nazareth, Director, SEC Division of Market Regulation) (stating that the “SEC and Treasury staff readily reached consensus” on extending comparable SAR obligations to combat “money laundering risks.”). 34 Alpine’s argument that the district court improperly applied Auer

deference lacks merit. See Auer v. Robbins, 519 U.S. 452 (1997). As an initial matter, in Kisor v. Wilkie, the case on which Alpine relies, the Supreme Court held that “Auer deference retains an important role in construing agency regulations.” 139 S. Ct. 2400, 2408 (2019). Here, the text of Rule 17a-8 unambiguously encompasses the suspicious activity recordkeeping and reporting requirements of Section 1023.320 by referring to the chapter of the Code of Federal Regulations in which those provisions appear. To the extent there is any ambiguity in Rule 17a-8, the SEC’s interpretation is reasonable and not “plainly erroneous or inconsistent with the regulation.” Nat. Res. Def. Council v. EPA, 808 F.3d 556, 569 (2d Cir. 2015) (citation omitted). 16 No. 19-3272

give effect to both.’” 35 Because Alpine’s position is that the Exchange

Act and the BSA cannot be “harmonized,” it “bears the heavy

burden” of showing, based upon “a clearly expressed congressional

intention,” that such a result should follow. 36 Such an intention must

be “clear and manifest,” and courts “come armed with the stron[g]

presum[ption] that repeals by implication are disfavored and that

Congress will specifically address preexisting law when it wishes to

suspend its normal operations in a later statute.” 37

Here, the statutory and regulatory provisions are easily

harmonized. Rule 17a-8 requires broker-dealers to comply with the

duties imposed by the Treasury Department through the BSA. 38 Far

from conflicting, those duties imposed on broker-dealers by the BSA

are “consistent with the purposes of the Exchange Act and the [SEC]’s

obligation to enforce broker-dealer recordkeeping requirements.” 39

Rule 17a-8’s incorporation of the BSA’s reporting obligation serves

35Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1624 (2018) (some internal quotation marks omitted) (quoting Morton v. Mancari, 417 U.S. 535, 551 (1974)). 36 Id. (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S.

528, 533 (1995)). 37 Id. (internal citations and quotation marks omitted).

38 Specifically, the rule requires that “[e]very registered broker or dealer

who is subject to the requirements of the Currency and Foreign Transactions Reporting Act of 1970 [Bank Secrecy Act] 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. 39 Rule 17a-8 Adopting Release, 46 Fed. Reg. at 61,455. 17 No. 19-3272

the goal of regulatory enforcement by minimizing regulatory costs on

broker-dealers, who need only comply with one set of reporting

requirements. 40 And the Treasury and the SEC have plainly worked

in tandem, issuing policy statements and reports, and initiating

enforcement actions since the BSA’s inception. 41 For example,

FinCEN’s adoption of the SAR regulation in 2002 expressly

referenced Rule 17a-8 when it stated that “both the SEC and SROs

[self-regulatory organizations] will address broker-dealer

compliance” with the SAR reporting rule. 42

The two cases upon which Alpine relies, Food & Drug Admin. v.

Brown & Williamson Tobacco Corp. 43 and Nutritional Health All. v. Food

& Drug Admin, 44 are unavailing. In Brown & Williamson, the Supreme

Court rejected the claimed authority of the Food and Drug

Administration (FDA) to regulate tobacco products through the Food,

40Congress was fully aware of this enforcement design. See Testimony Before the S. Comm. on Banking, Housing and Urban Affairs, 2002 WL 169600 (Jan. 29, 2002) (Annette L. Nazareth, Director, SEC Division of Market Regulation) (stating that the SEC expected that, after Section 1023.320’s promulgation, “bank-affiliated broker-dealers should be subject to Treasury’s rule, rather than two separate SAR rules”). 41 See, e.g., Pinnacle Capital Markets, LLC, FinCEN No. 2010-4 (Aug. 26,

2010); Oppenheimer & Co., Inc., SEC Release No. 74141, 2015 WL 331117 (Jan. 27, 2015); SEC & FinCen, SEC and FinCEN Sign Information Sharing Agreement (Dec. 21, 2006). 42 SAR Regulation Adopting Release, 67 Fed. Reg. at 44,049.

43 529 U.S. 120 (2000).

