In re Alpaca Securities LLC

 
 
 
UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 101137 / September 24, 2024 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22159 
 
 
In the Matter of 
 
Alpaca Securities LLC,  
 
Respondent. 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS, PURSUANT TO 
SECTIONS 15(b) AND 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative and cease-and-desist proceedings be, and hereby 
are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 
(“Exchange Act”) against Alpaca Securities LLC (“Respondent” or “Alpaca”). 
 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 
facts set forth in Section III below, acknowledges that its conduct violated the federal securities 
laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 
consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, 
Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, 
and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary 
1. The federal securities laws impose recordkeeping requirements on broker-dealers 
to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 
                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  

 
2 
 
long said that compliance with these requirements is essential to investor protection and the 
Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation. 
2. These proceedings arise out of the widespread and longstanding failure of Alpaca 
personnel, including at senior levels, to adhere to certain of these essential requirements and 
Alpaca’s own policies and procedures.  Using their personal devices, these employees 
communicated both internally and externally by text messages and/or other unapproved written 
communications platforms, such as WhatsApp (“off-channel communications”). 
3. From at least May 2022 (the “Relevant Period”), Alpaca personnel sent and 
received off-channel communications that related to its broker-dealer business.  Respondent did 
not maintain or preserve the substantial majority of these written communications.  Respondent’s 
failure was firm-wide and involved personnel at various levels of authority.  As a result, Alpaca 
violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. 
4. Alpaca’s supervisors, who were responsible for supervising junior personnel, 
routinely communicated off-channel using their personal devices.  In fact, senior executives 
responsible for supervising junior personnel themselves failed to comply with Alpaca’s policies 
and procedures by communicating through non-Alpaca approved methods on their personal 
devices about Alpaca’s broker-dealer business. 
5. Alpaca’s widespread failure to implement its policies and procedures that prohibit 
such communications led to its failure to reasonably supervise its personnel within the meaning 
of Section 15(b)(4)(E) of the Exchange Act.    
6. During the Relevant Period, Alpaca received and responded to Commission 
subpoenas for documents and records requests in various Commission investigations.  As a 
result, Alpaca’s recordkeeping failures likely impacted the Commission’s ability to carry out its 
regulatory functions and investigate violations of the federal securities laws across these 
investigations.   
7. The Commission staff uncovered Alpaca’s misconduct after commencing a risk-
based initiative to investigate the use of off-channel and unpreserved communications at broker-
dealers.  Alpaca has initiated a review of its recordkeeping failures and begun a program of 
remediation.  As set forth in the Undertakings below, Alpaca will retain an independent 
compliance consultant to review and assess Alpaca’s remedial steps relating to its recordkeeping 
practices, policies and procedures, related supervisory practices, and employment actions. 
Respondent 
8. Alpaca is a Delaware limited liability company with its principal place of business 
in Babcock Ranch, Florida.  Alpaca has been registered with the Commission as a broker-dealer 
since March 2018.  

 
3 
 
Recordkeeping Requirements Under the Exchange Act 
9. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 
requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 
records as necessary or appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Exchange Act. 
10. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 
authority.  Rule 17a-4 specifies the manner and length of time that the records made in 
accordance with other Commission rules, and certain other records made by broker-dealers, must 
be maintained and produced promptly to Commission representatives.   
11. The rules adopted under Section 17(a)(1) of the Exchange Act, including Rule 
17a-4(b)(4), require that broker-dealers preserve for at least three years, the first two years in an 
easily accessible place, originals of all written communications received and copies of all 
communications sent relating to the broker-dealer’s business as such.  These rules impose 
minimum recordkeeping requirements that are based on standards a prudent broker-dealer should 
follow in the normal course of business.  
12. The Commission previously has stated that these and other recordkeeping 
requirements “are an integral part of the investor protection function of the Commission, and 
other securities regulators, in that the preserved records are the primary means of monitoring 
compliance with applicable securities laws, including antifraud provisions and financial 
responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 
Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 
with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 
Alpaca’s Policies and Procedures 
13. Alpaca maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with 
the relevant recordkeeping provisions.   
14. Alpaca personnel were advised that the use of unapproved electronic 
communications methods, including on their personal devices, was not permitted, and they 
should not use personal email, chats or text messaging applications for business purposes, or 
forward work-related communications to unapproved applications on their personal devices.  
15. Messages sent through firm-approved communications methods were monitored, 
subject to review, and archived.  Messages sent through unapproved communications methods, 
such as WhatsApp and Telegram on personal devices, were not monitored, subject to review or 
archived. 
16. Alpaca’s policies and procedures were designed to address supervisors’ 
supervision of personnel’s training in Alpaca’s communications policies and adherence to 
Alpaca’s books and recordkeeping requirements.  Supervisory policies notified personnel that 

