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LPL Financial Fined $950,000 for Alternative Investment Sales

LPL Financial

New Jersey Settlement alleges excessive amounts of alternative investments

According to reports, the New Jersey Bureau of Securities fined LPL Financial $950,000 and ordered it to pay $25,000 to a state investor education fund. According to the settlement, there was a lack of supervision in regards to suitability requirements tied to sales of illiquid alternative investments.

The alternative investments in question are Real Estate Investment Trusts (REITS) and Business Development Companies (BDCs).

Non-traded REITs are also high commission and illiquid product. Shares of non-traded REITs do not trade on a national securities exchange which makes them illiquid often for periods of eight years or more. Early redemption of shares is usually limited, and fees associated with the sale of these products can be high and lessen total return.

BDCs typically invest in debt of small and medium sized businesses. When those businesses are profitable, so is the BDC. However, BDCs often invest in businesses that were unable to secure bank loans and debt considered below investment grade. BDCs typically are high commission products that carry significant upfront fees.

One non-traded REIT cited in the settlement requires client’s total investment in illiquid REITs could not exceed 10% of the investor’s liquid net worth.

In the settlement, one of the LPL’s clients had a liquid net worth of $350,000, and bought $69,000 of non-traded REITs, or close to 20% of the client’s liquid assets.

According to another prospectus cited by New Jersey, clients could not invest more than 10% of their liquid assets in BDCs. One LPL client had about 13% of liquid assets in BDCs.

LPL Financial – Failure to Supervise

LPL Financial reportedly failed to follow its own supervisory procedures regarding the offering and sale of these types of investments. According to the settlement, it also failed to keep adequate books and records. The company received gross sales commission of up to 10% from sales of alternative investments by LPL Financial affiliated brokers, according to the settlement.

New Jersey’s review of LPL sale practices covered a span of several years. It included more than 5,200 non-traded REIT sales and 2,100 illiquid BDC sales, as well as a several transactions that involved closed-end funds and other alternative investments.

This is not the first time LPL Financial has been trouble with regulators over sales of non-traded REITs.

Brokerage firms are required to adequately supervise their agents to ensure they are complying with FINRA rules. They can held responsible for any losses in a FINRA arbitration claim if it is determined that they failed to properly supervise their agents.

Free Consultation with a Securities Attorney

If you would like to determine if your brokerage firm may be liable for your investment losses, please call the securities attorneys of The White Law Group at 888.637.5510 for a free consultation.

The foregoing information is publicly available and is provided by The White Law Group.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.  For a free consultation with one of the firm’s securities attorneys, please call (888) 637-5510.

For more information on The White Law Group, visit www.WhiteSecuritiesLaw.com.


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