On May 2, 2018, the North American Securities Administrators Association (NASAA)—the association of state, Canada, Mexico, and U.S. territory securities regulators—announced a settlement with LPL Financial LLC. The settlement between the NASAA and LPL requires LPL to offer to repurchase certain unregistered securities it sold investors since October 2006 and to pay civil penalties that could total more than $26 million.
The sanctions are in connection with an investigation into LPL for selling unregistered securities to investors that were not exempt from registration requirements.
Pursuant to the Securities Act of 1933, securities must be registered with the Securities and Exchange Commission (SEC), unless they are exempt from registration requirements. The Act protects investors by requiring proper disclosures of information and forbidding deceitful sales practices. Brokerages are forbidden from selling unregistered, non-exempt securities. Moreover, brokerages are required to adequately supervise their associated persons to prevent them from violating laws or harming investors.
The NASAA reported that it created a task force in July 2017 to investigate LPL’s policies and procedures to prevent sales of unregistered, non-exempt securities. Investigators found LPL “failed to maintain adequate systems to reasonably supervise agents, staff, and employees to prevent the sale of unregistered, non-exempt securities,” said the NASAA. This is not LPL’s only reprimand for supervision.
LPL has had several recent regulatory sanctions for its supervisory practices, according to Financial Industry Regulatory Authority, Inc. (FINRA) records. FINRA reports 62 separate disclosures for sanctions ordered against LPL since January 2015, which involved LPL paying millions in penalties for various alleged infractions. FINRA reports more than 90 such disclosures for LPL over the past ten years.
The underlying allegations of several sanctions against LPL involved its supervision practices to prevent its brokers from recommending or selling investment products or strategies that were unsuitable to its customers. Securities rules and laws require brokers and brokerage firms to recommend only suitable investment products and strategies. Suitability is based on factors such as an investor’s age, risk tolerance, investment experience and objectives, and financial status.
For instance, prior to the most recent NASAA action, on March 26 and 19, 2018, FINRA announced the North Carolina Securities Division and NASAA settled charges that LPL “failed to implement an adequate supervisory system regarding its sales of non-traded REITS.” LPL agreed to pay regulators fines and pay investors their losses from the REITs.
REITs (Real Estate Investment Trusts) can be risky, expensive investments, and non-traded REITs do not trade on stock exchanges, making them illiquid. They can be unsuitable to investors, and many have suffered severe losses from REITS while their brokers and firms profited by selling them.
Additionally, on February 6, 2018, FINRA announced it fined LPL $375,000 for allegedly failing to reasonably supervise its sales of certain broker certificates of deposit (Brokered CDs). LPL “allegedly failed to ensure that (1) its registered representatives were trained on all material risks and features of brokered CDs and (2) adequately disclose all material risks and features of brokered CDs to customers.”
CDs are commonly thought of as safe, near cash investments. But unlike bank CDs, Brokered CDs can be complex and risky, have large fluctuations in price, have no real market to sell them, and have maturity dates several decades out. Brokers and firms can utilize the image of bank CDs to sell Brokered CDs.
Investors have rights to pursue claims for their losses from brokers or advisors who recommend unsuitable investment product and strategies, as well as from firms who inadequately supervise their employees.
If you suffered losses while investing with LPL Financial LLC or any of its brokers or advisors, and you believe your losses may be the result of negligence or other misconduct, contact Marquardt Law Office LLC. You will receive a free case evaluation and speak with a securities attorney to discuss options to recover your losses.
Marquardt Law Office LLC is a securities law firm located in Chicago, IL that represents clients nationwide who have suffered losses due to misconduct such as fraud and negligence.