 
4 
 
electronic communications were subject to surveillance by Alpaca.  Alpaca had procedures for 
all personnel, including supervisors, requiring annual self-attestations of compliance.  
17. Alpaca, however, failed to implement a system of follow-up and review to 
determine whether all personnel, including supervisors, were reasonably following Respondent’s 
policies and procedures.  While permitting personnel to use approved communications methods, 
including on personal phones, for business communications, Alpaca failed to implement 
sufficient monitoring to ensure that its recordkeeping and communications policies were being 
followed.  
Alpaca’s Recordkeeping Failures Across Its Brokerage Business 
18. In September 2021, the Commission staff commenced a risk-based initiative to 
investigate whether broker-dealers were properly retaining business-related messages sent and 
received on personal devices.  Alpaca cooperated with the investigation by voluntarily 
interviewing a sampling of senior personnel and gathering and reviewing messages found on the 
individuals’ personal devices.  These personnel included senior leadership, such as senior 
executives and a director.  
19. The Commission staff’s investigation uncovered pervasive off-channel 
communications at all seniority levels within Alpaca.  The investigation determined that nearly 
all broker-dealer personnel sampled had engaged in at least some level of off-channel 
communications.   
20. Overall, personnel sent and received numerous off-channel communications, 
involving other personnel and other participants in the securities industry.  Within Alpaca, 
significant numbers of senior personnel participated in off-channel communications. 
21. During the Relevant Period, Alpaca personnel sent and received off-channel 
messages that concerned the broker-dealer’s business. 
22. For example, an executive officer exchanged numerous off-channel business-
related messages with at least five Alpaca colleagues, including another executive, two other 
officers and two vice presidents.  These messages related to the broker-dealer’s business as such. 
23. In addition, a director exchanged numerous off-channel business-related messages 
with at least five Alpaca colleagues, three of whom were under the director’s supervision.  These 
messages related to the broker-dealer’s business as such. 
24. Furthermore, a registered representative exchanged numerous off-channel 
business-related messages with at least three Alpaca colleagues, and five other market 
participants.  These messages related to the broker-dealer’s business as such. 
Alpaca’s Failure to Preserve Required Records Potentially Compromised and Delayed 
Commission Matters 
25. During the Relevant Period, Alpaca received and responded to Commission  

 
5 
 
subpoenas for documents and records requests in various Commission investigations.  By failing to 
maintain and preserve required records relating to its broker-dealer business, Alpaca likely 
deprived the Commission of these off-channel communications in various investigations.  
 
Alpaca’s Violations and Failure to Supervise 
26. As a result of the conduct described above, Respondent willfully
2
 violated Section 
17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. 
27. As a result of the conduct described above, Respondent failed reasonably to 
supervise its personnel with a view to preventing or detecting certain of its personnel’s aiding 
and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder, 
within the meaning of Section 15(b)(4)(E) of the Exchange Act.  
Respondent’s Efforts to Comply 
28. In determining to accept Respondent’s Offer, the Commission considered 
Respondent’s cooperation as well as remedial steps that Respondent undertook both before and 
after being approached by the Commission staff.  Prior to this action, Respondent enhanced its 
policies and procedures, increased training concerning the use of approved communications 
methods, including on personal devices, and began implementing significant changes to the 
technology available to personnel, which included providing personnel with a messaging 
application that retains communications, thereby making approved channels more readily 
available. 
Undertakings 
Respondent has undertaken to: 
29. Independent Compliance Consultant. 
a.  Alpaca shall retain, within thirty (30) days of the entry of this Order, the 
services of an independent compliance consultant (“Compliance Consultant”) that is not 
unacceptable to the Commission staff.  The Compliance Consultant’s compensation and 
expenses shall be borne exclusively by Alpaca. 
 
b.  Alpaca will oversee the work of the Compliance Consultant. 
 
c.  Alpaca shall provide to the Commission staff, within sixty (60) days of the 
entry of this Order, a copy of the engagement letter detailing the Compliance 
Consultant’s responsibilities, which shall include a comprehensive compliance review as 
                                                 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, 
“‘means no more than that the person charged with the duty knows what he is doing.’”  
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 
977 (D.C. Cir. 1949)).  

