November 9, 2023
VIA ELECTRONIC MAIL
Alpine Securities Corporation
39 Exchange Place
Salt Lake City, UT 84111
Attn: Raymond Maratea, Chief Executive Officer
RE: Notice of NSCC and DTC Determinations to Cease to Act for Alpine Securities
Corporation (Member/Participant No. #8072)
Dear Mr. Maratea:
National Securities Clearing Corporation (“NSCC”) and The Depository Trust Company
(“DTC,” together with NSCC, the “Clearing Agencies”) are providing this notice (“Notice”) to
inform Alpine Securities Corporation, Member/Participant No. 8072 (“Alpine”), that NSCC and
DTC have each determined to cease to act for Alpine, subject to Alpine’s right to a hearing.
Grounds for the Determinations to Cease to Act
The determination of NSCC to cease to act for Alpine was made pursuant to NSCC Rule
46, Section 1, which provides, in relevant part:
The Board of Directors may suspend a Member . . . in the event that . . . (f) such
participant has failed to comply with any financial or operational requirement of
the Corporation, or (g) in any circumstances in which, in the discretion of the
Corporation, adequate cause exists to do so.
and NSCC Rule 2A, Section 1.G.ii, which provides, in relevant part:
The Corporation may . . . . cease to act for any participant when such participant
or its Controlling Management has a record that reflects . . . the applicant or its
Controlling Management is responsible for . . . making a misstatement of a material
fact or has omitted to state a material fact to the Corporation in connection with its
application to become a Member or thereafter …
The determination of DTC to cease to act for Alpine was made pursuant to DTC Rule 10,
Section 1, which provides, in relevant part:
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Based on its judgment that adequate cause exists to do so, the Corporation may at
any time (a) cease to act for a Participant with respect to … transactions generally
… Adequate cause for ceasing to act for a Participant . . . shall be deemed to exist
if: … (vi) the Board of Directors, or a committee authorized thereby, shall have
reasonable grounds to believe (A) that the Participant or its Controlling
Management to be responsible for … (2) making a misstatement or of a material
fact or omitting to state a material fact to the Corporation in connection with its
application to become a Participant or thereafter … (B) that such ceasing to act
is necessary for the protection of the Corporation, other Participants or Pledgees
or to facilitate the orderly and continuous performance of the Corporation’s
services . . .
As described in more detail below, given the intentional misinformation, omissions, and
evasion perpetrated by Alpine in the reporting of the amount of its excess net capital (“ENC”) to
the Clearing Agencies, and Alpine’s continued willful noncompliance with its NSCC minimum
ENC financial membership requirement, the Clearing Agencies are no longer able to rely on
Alpine’s disclosures and representations of its financial condition or otherwise, nor are they able
[on a going forward basis] to assess the risks presented to NSCC and DTC by Alpine with a high
degree of confidence.
Alpine’s Daily Capital Reporting Requirement
Since August 2, 2019, pursuant to NSCC Rule 15 and DTC Rule 9(A),1
Alpine has been
required to submit to the Counterparty Credit Risk team of the Clearing Agencies (“CCR”) daily
capital computations (“daily capital reports”), in order for the Clearing Agencies to monitor the
financial condition of Alpine and help ensure that the firm continues to meet its membership
requirements at all times, including its minimum ENC requirements.2
The daily capital reporting
requirement, which had been imposed on Alpine due to the Clearing Agencies’ increased concerns
about Alpine’s financial condition and regulatory issues with FINRA, was an escalation from
Alpine’s previous requirement to submit weekly capital computations to CCR. Alpine’s weekly
reporting requirement had first been imposed on or around June 15, 2017, due to the Clearing
1
See Rule 15 (“Section 2(a) Each Member . . . shall furnish to the Corporation such adequate assurances of its financial
responsibility and operational capability as the Corporation may at any time or from time to time deem necessary or
advisable in order to protect the Corporation, its participants, creditors or investors, to safeguard securities and funds
in the custody or control of the Corporation and for which the Corporation is responsible, or to promote the prompt
and accurate clearance, settlement and processing of securities transactions . . . (b) Adequate assurances of the financial
responsibility or operational capability of a participant or applicant to become such, as may be required pursuant to
these Rules and Procedures, may include, but shall not be limited to, as appropriate under the context of the
participant’s use of the Corporation’s services: (i) additional reporting by the participant (or by the entity providing a
guarantee) of its financial or operational condition at such intervals and in such detail as the Corporation shall
determine . . . ); see DTC Rule 9(A) (“ . . . At the request of the Corporation, a Participant or Pledgee shall immediately
furnish the Corporation with such assurances as the Corporation shall require of the financial ability of the Participant
or Pledgee to fulfill its commitments and shall conform to any conditions which the Corporation deems necessary for
the protection of the Corporation, other Participants or Pledgees . . . “).