44 318 F.3d 92, 104 (2d Cir. 2003). 18 No. 19-3272

Drug, and Cosmetic Act (FDCA). 45 In support, the Court pointed out

that such FDA authority would conflict with congressional intent

because, if that were the case, the FDCA would “require the agency

to ban [cigarettes]” which would “contradict Congress’ clear intent as

expressed in its more recent, tobacco-specific legislation.” 46 The

Court supported its holding by pointing out that: (1) Congress had

“considered and rejected bills that would have granted the FDA such

jurisdiction”; and (2) the FDA had taken the “long-held position that

it lacks jurisdiction under the FDCA to regulate tobacco products.” 47

Nothing approaching these circumstances is present here. Fully

aware that the SEC enforces the SAR provisions, Congress has never

indicated its disapproval of joint SAR reporting enforcement.

In Nutritional Health, we found that congressional intent

conflicted with FDA jurisdiction over certain products. 48 The FDA

claimed delegated authority under the FDCA to regulate the

packaging of dietary supplements and drugs for the purpose of

poison prevention. 49 We held the FDA’s interpretation of its authority

to be unreasonable because Congress had later passed the Poison

Prevention Packing Act (PPP Act), which “specifically targeted the

45 529 U.S. at 126. 46 Id. at 137, 143.

47 Id. at 144.

48 318 F.3d at 95.

49 Id. at 94. 19 No. 19-3272

problem of accidental poisoning,” 50 and the PPP Act “expressly

prohibited the FDA from prescribing ‘specific packaging designs,

product content, package quantity, or with [one] exception . . . [,]

labeling.’” 51 In our view, the FDA’s interpretation was impermissible

because the PPP Act “specifically and unambiguously” targeted and

prescribed its own regulatory approach to addressing the accidental

poisoning problem through packaging standards, and the Consumer

Product Safety Act “unambiguously transferred authority to

administer and enforce the PPP Act from the FDA to the [Consumer

Product Safety Commission (CPSC)].” 52 In both Brown & Williamson

and Nutritional Health, a history of expressed congressional intent

compelled the conclusion that the FDA lacked authority. No such

history is present here.

Alpine contends that Nutritional Health requires us to hold that

the later-enacted SAR provision “specifically and unambiguously”

demonstrates congressional intent for the Treasury to possess sole

authority to “address money laundering and terrorist financing

through the compilation of data derived from various financial

institutions.” According to Alpine, this “specific authorization” to the

50 Id. at 102. 51 Id. at 104.

52 Id. (citing Brown & Williamson, 529 U.S. at 132-33)). 20 No. 19-3272

Treasury Department trumps the general authorization to the SEC.

We disagree.

The SEC’s Rule 17a-8 Adopting Release, in 1981, expressly stated

that the “Treasury has delegated to the Commission the responsibility

for assuring compliance with the Currency Act and Treasury

regulations.” 53 No comments, or objections, were received from the

public in response to proposed Rule 17a-8. 54 Later, when FinCEN

adopted the SAR reporting requirements through 31 C.F.R. §

1023.320, it expressly stated that the Exchange Act enables “the SROs,

subject to SEC oversight, to examine for BSA compliance” and

therefore “both the SEC and SROs will address broker-dealer

compliance with this rule.” 55 That Congress never proposed to silo

SAR enforcement authority in the Treasury strongly suggests that

Congress intended for the SEC to maintain its compliance authority

and from the outset, it was envisioned by both agencies that the SEC

would have enforcement authority over broker-dealers.

In sum, Alpine has not met its “heavy burden” to show that

Congress “clearly expressed [its] intention” 56 to preclude the SEC

Rule 17a-8 Adopting Release, 46 Fed. Reg. at 61,454. 53

Id. Additionally, when this rule was proposed, FinCEN recognized 54

that the SEC played a primary role in “reporting and maintaining data about securities law violations” and that the SEC had the authority, under Rule 17a-8, to examine for BSA compliance. SAR Regulation Adopting Release, 67 Fed. Reg. at 44,051. 55 SAR Regulation Adopting Release, 67 Fed. Reg. at 44,049.

56 See Epic Sys. Corp., 138 S. Ct. at 1624. 21 No. 19-3272

from examining for SAR compliance in conjunction with FinCEN and

pursuant to authority delegated under the Exchange Act.

III. Rule 17a-8 Does Not Violate the Administrative

Procedure Act

Alpine next contends that, even if the SEC does have

rulemaking authority under Section 17(a), Rule 17a-8 violates the

APA. Specifically, Alpine argues that the open-ended nature of Rule

17a-8, which permits the automatic incorporation of future BSA

requirements, impermissibly allows the SEC to bypass the notice-

and-comment requirements of the APA. We disagree.