 
6 
 
described below.  Alpaca shall require that, within ninety (90) days of the date of the 
engagement letter, the Compliance Consultant conduct: 
 
i.  A comprehensive review of Alpaca’s supervisory, compliance, and 
other policies and procedures designed to ensure that Alpaca’s electronic 
communications, including those found on personal electronic devices, including 
without limitation, cellular phones (“Personal Devices”), are preserved in 
accordance with the requirements of the federal securities laws. 
 
ii.  A comprehensive review of training conducted by Alpaca to ensure 
personnel are complying with the requirements regarding the preservation of 
electronic communications, including those found on Personal Devices, in 
accordance with the requirements of the federal securities laws, including by 
ensuring that Alpaca personnel certify in writing on a quarterly basis that they are 
complying with preservation requirements.  
 
iii.  An assessment of the surveillance program measures implemented by 
Alpaca to ensure compliance, on an ongoing basis, with the requirements found in 
the federal securities laws to preserve electronic communications, including those 
found on Personal Devices. 
 
iv.  An assessment of the technological solutions that Alpaca has begun 
implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that Alpaca personnel will use the 
technological solutions going forward and a review of the measures employed by 
Alpaca to track employee usage of new technological solutions.  
 
v.  An assessment of the measures used by Alpaca to prevent the use of 
unauthorized communications methods for business communications by 
personnel.  This assessment should include, but not be limited to, a review of 
Alpaca’s policies and procedures to ascertain if they provide for any significant 
technology and/or behavioral restrictions that help prevent the risk of the use of 
unapproved communications methods on Personal Devices (e.g., trading floor 
restrictions).   
 
vi.  A review of Alpaca’s electronic communications surveillance routines 
to ensure that electronic communications through approved communications 
methods found on Personal Devices are incorporated into Alpaca’s overall 
communications surveillance program.   
 
vii.  A comprehensive review of the framework adopted by Alpaca to 
address instances of non-compliance by Alpaca personnel with Alpaca’s policies 
and procedures concerning the use of Personal Devices to communicate about 
Alpaca business in the past.  This review shall include a survey of how Alpaca 
determined which personnel failed to comply with Alpaca policies and 
procedures, the corrective action carried out, an evaluation of who violated the 

 
7 
 
policies and procedures and why, what penalties were imposed, and whether 
penalties were handed out consistently across business lines and seniority levels.   
 
d.  Alpaca shall require that, within forty-five (45) days after completion of the 
review set forth in sub-paragraphs 29.c.i. through c.vii. above, the Compliance 
Consultant shall submit a detailed written report of its findings to Alpaca and to the 
Commission staff (the “Report”).  Alpaca shall require that the Report include a 
description of the review performed, the names of the individuals who performed the 
review, the conclusions reached, the Compliance Consultant’s recommendations for 
changes in or improvements to Alpaca’s policies and procedures, and a summary of the 
plan for implementing the recommended changes in or improvements to Alpaca’s 
policies and procedures. 
 
e.  Alpaca shall adopt all recommendations contained in the Report within ninety 
(90) days of the date of the Report; provided, however, that within forty-five (45) days 
after the date of the Report, Alpaca shall advise the Compliance Consultant and the 
Commission staff in writing of any recommendations that Alpaca considers to be unduly 
burdensome, impractical, or inappropriate.  With respect to any recommendation that 
Alpaca considers unduly burdensome, impractical, or inappropriate, Alpaca need not 
adopt such recommendation at that time, but shall propose in writing an alternative 
policy, procedure, or disclosure designed to achieve the same objective or purpose. 
 
f.  As to any recommendation concerning Alpaca’s policies or procedures on 
which Alpaca and the Compliance Consultant do not agree, Alpaca and the Compliance 
Consultant shall attempt in good faith to reach an agreement within sixty (60) days after 
the date of the Report.  Within fifteen (15) days after the conclusion of the discussion and 
evaluation by Alpaca and the Compliance Consultant, Alpaca shall require that the 
Compliance Consultant inform Alpaca and the Commission staff in writing of the 
Compliance Consultant’s final determination concerning any recommendation that 
Alpaca considers to be unduly burdensome, impractical, or inappropriate.  Alpaca shall 
abide by the determinations of the Compliance Consultant and, within sixty (60) days 
after final agreement between Alpaca and the Compliance Consultant or final 
determination by the Compliance Consultant, whichever occurs first, Alpaca shall adopt 
and implement all of the recommendations that the Compliance Consultant deems 
appropriate. 
 
g.  Alpaca shall cooperate fully with the Compliance Consultant and shall provide 
the Compliance Consultant with access to such of Alpaca’s files, books, records, and 
personnel as are reasonably requested by the Compliance Consultant for review. 
 
h.  Alpaca shall not have the authority to terminate the Compliance Consultant or 
substitute another compliance consultant for the initial Compliance Consultant, without 
the prior written approval of the Commission staff.  Alpaca shall compensate the 
Compliance Consultant and persons engaged to assist the Compliance Consultant for 
services rendered under this Order at their reasonable and customary rates. 
 

