LPL Financial Fined $11.7 Million Over Securities Practices

shutterstock_176319713The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined LPL Financial LLC (LPL) and fined it $10 million for broad supervisory failures in a number of key areas, including the sales of non-traditional exchange-traded funds (Non-Traditional ETFs), certain variable annuity contracts, non-traded real estate investment trusts (Non-Traded REITs) and other complex products, as well as its failure to monitor and report trades and deliver to customers more than 14 million trade confirmations. As part of the fine FINRA ordered LPL to pay approximately $1.7 million in restitution to customers who purchased non-traditional ETFs.

In a press release Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, stated that “LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business. With today’s action, FINRA reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls, and pay restitution to affected customers.”

This action is only one of many regulatory actions that our firm has tracked concerning LPL and its brokers including the following:

FINRA found that LPL failed to supervise sales of certain complex structured products, including ETFs, variable annuities and non-traded REITs. With regard to Non-Traditional ETFs, the firm did not have a system to monitor the length of time customers held the securities, did not enforce its limits on the concentration of Non-Traditional ETFs in customer accounts, and failed to ensure that its brokers were adequately trained on the risks of the products. LPL is also alleged to have failed to supervise its sales of variable annuities sales by permitting sales without disclosing surrender fees. FINRA also found that LPL failed to supervise Non-Traded REITs by failing to identify accounts eligible for volume sales charge discounts.

FINRA also determined after its review that LPL’s supervisory systems to review trading activity in customer accounts were plagued by multiple deficiencies. One such deficiency was that LPL used a surveillance system that failed to generate alerts for certain high-risk activity, including low-priced equity transactions, actively traded securities and potential employee front-running. According to FINRA, the firm used a separate and flawed automated system to review its trade blotter that failed to provide trading activity past due for supervisory review.

Finally, FINRA also found that LPL failed to reasonably supervise its advertising and other communications, including brokers use of consolidated reports. FINRA found that LPL did not monitor the creation or use of consolidated reports and failed to ensure that these broker created reports reflected complete and accurate information to clients.

Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors concerning losses caused by improper investment recommendations. Our consultations are free of charge and the firm is only compensated if you recover.