2 See Letter dated August 2, 2019 from Michael Leibrock, CCR Managing Director to Christopher Doubek, Alpine
CEO.
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Agencies’ ongoing risk and compliance concerns regarding the sustainability of Alpine’s business
model and its open regulatory issues.
Alpine’s $10 Million NSCC Minimum ENC Requirement
As of October 26, 2023, NSCC Members, including U.S. broker dealers like Alpine, were
required to meet higher minimum ENC requirements. These new minimum ENC requirements
were implemented pursuant to an NSCC membership standards rule filing, which was approved
by the U. S. Securities and Exchange Commission (“SEC”) on August 26, 20223
and implemented
by NSCC on August 26, 2023, with a grace period of 60 days from the implementation date
(through October 25, 2023) for compliance.
Pursuant to the rule change, the NSCC minimum ENC requirement for a U.S. broker-dealer
that is a Clears for Others Member of NSCC, like Alpine, and which has a daily volatility
component (referred to as the Value-at-Risk (VaR) Tier) over $500,000, like Alpine, is $10
million.4
On multiple occasions between the approval of the rule change and implementation of the
new minimum ENC requirements, CCR communicated directly with Alpine about its new NSCC
$10 million ENC requirement and requested information about Alpine’s plan to meet the new
requirement. On those occasions, Alpine expressed its objections to the increased ENC
requirement but assured CCR that Alpine’s ownership had access to the capital that would be
necessary and that its ownership would provide the additional capital as necessary. Yet
approximately one month before the 60-day grace period expired, Alpine began contacting its
3 See Securities Exchange Act Release No. 94518 (August 26, 2022); 87 FR 53796 (September 1, 2023) (SR-NSCC2021-016).
4 See Addendum B of the NSCC Rules and Procedures, Section 1.B.1, which states:
U.S. Broker-Dealers: An applicant or Member that is a U.S. broker-dealer must have and maintain at all times
minimum Excess Net Capital as follows:
Clearing Status Value-at-Risk Tier
(“VaR Tier”) Minimum Excess Net Capital
Self-Clearing
<$100,000 $1 million Excess Net Capital
$100,000-$500,000 $2.5 million Excess Net Capital
>$500,000 $5 million Excess Net Capital
Clears for Others
<$100,000 $2.5 million Excess Net Capital
$100,000-$500,000 $5 million Excess Net Capital
>$500,000 $10 million Excess Net Capital
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DTCC relationship manager to discuss “options” with respect to its imminent ENC capital
requirement. More specifically, Alpine proposed terminating its correspondent clearing
arrangement with its only correspondent broker-dealer (and Alpine’s only client) Scottsdale
Capital Advisors (“Scottsdale”) so that Alpine could become a “Self-Clearing” Member of NSCC
and thereby become subject to a lower $5 million minimum ENC requirement applicable to NSCC
Self-Clearing Members. Alpine also requested an extension of the ENC requirement deadline5
and
mentioned that it had a commitment for a $7 million loan, but the loan was being held up because
it needed to be approved by FINRA. Over the course of several subsequent phone calls and email
exchanges between CCR and Alpine through October 24, 2023, CCR repeatedly informed Alpine
that (i) an NSCC Member cannot simply declare itself to be a ‘Self-Clearing’ Member and that a
change of membership status from Clears for Others to Self-Clearing, i.e., a change in business
model to self-clearing, is a material change subject to review and diligence, and (ii) Alpine’s
request to become a Self-Clearing Member, and CCR’s review of any submitted information,
would not affect Alpine’s present obligation to meet its NSCC minimum ENC requirement of $10
million as a Clears for Others Member of NSCC.6
On October 25, 2023, the last day of the grace period, Alpine submitted a daily capital
report to CCR that reflected an ENC of $3.48 million as of October 24, 2023.