 
8 
 
i.  For the period of engagement and for a period of two (2) years from 
completion of the engagement, Alpaca shall not (i) retain the Compliance Consultant for 
any other professional services outside of the services described in this Order; (ii) enter 
into any other professional relationship with the Compliance Consultant, including any 
employment, consultant, attorney-client, auditing or other professional relationship; or 
(iii) enter, without prior written consent of the Commission staff, into any such 
professional relationship with any of the Compliance Consultant’s present or former 
affiliates, employers, directors, officers, employees, or agents.  
 
j.  The Report by the Compliance Consultant will likely include confidential 
financial, proprietary, competitive business or commercial information.  Public disclosure 
of the Report could discourage cooperation, impede pending or potential government 
investigations or undermine the objectives of the reporting requirement.  For these 
reasons, among others, the Report and the contents thereof are intended to remain and 
shall remain non-public, except (1) pursuant to court order, (2) as agreed to by the parties 
in writing, (3) to the extent that the Commission determines in its sole discretion that 
disclosure would be in furtherance of the Commission’s discharge of its duties and 
responsibilities, or (4) as otherwise required by law. 
 
30. One-Year Evaluation.  Alpaca shall require the Compliance Consultant to assess 
Alpaca’s program for the preservation, as required under the federal securities laws, of electronic 
communications, including those found on Personal Devices, commencing one year after 
submitting the Report required by Paragraph 29.d above.  Alpaca shall require this review to 
evaluate Alpaca’s progress in the areas described in Paragraphs 29.c.i-vii above.  After this 
review, Alpaca shall require the Compliance Consultant to submit a report (the “One Year 
Report”) to Alpaca and the Commission staff and shall ensure that the One Year Report includes 
an updated assessment of Alpaca’s policies and procedures with regard to the preservation of 
electronic communications (including those found on Personal Devices), training, surveillance 
programs, and technological solutions implemented in the prior year period.  
31. Reporting Discipline Imposed.  For two (2) years following the entry of this Order, 
Alpaca shall notify the Commission staff as follows upon the imposition of any discipline imposed 
by Alpaca, including, but not limited to: written warnings; loss of any pay, bonus, or incentive 
compensation; or the termination of personnel; with respect to any employee found to have 
violated Alpaca’s policies and procedures concerning the preservation of electronic 
communications, including those found on Personal Devices: at least forty-eight (48) hours before 
the filing of a Form U5, or within ten (10) days of the imposition of other discipline.   
32. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 
the One Year Report, Alpaca will also have its Internal Audit function conduct a separate audit(s) 
to assess Alpaca’s progress in the areas described in Paragraphs 29.c.i-vii above.  After completion 
of this audit(s), Alpaca shall ensure that Internal Audit submits a report to Alpaca and to the 
Commission staff. 
33. Recordkeeping.  Alpaca shall preserve, for a period of not less than six (6) years 
from the end of the fiscal year last used, the first two (2) years in an easily accessible place, any 
record of compliance with these undertakings. 

 
9 
 
34. Deadlines.  For good cause shown, the Commission staff may extend any of the 
procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 
calendar days, except that if the last day falls on a weekend or federal holiday, the next business 
day shall be considered to be the last day. 
35. Certification.  Alpaca shall certify, in writing, compliance with the undertakings 
set forth above.  The certification shall identify the undertakings, provide written evidence of 
compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 
compliance.  The Commission staff may make reasonable requests for further evidence of 
compliance, and Respondent agrees to provide such evidence.  The certification and supporting 
material shall be submitted to Alison R. Levine, Assistant Regional Director, Division of 
Enforcement, New York Regional Office, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission staff 
may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no later 
than sixty (60) days from the date of the completion of the undertakings. 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent cease and desist from committing or causing any violations and any 
future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 
 
B. Respondent is censured.  
 
C. Respondent shall comply with the undertakings enumerated in paragraphs 29 to 
35 above. 
  
 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $400,000 to the Securities and Exchange Commission for transfer to the 
general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely 
payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   
 
 Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 

 
10 
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Alpaca as the Respondent in these proceedings, and the file number of these proceedings; a copy 
of the cover letter and check or money order must be sent to Thomas P. Smith, Jr., Associate 
Regional Director, Securities and Exchange Commission, 100 Pearl Street, Suite 20-100, New 
York, New York 10004-2616.   
 
 E. The amount ordered to be paid as a civil money penalty pursuant to this Order 
shall be treated as a penalty paid to the government for all purposes, including all tax purposes.  
To preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related 
Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction 
of any award of compensatory damages by the amount of any part of Respondent’s payment of a 
civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants 
such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondent by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
       Secretary 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 101137 / September 24, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22159 

 

 

In the Matter of 

 

Alpaca Securities LLC,  

 

Respondent. 

ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-AND-

DESIST PROCEEDINGS, PURSUANT TO 

SECTIONS 15(b) AND 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER 

 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 

the public interest that public administrative and cease-and-desist proceedings be, and hereby 

are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 

(“Exchange Act”) against Alpaca Securities LLC (“Respondent” or “Alpaca”). 

 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 

facts set forth in Section III below, acknowledges that its conduct violated the federal securities 

laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 

consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, 

Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, 

and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   

 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

 

Summary 

1. The federal securities laws impose recordkeeping requirements on broker-dealers 

to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  



 

2 

 

long said that compliance with these requirements is essential to investor protection and the 

Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 

efficient markets, and facilitating capital formation. 