The APA “requires an agency conducting notice-and-

comment rulemaking to publish in its notice of proposed rulemaking

‘either the terms or substance of the proposed rule or a description of

the subjects and issues involved.’” 57 The public had an opportunity

to comment on both Rule 17a-8 and Section 1023.320(a)(2) of the BSA

regulations.

As discussed earlier, Rule 17a-8 was promulgated in 1981

before FinCEN adopted its current SAR reporting requirements. At

the time, the BSA regulations required broker-dealers to submit

reports of currency transactions and transactions involving foreign

accounts. The SEC indicated, when it proposed Rule 17a-8, that

Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 174 (2007) (quoting 5 57

U.S.C. § 553(b)(3)). 22 No. 19-3272

requiring broker-dealers to comply with the BSA was “consistent

with the purposes of the Exchange Act and the [SEC]’s obligation to

enforce broker-dealer recordkeeping requirements.” 58

Moreover, when it was published for notice and comment, the

proposed Rule 17a-8 expressly stated that it did “not specify the

required reports and records so as to allow for any revisions the

Treasury may adopt in the future.” 59 When the SEC formally adopted

the Rule, in its Rule 17a-8 Adopting Release, the SEC further made clear

that the Rule would “allow for any revisions the Treasury may adopt

in the future.” 60

Accordingly, we conclude that the public was afforded the

requisite notice and opportunity to comment on Rule 17a-8 and, in

particular, its potential to require additional reporting requirements

should the Treasury regulations specify them.

Recordkeeping by Brokers & Dealers, Release No. 18073 (Aug. 31, 1981). 58

Rule 17a-8 Adopting Release, 46 Fed. Reg. at 61,455. Alpine argues 59

that the SEC’s Rule 17a-8 Adopting Release also acknowledged that its role, with respect to the BSA, was limited to merely examination authority. That seems to be a mischaracterization. Rule 17a-8 Adopting Release stated that “most effective means of enforcing compliance” with the BSA requirements was through on-site “examinations” but there is no indication that SEC was limited to mere examination and could not enforce the BSA provisions. The same notice stated that the “Treasury has delegated to the Commission the responsibility for assuring compliance with the Currency Act and Treasury regulations.” 46 Fed. Reg. at 61,454. 60 Rule 17a-8 Adopting Release, 46 Fed. Reg. at 61,454. 23 No. 19-3272

The suspicious activity recordkeeping and reporting

requirements of Section 1023.320(a)(2), incorporated into Rule 17a-8,

were also subject to public notice-and-comment. In 2002, when it

proposed Section 1023.320(a)(2), FinCEN publicly stated that both the

SEC and SROs would “address broker-dealer compliance” with its

requirements, including through enforcement actions, as they had

done with other BSA recordkeeping and reporting requirements for

decades. 61 In response to comments it received, FinCEN revised its

proposed rule in “significant respects” and provided extensive

guidance regarding, among other matters, the standard and scope of

reporting. 62 The publication of the SAR regulations under Section

1023.320(a)(2) provided ample notice-and-comment opportunities in

satisfaction of the APA’s requirements.

We reject Alpine’s argument that the SEC was required to seek

future public comments each time FinCEN issued new BSA reporting

requirements to avoid an “improper delegation [to Treasury] of

rulemaking authority under the Exchange Act.” Alpine Br. 42-43.

“An agency delegates its authority when it shifts to another

party almost the entire determination of whether a specific statutory

Financial Crimes Enforcement Network; Proposed Amendment to the 61

Bank Secrecy Act Regulations—Requirement of Brokers or Dealers in Securities to Report Suspicious Transactions, 66 Fed. Reg. 67,670 (Dec. 31, 2001). 62 SAR Regulation Adopting Release, 67 Fed. Reg. at 44,049. 24 No. 19-3272

requirement . . . has been satisfied, or where the agency abdicates its

final reviewing authority.” 63 But Rule 17a-8 does not charge the

Treasury with deciding which recordkeeping and reporting

requirements would further the purposes of the Exchange Act.