Alpine’s Willful Noncompliance and Misinformation, Omissions, and Evasion
In the morning of October 26, 2023, Alpine’s CEO sent an email to CCR stating, among
other things, that “Alpine currently has in excess of $10 million ENC. I emphasize that Alpine
obtained those additional funds because of DTCC’s insistence that the full $10 million was
required in order for Alpine to comply with the new ENC rules and continue to operate.” CCR
requested confirmation via a daily capital report from Alpine. Alpine’s CEO responded by email,
attaching (i) a copy of a transaction statement from an Alpine Securities account at KS State Bank
that appeared to show a pending transfer on October 25, 2023 from Alpine’s parent company SCA
Clearing LLC (“SCA”) to the Alpine account, in the amount of $6,400,000 and (ii) a copy of
Alpine’s FOCUS Report for the period ending September 30, 2023, and providing the following
calculation from its staff accountant in the body of the email:
The calculation of our excess net capital is as follows:
$ 3,685,498 - Excess net capital as of our most recent filed focus report (10/24/2023)
6,400,000 – transfer received (10/25/2023)
10,085,498 – Adjusted excess net capital.
5
CCR denied the extension request.
6
On October 24, 2023, Alpine sent CCR a formal notice indicating that Alpine was terminating its correspondent
clearing relationship with its Scottsdale and formally requested that Alpine’s clearing status at NSCC be reflected as
“Self-Clearing.” CCR responded to Alpine, reiterating that an NSCC Member cannot simply declare itself to be a
‘Self-Clearing’ Member and that type of change in Alpine’s business isa material change subject to review and
diligence. On October 25, 2023, CCR sent Alpine a list of information requests pertaining to Alpine’s proposed
business change and membership change and reiterated to Alpine that, notwithstanding the information requests,
Alpine’s current membership status remains a Clears for Others Member of NSCC and therefore it is required to
satisfy the $10 million minimum ENC requirement. CCR is continuing to work with Alpine on its proposed business
change and submitted a supplemental information request to Alpine on November 8, 2023.
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On the evening of October 26, 2023 and on Friday, October 27, 2023, CCR received daily
capital reports from Alpine that reflected ENCs below its $10 million requirement -- an ENC of
$9.88 million for October 25, 2023 and $9.87 million for October 26, 2023. In the evening of
October 27, 2023, CCR sent Alpine an email requesting a written explanation for the discrepancy
between the CEO’s representation on October 26, 2023 that Alpine had in excess of $10 million
ENC and the daily capital reports for October 25, 2023 and October 26, 2023 reflecting an ENC
below the $10 million ENC requirement. Alpine did not acknowledge the email.
Instead, Alpine continued to submit daily capital reports reflecting an ENC of
approximately $9.8 million -- $9.87 million for October 27, 2023, $9.86 million for both October
30, 2023 and October 31, 2023, and $9.83 million for November 1, 2023.
Finally, on November 2, 2023, CCR sent Alpine a letter requesting specific documentation to
verify Alpine’s capital reporting and its compliance with the NSCC ENC requirement, including
documentation evidencing that (i) $6.4MM was deposited into a bank account owned by Alpine
(in addition to the KS State Bank printout emailed to NSCC on October 26, 2023); (ii) $6.4MM
was contributed to Alpine by SCA (such as a bank statement for SCA); and (iii) the $6.4MM
contribution of capital was sent to SCA by John Hurry (for example, a check or wire statement);
(iv) updated net capital calculation. CCR also requested that Alpine provide a copy of a corporate
resolution documenting the intended use of the $6.4MM to confirm the full $6.4MM was intended
to be contributed as capital.