2. These proceedings arise out of the widespread and longstanding failure of Alpaca 

personnel, including at senior levels, to adhere to certain of these essential requirements and 

Alpaca’s own policies and procedures.  Using their personal devices, these employees 

communicated both internally and externally by text messages and/or other unapproved written 

communications platforms, such as WhatsApp (“off-channel communications”). 

3. From at least May 2022 (the “Relevant Period”), Alpaca personnel sent and 

received off-channel communications that related to its broker-dealer business.  Respondent did 

not maintain or preserve the substantial majority of these written communications.  Respondent’s 

failure was firm-wide and involved personnel at various levels of authority.  As a result, Alpaca 

violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. 

4. Alpaca’s supervisors, who were responsible for supervising junior personnel, 

routinely communicated off-channel using their personal devices.  In fact, senior executives 

responsible for supervising junior personnel themselves failed to comply with Alpaca’s policies 

and procedures by communicating through non-Alpaca approved methods on their personal 

devices about Alpaca’s broker-dealer business. 

5. Alpaca’s widespread failure to implement its policies and procedures that prohibit 

such communications led to its failure to reasonably supervise its personnel within the meaning 

of Section 15(b)(4)(E) of the Exchange Act.    

6. During the Relevant Period, Alpaca received and responded to Commission 

subpoenas for documents and records requests in various Commission investigations.  As a 

result, Alpaca’s recordkeeping failures likely impacted the Commission’s ability to carry out its 

regulatory functions and investigate violations of the federal securities laws across these 

investigations.   

7. The Commission staff uncovered Alpaca’s misconduct after commencing a risk-

based initiative to investigate the use of off-channel and unpreserved communications at broker-

dealers.  Alpaca has initiated a review of its recordkeeping failures and begun a program of 

remediation.  As set forth in the Undertakings below, Alpaca will retain an independent 

compliance consultant to review and assess Alpaca’s remedial steps relating to its recordkeeping 

practices, policies and procedures, related supervisory practices, and employment actions. 

Respondent 

8. Alpaca is a Delaware limited liability company with its principal place of business 

in Babcock Ranch, Florida.  Alpaca has been registered with the Commission as a broker-dealer 

since March 2018.  



 

3 

 

Recordkeeping Requirements Under the Exchange Act 

9. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 

requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 

records as necessary or appropriate in the public interest, for the protection of investors or 

otherwise in furtherance of the purposes of the Exchange Act. 

10. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 

authority.  Rule 17a-4 specifies the manner and length of time that the records made in 

accordance with other Commission rules, and certain other records made by broker-dealers, must 

be maintained and produced promptly to Commission representatives.   

11. The rules adopted under Section 17(a)(1) of the Exchange Act, including Rule 

17a-4(b)(4), require that broker-dealers preserve for at least three years, the first two years in an 

easily accessible place, originals of all written communications received and copies of all 

communications sent relating to the broker-dealer’s business as such.  These rules impose 

minimum recordkeeping requirements that are based on standards a prudent broker-dealer should 

follow in the normal course of business.  

12. The Commission previously has stated that these and other recordkeeping 

requirements “are an integral part of the investor protection function of the Commission, and 

other securities regulators, in that the preserved records are the primary means of monitoring 

compliance with applicable securities laws, including antifraud provisions and financial 

responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 

Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 

with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 

Alpaca’s Policies and Procedures 

13. Alpaca maintained certain policies and procedures designed to ensure the 

retention of business-related records, including electronic communications, in compliance with 

the relevant recordkeeping provisions.   

14. Alpaca personnel were advised that the use of unapproved electronic 

communications methods, including on their personal devices, was not permitted, and they 

should not use personal email, chats or text messaging applications for business purposes, or 

forward work-related communications to unapproved applications on their personal devices.  

15. Messages sent through firm-approved communications methods were monitored, 

subject to review, and archived.  Messages sent through unapproved communications methods, 

such as WhatsApp and Telegram on personal devices, were not monitored, subject to review or 

archived. 

16. Alpaca’s policies and procedures were designed to address supervisors’ 

supervision of personnel’s training in Alpaca’s communications policies and adherence to 

Alpaca’s books and recordkeeping requirements.  Supervisory policies notified personnel that 



 

4 

 

electronic communications were subject to surveillance by Alpaca.  Alpaca had procedures for 

all personnel, including supervisors, requiring annual self-attestations of compliance.  

17. Alpaca, however, failed to implement a system of follow-up and review to 

determine whether all personnel, including supervisors, were reasonably following Respondent’s 

policies and procedures.  While permitting personnel to use approved communications methods, 

including on personal phones, for business communications, Alpaca failed to implement 

sufficient monitoring to ensure that its recordkeeping and communications policies were being 

followed.  