Instead, the SEC determined, through notice-and-comment

rulemaking, that any reporting requirements that the Treasury

imposed on broker-dealers pursuant to its independent authority

under the BSA would be “consistent with the purposes of the

Exchange Act and the [SEC’s] obligation to enforce the broker-dealer

recordkeeper requirements.” 64

Moreover, the SEC has not taken the position that Rule 17a-8

obliges the SEC to automatically adopt any changes the Treasury may

make to the BSA’s recordkeeping and reporting requirements,

regardless of whether they are consistent with the purposes of the

Exchange Act. Rather, the SEC has worked together with FinCEN on

the SAR regulation, “update[d] the reference to the BSA

implementing regulations” in 2011, and in a formal adjudication,

reiterated that requiring broker-dealers to maintain records and file

reports of suspicious activity is consistent with the purposes of the

63Fund for Animals v. Kempthorne, 538 F.3d 124, 133 (2d Cir. 2008) (internal citations and quotation marks omitted). 64 Rule 17a-8 Adopting Release, 46 Fed. Reg. at 61,455. 25 No. 19-3272

Exchange Act. 65 Alpine has failed to demonstrate either that the SEC

has impermissibly delegated authority to the Treasury under the

Exchange Act, or that it has abdicated its final reviewing authority

relating to broker-dealer recordkeeping and reporting requirements.

Accordingly, in this case, there are no APA concerns because

the public was fully aware of the interrelated and cohesive nature of

the regulations of both agencies. Holding otherwise would only serve

to waste governmental resources and hinder efficient enforcement.

Because both Rule 17a-8 and the SAR regulation were open to

public comment, this situation is distinguishable from United States v.

Picciotto 66 and City of Idaho Falls v. F.E.R.C. 67 on which Alpine relies.

Neither case is apposite.

In United States v. Picciotto, the D.C. Circuit held that additional

conditions that were added to regulations governing the United

States Park Service violated the APA, notwithstanding that the

regulation contained an open-ended provision that had gone through

notice and comment. 68 But, unlike this case, in which the SAR

requirement had been promulgated by the Treasury in compliance

Technical Amendments to Rule 17a-8, 76 Fed. Reg. at 11,328; see also 65

Ronald S. Bloomfield et al., Release No. 71632, 2014 WL 768828 (Feb. 27, 2014). 66 875 F.2d 345 (D.C. Cir. 1989).

67 629 F.3d 222 (D.C. Cir. 2011).

68 875 F.2d at 346-47. 26 No. 19-3272

with the APA, the additional regulatory conditions in Picciotto were

never issued in compliance with the APA. 69

In City of Idaho Falls v. F.E.R.C, the Federal Energy Regulatory

Commission (FERC) had previously approved a methodology, used

by the Forest Service, for setting rental fees. 70 FERC then incorporated

a new Forest Service rental fee schedule without providing an

opportunity for notice and comment. 71 The D.C. Circuit held that

“[b]ecause FERC previously approved and used the old Forest

Service methodology, its implicit acceptance of the new methodology

in the 2009 Update marked a change in its own regulations” which

required notice-and-comment rulemaking. 72 Our case differs from

City of Idaho Falls because all changes to FinCEN reporting regulations

are open to public comment and will be APA compliant whenever

such changes occur, as happened with the issuance of Section

1023.320.

In sum, we find that because: (1) the SEC made clear in its

request for public comment that Rule 17a-8 incorporated present and

future Treasury SAR reporting requirements, and would be modified

accordingly; (2) FinCEN itself published its SAR reporting

requirements for public comment; and (3) FinCEN expressly notified

69 Id. 70 629 F.3d at 223.

71 Id. at 227-29.

72 Id. at 231. 27 No. 19-3272

the public that the SEC would continue to enforce the BSA’s reporting

changes, Rule 17a-8 did not violate the notice-and-comment

requirements of the APA.

IV. The District Court Did Not Err in Granting Summary

Judgment with Respect to the SARs

The district court granted summary judgment to the SEC as to

2,720 violations of Rule 17a-8 on the basis of certain of Alpine’s SARs

reporting and recordkeeping practices—specifically, submitting

SARs with deficient narratives, failing to submit SARs on deposit-

and-sales patterns, and failing to retain support files for SARs. Alpine

argues that the district court erred when it: (1) deferred to the SEC’s

interpretation of FinCEN guidance; and (2) applied a “purely

mechanical” test in finding that Alpine did not adequately comply

with its SAR reporting requirements. Both arguments are without

merit.

First, there is no indication in this record that the district court

improperly deferred to the SEC. The district court did nothing other

than independently interpret the supporting FinCEN documentation,

which was consistent with the SEC’s interpretation.

