By Dean Seal

Law360 (November 10, 2020, 11:03 PM EST) -- A broker-dealer owned by a frequent critic of the Financial Industry Regulatory Authority sued the regulator Tuesday, seeking to block an order requiring the remainder of a disciplinary hearing against it from proceeding via Zoom videoconferencing.

Alpine Securities Corp. says it was only able to present one witness at the start of its hearing in February before the COVID-19 pandemic made in-person FINRA hearings no longer viable, and it has repeatedly reached agreements with the regulator to resume the case in-person at some future date.

But roughly a month before the in-person hearing was scheduled to continue Nov. 30 and "without notice or an opportunity for Alpine to be heard," the firm said, a FINRA officer ordered that the remainder of the hearing be held via Zoom instead, pursuant to a temporary rule that took effect Oct. 1. Such an order is not only a breach of Alpine's right to be "heard in person," but also a violation of its right to due process, the firm told a Utah federal court.

"Alpine will either have to proceed in an inadequate and unfair virtual forum with its counsel located in different states across the country, or risk the health and safety of its representatives and counsel by asking them to travel to Utah to provide representation in the same inadequate and unfair virtual forum," Alpine said.

The principal of the Salt Lake City-based firm is John Hurry, who also owns the microcap broker-dealer Scottsdale Capital Advisors Corp. and is well-known for challenging regulators in court.

In April, the U.S. Supreme Court declined a request to hear Hurry's claim from 2014 that FINRA used an investigation of his two firms to conduct illegal raids on Hurry's other businesses, despite their lack of any connection to the securities industry. Hurry's allegations had been rejected in Arizona federal court and the Ninth Circuit because the raids were related to FINRA's regulatory function and thus covered by sovereign immunity.

Hurry faced a similar rejection in 2017 when he asked the justices to review a Fourth Circuit ruling that Scottsdale Capital Advisors could only challenge FINRA's authority before the agency and the U.S. Securities and Exchange Commission, rather than in federal court.

In August 2019, FINRA's enforcement division launched a disciplinary proceeding against Alpine for allegedly implementing a series of "exorbitant and arbitrary fees" on customers — like raising its monthly account fee from $100 to $5,000 — to cover "significant and mounting financial difficulties."

"Indeed, the fees caused customers to incur significant debits in their accounts, at which point Alpine told its customers that it would liquidate their securities or transfer them to proprietary accounts belonging to Alpine in order to satisfy the debits," FINRA alleged in its complaint. "In June 2019 alone, Alpine moved over $950,000 of customer securities to Alpine proprietary accounts in order to cover these debits."

Alpine, which now accuses FINRA of trying to "destroy" its business with the proceeding, invoked its right to defend itself and met the regulator for an in-person hearing on Feb. 18. FINRA was able to present six of its witnesses at the hearing while Alpine was only able to present one before the hearing was adjourned on Feb. 22 "due to an urgent personal matter affecting Alpine's counsel," the firm said in its suit.

The two sides agreed to resume the proceedings in late April 2020, but the novel coronavirus pandemic "rendered that impossible," Alpine said, and ever since, the parties have repeatedly agreed to resume the in-person hearing at a future date.

The hearing had been scheduled for the end of this month, but on Nov. 2 a FINRA hearing officer ordered that it proceed via Zoom under the temporary rule. Alpine called the order "completely generic directive [and] devoid of any acknowledgement of the extensive discussions that have occurred on the issue with the hearing officer." According to the suit, it is "not workable or appropriate" to have the hearing proceed virtually and unfair to the firm, given that FINRA has already been able to present its entire case in-person.

FINRA could do two things that would "avoid depriving Alpine of the opportunity to defend itself in a proper hearing," the lawsuit alleges: either continue to adjourn the hearing or allow it to proceed at the sole venue FINRA has established in Washington, D.C., as a safe zone for continued in-person hearings.

Alpine is asking the court to enter an order declaring FINRA's current order invalid and enjoining the hearing from proceeding virtually, at least until Alpine is "given an opportunity to be heard on the issue of whether proceeding virtually is appropriate in this case."

FINRA and counsel for Alpine did not immediately respond to requests for comment Tuesday.

Alpine is represented by Brent R. Baker, Aaron D. Lebenta and Jonathan D. Bletzacker of Parsons Behle & Latimer, and Maranda E. Fritz of Maranda E. Fritz PC.

The case is Alpine Securities Corp. v. Financial Industry Regulatory Authority, case number 2:20-cv-00794, in the U.S. District Court for the District of Utah.

--Editing by Breda Lund.

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