FINRA Hits LPL Financial with $6M for Supervisory Failures

LPL Financial has agreed to a censure and $6.5 million fine for several supervisory and compliance failures

The White Law Group is investigating potential securities claims involving LPL Financial and the liability it may have for failure to supervise its financial advisors.

According to a Letter of Acceptance, Waiver and Consent (AWC) signed on December 31, 2020, the Financial Industry Regulatory Authority (FINRA) has censured and fined LPL Financial (CRD#: 6413) $6 million for several supervisory and compliance failures.

LPL Financial, based in South Mill, SC is the nation’s largest independent broker-dealer. The firm allegedly failed to properly retain 87 million records, including customer communications, did not fingerprint at least 7,000 non-registered associated individuals and also failed to monitor brokers’ use of consolidated reports, according to the AWC.

The lapses reportedly resulted in the deletion of 1.5 million customer communications by a third party vendor, allowed at least one disqualified person to affiliate with the firm despite a conviction for forgery and also allowed a broker to exploit the deficiencies and perpetuate a Ponzi scheme that defrauded LPL customers of at least $1 million, the findings stated.

While the violations generally occurred in the past six years, some remained ongoing according to FINRA.

The firm accepted the penalties without admitting or denying the charges and has reportedly hired third parties to help it address the recordkeeping, fingerprinting, and consolidated report violations and is in the process of “remediation efforts.”

LPL has recently been rapidly expanding its brokerage force through recruiting and by acquisition of smaller independent broker-dealers, according to Advisor Hub and has “grown its headcount by nearly 26% to 17,168 at the end of the third quarter this year from 13,673 at the end of 2013.”

FINRA further noted that there were three other similar disciplinary actions it brought against LPL in recent years, two of which also required retroactive compliance reviews.

December 2016 –  LPL had to pay $750,000 over allegations that it failed to properly maintain over 18.3 million internal electronic compliance and administrative alerts in a non-erasable and non-rewritable format between December 2010 and November 2015.

December 2016 – LPL was censured and fined again for $900,000 for failing to send customers 1.6 million account notices that are required to be sent to certain customers at 36-month intervals.

May 2015 – LPL reportedly paid a $10 million fine and to pay $1.66 million in restitution for failing to supervise brokers’ use of consolidated reports.

According to Advisor Hub, the FINRA sanctions identified the former LPL broker behind the Ponzi scheme as “JTB.” In November, former LPL advisor James Thomas Booth, in Norwalk, Connecticut, was sentenced to 42 months in prison fraud after he allegedly perpetrated a multi-million dollar Ponzi scheme.

After reportedly firing Booth in 2019, the firm has paid restitution to customers affected by the JTB Ponzi, according to Advisor Hub, sourcing the FINRA settlement.

Filing a Complaint against your Brokerage Firm

All broker-dealers have a responsibility to adequately supervise its employees. They must ensure the necessary procedures and systems to detect misconduct.  Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.

When brokers violate securities laws, such as making unsuitable investments, the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.

Free Consultation with a Securities Attorney

If you are concerned about your investments with LPL Financial, the securities attorneys at The White Law Group may be able to help you. For a free consultation with a securities attorney, please call The White Law Group at (888) 637-5510.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois. For more information on the firm and its representation of investors, please visit https://whitesecuritieslaw.com.