Alpine’s outside counsel, Maranda Fritz responded to CCR by email on Friday,
November 3, 2023 requesting a phone call on Monday, November 6, 2023, and attaching a letter
that stated, in part, that Alpine “currently has funds in an amount greater than $10 million”
(emphasis added) and “[a] portion of those funds have not yet been authorized as capital pending
a decision from FINRA regarding whether it will agree to modify a pre-existing $2.3 million
escrow requirement in light of the firm’s increased capitalization, so that ownership can recoup
the $2.3 million that remains in a separate account in escrow.” The letter also stated “As regards
your specific requests for information, Alpine is advised that its bank statement reflecting the
deposit will be available on November 6, 2023, and we will forward that statement as soon as it
is received. Alpine does not have the bank statement of SCA Clearing but is providing the
Kansas State Bank document reflecting the transfer from SCA Clearing to Alpine as well as the
resolution regarding authorized capital.” Attached to the email was a copy of the same KS State
Bank statement sent to CCR on October 26, 2023,7
and a shareholder resolution dated October
26, 2023 reflecting that SCA (the sole shareholder of Alpine) was making a $1.6 million capital
contribution to Alpine.
That same day, on November 3, 2023, the daily capital report that Alpine submitted to
CCR reflected $9.8 million in ENC for November 2, 2023.
On the phone call on Monday, November 6, 2023, CCR asked Alpine and its outside
counsel Maranda Fritz to explain Alpine’s ENC calculations, in an effort to reconcile the
information contained in Alpine’s daily capital reports, including the daily capital report submitted
by Alpine on November 3, 2023 showing $9.8 million in ENC for November 2, 2023, and the new
7
The Clearing Agencies observe that the copy of the KS State Bank statement provided by Ms. Fritz appears to have
been generated approximately 3 minutes later than the statement provided to CCR by Alpine on October 26, 2023.
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information provided to CCR in Alpine’s November 3, 2023 letter about a $1.6 million capital
contribution and a $2.3 million escrow requirement. Ms. Fritz told CCR that Alpine’s ENC was
around $5 million and was not the approximately $9.8 million ENC that Alpine had been reporting.
Ms. Fritz explained that only $1.6 million of the $6.4 million that was transferred to Alpine from
SCA was authorized capital, as reflected on the shareholder resolution provided by Alpine. She
further explained that the balance of the $6.4 million was not authorized as capital because SCA
first needed to get back its $2.3 million that were in an escrow account pursuant to a FINRA order.
Alpine indicated that it did not know when that issue would be resolved (i.e., when FINRA would
approve the release of the escrow) and that Alpine did not have a plan for meeting its $10 million
ENC requirement besides the resolution of the escrow issue with its ownership and FINRA.
Although Ms. Fritz stated on the call that on October 26, 2023, the day on which Alpine’s CEO
sent an email to CCR confirming ENC in excess of $10 million, Alpine was unaware that the full
$6.4 million was not eligible as good capital, the Clearing Agencies note that the Alpine CEO
signed on the same date (October 26, 2023) the aforementioned resolution which clearly indicated
Alpine had received only $1.6 million of capital.
It is not plausible that Alpine just discovered that the $2.3 million funds that were escrowed
pursuant to a March 2022 FINRA order could possibly be an obstacle to further capital
contributions by its ownership. Regardless, upon the issuance of the October 26, 2023 shareholder
resolution reflecting only an $1.6 million capital contribution (which occurred on the same date
that Alpine’s CEO informed CCR that Alpine had an ENC amount exceeding $10 million), Alpine
willfully chose not to notify the Clearing Agencies as soon as it was aware of the possibility that
its ownership was not making the full $6.4 million capital infusion and instead affirmatively
proceeded to send the Clearing Agencies at least seven daily capital reports that reflected
materially inaccurate ENC amounts for October 25th, 26th , 27th , 30th, 31st and for November 1st
and 2nd of 2023. The admission by Alpine that, in fact, it had only approximately $5 million ENC
came on November 3, 2023 and only after the Clearing Agencies sent Alpine a letter asking for
verification that the funds Alpine received were an authorized capital contribution.
It is not disputed that Alpine was well aware of the NSCC rule filing and the new $10
million NSCC minimum ENC requirement applicable to Alpine. Alpine had over a year to
establish a capital plan that would enable it to meet its $10 million ENC requirement, if not by the
August 26, 2023 implementation date, then by the end of the grace period on October 25, 2023.