The district court stated that it was relying on “instructions on

the 2002 SAR Form, the 2012 SAR Instructions, and the SAR Narrative

Guidance issued [by FinCEN] in 2003.” 73 As relevant here, the 2002

73 Alpine Sec. Corp., 354 F. Supp. 3d at 414. 28 No. 19-3272

SAR Form makes clear that the narrative section of the SAR “is

critical.” 74 It further provides,

The care with which [the narrative section] 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. 75

The district court read the totality of the FinCEN guidance, in the 2002

SAR Form, 2003 Narrative Guidance, and 2012 Instructions, to

indicate that certain “red flags” may evidence SAR reporting

violations. The “red flags” included: (1) related litigation; (2) shell

companies and derogatory stock history; (3) stock promotion; (4)

unverified issuers; (5) low trading volume; (6) foreign involvement;

(7) basic customer information. 76

As one example, the district court found that Alpine failed on

multiple occasions to provide SAR information regarding related

litigation. Specifically, Alpine “omitted information, which was

present in Alpine’s support files for the SARs, [that] indicated that the

Id. at 413 (emphasis in original); 2002 SAR Form at 3 (emphasis in 74

original). 75 Alpine Sec. Corp., 354 F. Supp. 3d at 413-14 (emphasis in original).

76 Id. at 426-40. 29 No. 19-3272

SEC had sued one customer and its CEO for fraud in connection with

asset valuations and improper allocations of expenses, that another

customer had pleaded guilty to conspiracy related to counterfeiting,

and that yet another customer had a history of being investigated by

the SEC for misrepresentations.” 77

Once the district court determined that such “red flags”

triggered certain SAR obligations, it then used an objective test to

determine whether summary judgment was warranted. We agree

with the district court’s approach to summary judgment in this case

and reject Alpine’s argument that its own subjective belief as to what

needed to be reported sufficed.

Importantly, the text of 31 C.F.R. § 1023.320(a)(2) supports the

district court’s finding that the SAR regulation imposes an objective

test (i.e., broker-dealers shall file an SAR if it “knows, suspects, or has

reason to suspect” that a transaction is suspicious). Alpine points to

isolated parts of FinCEN guidance in support of its argument that a

subjective test must be utilized. 78 But, Alpine does so while ignoring

FinCEN’s express statement that the SAR reporting provision

requires an objective standard:

The final rule retains the “has reason to suspect” language.

FinCEN believes that compliance with the rule cannot be

77 Id. at 426-27. 78 Alpine Br. 49. 30 No. 19-3272

adequately enforced without an objective standard. The

reason-to-suspect standard means that, on the facts existing

at the time, a reasonable broker-dealer in similar

circumstances would have suspected the transaction was

subject to SAR reporting. This is a flexible standard that

adequately takes into account the differences in operating

realities among various types of broker-dealers, and is the

standard contained in the existing SAR rules for depository

institutions and money services businesses. 79

While subjective factors may be relevant where the enforcing agency

shows that the broker-dealer actually “knows” or “suspects” that the

transaction is subject to SAR reporting, the “reason to suspect”

standard sensibly permits the use of objective “red flags” that would

alert reasonable broker-dealers to the fact that that the transaction

required a SAR report. 80 Accordingly, the district court did not err in

its determination that an objective analysis was proper.

We also reject Alpine’s claim that the district court’s

examination was “purely mechanical.” The district court inspected

the allegedly deficient SARs before making its determination. In its

100-page opinion, the district court recognized that each “SAR must,

SAR Regulation Adopting Release, 67 Fed. Reg. at 44,053 (emphasis 79

added). 80 See SEC Br. 65. 31 No. 19-3272

of course, be examined individually” and, without announcing a

mechanical or bright-line test, reviewed all of the alleged deficiencies

before concluding that, given the “sheer number of [Alpine’s] lapses

at issue in this case[,]” summary judgment was warranted. 81 Indeed,

Alpine did not “contest in a large number of instances that it failed to

include information in SAR narratives that the SAR Form itself directs

a broker-dealer to include.” 82

Alpine finally argues that the district court “ignore[d]” that

certain assertions created genuine disputes of fact. 83 We disagree. As

noted above, in many instances, Alpine did not dispute the fact that

it failed to include required information in SAR narratives. When

Alpine raised properly supported factual disputes as to specific SARs,

the district court ruled in its favor. 84 But, for example, the district

court did not err in rejecting as “vague and conclusory” Alpine’s

assertion that it filed SARs for large deposits of low-priced securities

even though it concluded it was not required to do so. 85 Plainly, when

Alpine’s evidence did create genuine disputes of material fact as to

particular SARs, the district court considered it.