Alpaca’s Recordkeeping Failures Across Its Brokerage Business 

18. In September 2021, the Commission staff commenced a risk-based initiative to 

investigate whether broker-dealers were properly retaining business-related messages sent and 

received on personal devices.  Alpaca cooperated with the investigation by voluntarily 

interviewing a sampling of senior personnel and gathering and reviewing messages found on the 

individuals’ personal devices.  These personnel included senior leadership, such as senior 

executives and a director.  

19. The Commission staff’s investigation uncovered pervasive off-channel 

communications at all seniority levels within Alpaca.  The investigation determined that nearly 

all broker-dealer personnel sampled had engaged in at least some level of off-channel 

communications.   

20. Overall, personnel sent and received numerous off-channel communications, 

involving other personnel and other participants in the securities industry.  Within Alpaca, 

significant numbers of senior personnel participated in off-channel communications. 

21. During the Relevant Period, Alpaca personnel sent and received off-channel 

messages that concerned the broker-dealer’s business. 

22. For example, an executive officer exchanged numerous off-channel business-

related messages with at least five Alpaca colleagues, including another executive, two other 

officers and two vice presidents.  These messages related to the broker-dealer’s business as such. 

23. In addition, a director exchanged numerous off-channel business-related messages 

with at least five Alpaca colleagues, three of whom were under the director’s supervision.  These 

messages related to the broker-dealer’s business as such. 

24. Furthermore, a registered representative exchanged numerous off-channel 

business-related messages with at least three Alpaca colleagues, and five other market 

participants.  These messages related to the broker-dealer’s business as such. 

Alpaca’s Failure to Preserve Required Records Potentially Compromised and Delayed 

Commission Matters 

25. During the Relevant Period, Alpaca received and responded to Commission  



 

5 

 

subpoenas for documents and records requests in various Commission investigations.  By failing to 

maintain and preserve required records relating to its broker-dealer business, Alpaca likely 

deprived the Commission of these off-channel communications in various investigations.  

 

Alpaca’s Violations and Failure to Supervise 

26. As a result of the conduct described above, Respondent willfully2 violated Section 

17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. 

27. As a result of the conduct described above, Respondent failed reasonably to 

supervise its personnel with a view to preventing or detecting certain of its personnel’s aiding 

and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder, 

within the meaning of Section 15(b)(4)(E) of the Exchange Act.  

Respondent’s Efforts to Comply 

28. In determining to accept Respondent’s Offer, the Commission considered 

Respondent’s cooperation as well as remedial steps that Respondent undertook both before and 

after being approached by the Commission staff.  Prior to this action, Respondent enhanced its 

policies and procedures, increased training concerning the use of approved communications 

methods, including on personal devices, and began implementing significant changes to the 

technology available to personnel, which included providing personnel with a messaging 

application that retains communications, thereby making approved channels more readily 

available. 

Undertakings 

Respondent has undertaken to: 

29. Independent Compliance Consultant. 

a.  Alpaca shall retain, within thirty (30) days of the entry of this Order, the 

services of an independent compliance consultant (“Compliance Consultant”) that is not 

unacceptable to the Commission staff.  The Compliance Consultant’s compensation and 

expenses shall be borne exclusively by Alpaca. 

 

b.  Alpaca will oversee the work of the Compliance Consultant. 

 

c.  Alpaca shall provide to the Commission staff, within sixty (60) days of the 

entry of this Order, a copy of the engagement letter detailing the Compliance 

Consultant’s responsibilities, which shall include a comprehensive compliance review as 

                                                 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, 

“‘means no more than that the person charged with the duty knows what he is doing.’”  

Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 

977 (D.C. Cir. 1949)).  



 

6 

 

described below.  Alpaca shall require that, within ninety (90) days of the date of the 

engagement letter, the Compliance Consultant conduct: 

 

i.  A comprehensive review of Alpaca’s supervisory, compliance, and 

other policies and procedures designed to ensure that Alpaca’s electronic 

communications, including those found on personal electronic devices, including 

without limitation, cellular phones (“Personal Devices”), are preserved in 

accordance with the requirements of the federal securities laws. 

 

ii.  A comprehensive review of training conducted by Alpaca to ensure 

personnel are complying with the requirements regarding the preservation of 

electronic communications, including those found on Personal Devices, in 

accordance with the requirements of the federal securities laws, including by 

ensuring that Alpaca personnel certify in writing on a quarterly basis that they are 

complying with preservation requirements.  

 

iii.  An assessment of the surveillance program measures implemented by 

Alpaca to ensure compliance, on an ongoing basis, with the requirements found in 

the federal securities laws to preserve electronic communications, including those 

found on Personal Devices. 