And, as described above, CCR engaged with Alpine multiple times in anticipation of that date to
inquire about and understand Alpine’s intentions and preparations for that implementation date.
As of the date of this Notice, Alpine has never once met its new $10 million NSCC minimum ENC
requirement.
Moreover, during the period preceding October 26, 2023, Alpine continually declined to
provide details about its plan to comply with its $10 million ENC requirement. Even when Alpine
was making a last-ditch effort to reduce its ENC requirement by proposing to terminate its only
correspondent clearing relationship – which constituted the majority, if not all, of Alpine’s clearing
activity—it declined to give the Clearing Agencies any specific details about its materially changed
business plan. Most egregious, however, is the fact that Alpine has been falsifying the amount of
its ENC since October 26, 2023 and was submitting grossly inaccurate (by around $5 million)
daily capital reports –- reports that, as noted above, Alpine was required to submit to CCR since
2019, pursuant to NSCC Rule 15 and DTC Rule 9(A), due to the Clearing Agencies’ compliance
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and risk concerns about Alpine, to help ensure that Alpine was meeting its financial membership
requirements of the Clearing Agencies.
In sum, Alpine’s ongoing willful noncompliance with financial requirements and its
knowing provision of misleading and inaccurate information about its financial condition, among
other things, renders the Clearing Agencies no longer able to rely on Alpine’s disclosures or
representations of its financial condition or otherwise, and therefore no longer able to assess the
risks presented by Alpine with a high degree of confidence. Deprived of this ability to make the
necessary determinations with respect to Alpine’s capacity to be a member of either Clearing
Agency, the Clearing Agencies have no choice but to terminate Alpine’s memberships.
Right to a Hearing
Pursuant to NSCC Rules 37 and 46 and DTC Rule 22, Alpine may request a hearing to
object to the cease to act determinations by NSCC and by DTC.
If Alpine wants to request a hearing with respect to the NSCC determination to cease to act
and the DTC determination to cease to act, Alpine’s request must be in writing and filed with the
Secretary of NSCC and DTC (“Corporate Secretary”) at CorporateSecretary@dtcc.com within
five (5) business days from the date of this Notice.8
Within seven (7) business days after filing
such written request, Alpine must then submit to the Corporate Secretary a clear and concise
written statement setting forth with particularity the action or proposed action of NSCC and DTC
with respect to which the hearing is requested, the basis for the objection to the action, whether
Alpine intends to attend the hearing and whether Alpine chooses to be represented by counsel at
the hearing. If the written statement contests the NSCC and/or DTC determination that Alpine has
violated a Rule or procedure, the statement must specifically admit or deny each violation alleged
and detail the reasons why the Rules or procedures alleged to have been violated are being
contested. Any alleged violation not specifically denied shall constitute an admission to that
violation. NSCC and/or DTC, as applicable, may deny the statement if it fails to set forth a prima
facie basis for contesting the violation.
If Alpine fails to file the written request and/or written statement within the time periods
specified above, Alpine will be deemed to have waived its right to a hearing with respect to the
NSCC determination to cease to act and the DTC determination to cease to act, and the Clearing
Agencies will promptly establish a date for the implementation of the cease to act.
If Alpine timely requests a hearing as set forth above, a Panel will be selected in accordance
with NSCC and DTC Rules, and Alpine will be informed of the procedures for the hearing.
This letter is without waiver of or prejudice to the rights and remedies of NSCC and DTC
whether at law or in equity, all of which rights and remedies are hereby expressly reserved. For
the avoidance of doubt, nothing in this letter shall prevent NSCC or DTC from exercising any of
8
Alpine is permitted to file a single, combined request for a hearing and a single written statement in response to both
the NSCC determination to cease to act and the DTC determination to cease to act. Because Alpine is a common
member of NSCC and DTC, and the NSCC and DTC cease to act determinations are based on the same factual
grounds, if Alpine timely requests a hearing, it would be afforded a single hearing before a hearing panel (“Panel”)
and would be heard on both the NSCC cease to act determination and the DTC cease to act determination.
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their rights set forth in their r