81 Alpine Sec. Corp., 354 F. Supp. 3d at 419, 436 (emphasis added). 82 Id. at 419.

83 Alpine Br. 69.

84 See, e.g., Alpine Sec. Corp., 354 F. Supp. 3d at 431.

85 Id. at 423 n.44. 32 No. 19-3272

In sum, the district court did not err in granting summary

judgment to the SEC as to Alpine’s liability on the basis of 2,720

violations of the reporting, recordkeeping, and record retention

requirements of Section 17(a) and Rule 17a-8.

V. In Imposing the Civil Penalty, the District Court Did

Not Abuse Its Discretion

Alpine finally challenges the district court’s imposition of a $12

million civil penalty for the 2,720 SAR violations of the reporting,

recordkeeping, and record retention requirements of Section 17(a)

and Rule 17a-8. The SEC requested that the district court impose a

tier-one civil penalty of $10,000 for each SAR violation and $1,000 for

each support-file violation, totaling $22.7 million. 86 Alpine argued

that the total penalty should fall between $80,000 and $720,000. 87

Section 21(d) of the 1934 Exchange Act authorizes monetary

penalties for statutory violations. 88 In assessing a penalty, a court may

impose “a first-tier penalty . . . for any violation,” regardless of mental

state or other factors. 89 Within the maximum penalty authorized by

the statute, the “actual amount of the penalty” is left “up to the

discretion of the district court.” Because the amount of the penalty is

United States Sec. & Exch. Comm’n v. Alpine Sec. Corp., 413 F. Supp. 3d 86

235, 245 (S.D.N.Y. 2019). 87 Id. at 248.

88 See 15 U.S.C. § 77t(d); 15 U.S.C. § 78u(d)(3).

89 SEC v. Ramilovic, 738 F.3d 14, 38 (2d Cir. 2013). 33 No. 19-3272

left to the sound discretion of the district court, we review an award

of penalties for abuse of discretion. 90

Here, we conclude that the district court did not abuse its

discretion in imposing the $12 million civil penalty. The breadth and

duration of Alpine’s deficient reporting and recordkeeping activity

supports the district court’s imposition of the civil penalty. The

district court did recognize that Alpine “took some steps to improve

. . . compliance.” 91 But as the district court noted, “[a]lthough the

extraordinary scale of Alpine’s violations decreased over the years,

the violations did not cease.” 92 The district court found that the “scale

and duration” of the violations “undermine[d] Alpine’s assertion that

its conduct was, at worst, merely negligent.” 93

Alpine’s arguments to the contrary are without merit. Insofar

as Alpine’s challenge to the civil penalty is based on the premise that

the district court erroneously concluded that Alpine acted with

“scienter,” the district court expressly noted that “a finding of scienter

is not required to impose the tier-one penalty sought by the SEC.” 94

Nor does the “sheer, unprecedented” amount of the penalty itself rise

90 Id. 91 Sp. App’x 253.

92 Sp. App’x 256.

93 Sp. App’x 253.

94 Sp. App’x 252-53 (emphasis added). 34 No. 19-3272

to the level of abuse of discretion. 95 The total amount was driven by

the “unprecedented number of violations” of Section 17(a) and Rule

17a-8 committed by Alpine. 96 Alpine’s argument that the district

court disregarded evidence of the firm’s financial condition is

similarly unavailing. The district court expressly stated that Alpine’s

financial records indicated that it would have had the ability to pay

the $22.7 million penalty requested by the SEC, but it still imposed a

penalty that was “substantially less” due to Alpine’s financial

condition. 97

All in all, the district court acted within its discretion to impose

the $12 million civil penalty in light of the particular facts and

circumstances of this case, namely, Alpine’s “systematic and

widespread evasion of the law.” 98

We have considered Alpine’s remaining arguments on appeal

and conclude that they are without merit.

95Alpine Br. 81. Notably, Alpine itself does not argue that the individual $5,000 penalty for failing to file an SAR or filing a deficient SAR, or $1,000 penalty for failing to produce a SAR support file upon request, are unreasonable. 96 See SEC Br. 100. Alpine’s argument that the penalty is excessive in

light of the BSA’s comparable penalty provisions is of no moment. As discussed, the SEC brought this enforcement action pursuant to Section 17 of the Exchange Act. 97 Sp. App’x 265.

98 Sp. App’x 259-60. 35 No. 19-3272

CONCLUSION

For the reasons stated above, the judgment of the district court

is AFFIRMED.