 

iv.  An assessment of the technological solutions that Alpaca has begun 

implementing to meet the record retention requirements of the federal securities 

laws, including an assessment of the likelihood that Alpaca personnel will use the 

technological solutions going forward and a review of the measures employed by 

Alpaca to track employee usage of new technological solutions.  

 

v.  An assessment of the measures used by Alpaca to prevent the use of 

unauthorized communications methods for business communications by 

personnel.  This assessment should include, but not be limited to, a review of 

Alpaca’s policies and procedures to ascertain if they provide for any significant 

technology and/or behavioral restrictions that help prevent the risk of the use of 

unapproved communications methods on Personal Devices (e.g., trading floor 

restrictions).   

 

vi.  A review of Alpaca’s electronic communications surveillance routines 

to ensure that electronic communications through approved communications 

methods found on Personal Devices are incorporated into Alpaca’s overall 

communications surveillance program.   

 

vii.  A comprehensive review of the framework adopted by Alpaca to 

address instances of non-compliance by Alpaca personnel with Alpaca’s policies 

and procedures concerning the use of Personal Devices to communicate about 

Alpaca business in the past.  This review shall include a survey of how Alpaca 

determined which personnel failed to comply with Alpaca policies and 

procedures, the corrective action carried out, an evaluation of who violated the 



 

7 

 

policies and procedures and why, what penalties were imposed, and whether 

penalties were handed out consistently across business lines and seniority levels.   

 

d.  Alpaca shall require that, within forty-five (45) days after completion of the 

review set forth in sub-paragraphs 29.c.i. through c.vii. above, the Compliance 

Consultant shall submit a detailed written report of its findings to Alpaca and to the 

Commission staff (the “Report”).  Alpaca shall require that the Report include a 

description of the review performed, the names of the individuals who performed the 

review, the conclusions reached, the Compliance Consultant’s recommendations for 

changes in or improvements to Alpaca’s policies and procedures, and a summary of the 

plan for implementing the recommended changes in or improvements to Alpaca’s 

policies and procedures. 

 

e.  Alpaca shall adopt all recommendations contained in the Report within ninety 

(90) days of the date of the Report; provided, however, that within forty-five (45) days 

after the date of the Report, Alpaca shall advise the Compliance Consultant and the 

Commission staff in writing of any recommendations that Alpaca considers to be unduly 

burdensome, impractical, or inappropriate.  With respect to any recommendation that 

Alpaca considers unduly burdensome, impractical, or inappropriate, Alpaca need not 

adopt such recommendation at that time, but shall propose in writing an alternative 

policy, procedure, or disclosure designed to achieve the same objective or purpose. 

 

f.  As to any recommendation concerning Alpaca’s policies or procedures on 

which Alpaca and the Compliance Consultant do not agree, Alpaca and the Compliance 

Consultant shall attempt in good faith to reach an agreement within sixty (60) days after 

the date of the Report.  Within fifteen (15) days after the conclusion of the discussion and 

evaluation by Alpaca and the Compliance Consultant, Alpaca shall require that the 

Compliance Consultant inform Alpaca and the Commission staff in writing of the 

Compliance Consultant’s final determination concerning any recommendation that 

Alpaca considers to be unduly burdensome, impractical, or inappropriate.  Alpaca shall 

abide by the determinations of the Compliance Consultant and, within sixty (60) days 

after final agreement between Alpaca and the Compliance Consultant or final 

determination by the Compliance Consultant, whichever occurs first, Alpaca shall adopt 

and implement all of the recommendations that the Compliance Consultant deems 

appropriate. 

 

g.  Alpaca shall cooperate fully with the Compliance Consultant and shall provide 

the Compliance Consultant with access to such of Alpaca’s files, books, records, and 

personnel as are reasonably requested by the Compliance Consultant for review. 

 

h.  Alpaca shall not have the authority to terminate the Compliance Consultant or 

substitute another compliance consultant for the initial Compliance Consultant, without 

the prior written approval of the Commission staff.  Alpaca shall compensate the 

Compliance Consultant and persons engaged to assist the Compliance Consultant for 

services rendered under this Order at their reasonable and customary rates. 

 



 

8 

 

i.  For the period of engagement and for a period of two (2) years from 

completion of the engagement, Alpaca shall not (i) retain the Compliance Consultant for 

any other professional services outside of the services described in this Order; (ii) enter 

into any other professional relationship with the Compliance Consultant, including any 

employment, consultant, attorney-client, auditing or other professional relationship; or 

(iii) enter, without prior written consent of the Commission staff, into any such 

professional relationship with any of the Compliance Consultant’s present or former 

affiliates, employers, directors, officers, employees, or agents.  

 

j.  The Report by the Compliance Consultant will likely include confidential 

financial, proprietary, competitive business or commercial information.  Public disclosure 

of the Report could discourage cooperation, impede pending or potential government 

investigations or undermine the objectives of the reporting requirement.  For these 

reasons, among others, the Report and the contents thereof are intended to remain and 

shall remain non-public, except (1) pursuant to court order, (2) as agreed to by the parties 

in writing, (3) to the extent that the Commission determines in its sole discretion that 

disclosure would be in furtherance of the Commission’s discharge of its duties and 

responsibilities, or (4) as otherwise required by law. 

 

30. One-Year Evaluation.  Alpaca shall require the Compliance Consultant to assess 

Alpaca’s program for the preservation, as required under the federal securities laws, of electronic 

communications, including those found on Personal Devices, commencing one year after 

submitting the Report required by Paragraph 29.d above.  Alpaca shall require this review to 

evaluate Alpaca’s progress in the areas described in Paragraphs 29.c.i-vii above.  After this 

review, Alpaca shall require the Compliance Consultant to submit a report (the “One Year 

Report”) to Alpaca and the Commission staff and shall ensure that the One Year Report includes 

an updated assessment of Alpaca’s policies and procedures with regard to the preservation of 

electronic communications (including those found on Personal Devices), training, surveillance 

programs, and technological solutions implemented in the prior year period.  

31. Reporting Discipline Imposed.  For two (2) years following the entry of this Order, 

Alpaca shall notify the Commission staff as follows upon the imposition of any discipline imposed 

by Alpaca, including, but not limited to: written warnings; loss of any pay, bonus, or incentive 

compensation; or the termination of personnel; with respect to any employee found to have 

violated Alpaca’s policies and procedures concerning the preservation of electronic 

communications, including those found on Personal Devices: at least forty-eight (48) hours before 

the filing of a Form U5, or within ten (10) days of the imposition of other discipline.   

32. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 

the One Year Report, Alpaca will also have its Internal Audit function conduct a separate audit(s) 

to assess Alpaca’s progress in the areas described in Paragraphs 29.c.i-vii above.  After completion 

of this audit(s), Alpaca shall ensure that Internal Audit submits a report to Alpaca and to the 

Commission staff. 

33. Recordkeeping.  Alpaca shall preserve, for a period of not less than six (6) years 

from the end of the fiscal year last used, the first two (2) years in an easily accessible place, any 

record of compliance with these undertakings. 



 

9 

 

34. Deadlines.  For good cause shown, the Commission staff may extend any of the 

procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 

calendar days, except that if the last day falls on a weekend or federal holiday, the next business 

day shall be considered to be the last day. 

35. Certification.  Alpaca shall certify, in writing, compliance with the undertakings 

set forth above.  The certification shall identify the undertakings, provide written evidence of 

compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 

compliance.  The Commission staff may make reasonable requests for further evidence of 

compliance, and Respondent agrees to provide such evidence.  The certification and supporting 

material shall be submitted to Alison R. Levine, Assistant Regional Director, Division of 

Enforcement, New York Regional Office, Securities and Exchange Commission, 100 Pearl 

Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission staff 

may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no later 

than sixty (60) days from the date of the completion of the undertakings. 

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest 

to impose the sanctions agreed to in Respondent’s Offer. 

 

 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 

ORDERED that: 

 

 A. Respondent cease and desist from committing or causing any violations and any 

future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 

 

B. Respondent is censured.  

 

C. Respondent shall comply with the undertakings enumerated in paragraphs 29 to 

35 above. 

  

 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 

penalty in the amount of $400,000 to the Securities and Exchange Commission for transfer to the 

general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely 

payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   

 

 Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 



 

10 

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Alpaca as the Respondent in these proceedings, and the file number of these proceedings; a copy 

of the cover letter and check or money order must be sent to Thomas P. Smith, Jr., Associate 

Regional Director, Securities and Exchange Commission, 100 Pearl Street, Suite 20-100, New 

York, New York 10004-2616.   

 

 E. The amount ordered to be paid as a civil money penalty pursuant to this Order 

shall be treated as a penalty paid to the government for all purposes, including all tax purposes.  

To preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related 

Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction 

of any award of compensatory damages by the amount of any part of Respondent’s payment of a 

civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants 

such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 

of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 

deemed an additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 

means a private damages action brought against Respondent by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding. 

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

       Secretary 


	UNITED STATES OF AMERICA
	I.
	II.
	III.
	Summary
	Respondent
	Recordkeeping Requirements Under the Exchange Act
	Alpaca’s Policies and Procedures
	Alpaca’s Recordkeeping Failures Across Its Brokerage Business
	18. In September 2021, the Commission staff commenced a risk-based initiative to investigate whether broker-dealers were properly retaining business-related messages sent and received on personal devices.  Alpaca cooperated with the investigation by v...
	Alpaca’s Failure to Preserve Required Records Potentially Compromised and Delayed Commission Matters
	Alpaca’s Violations and Failure to Supervise
	Respondent’s Efforts to Comply
	Undertakings

	IV.