In a settlement letter released yesterday, The Financial Industry Regulatory Authority Inc. (FINRA) ordered LPL Financial to pay $11.7 million in fines and restitution for what it deemed "widespread supervisory failures" related to sales of complex products, according to a settlement letter released Wednesday. the Finra settlement letter indicated LPL failed to properly supervise the sale of complex investment products including Exchange Traded Funds (ETFs) variable annuities and non-traded Real Estate Investment Trusts (REITs). FINRA also stated LPL failed to properly deliver more than 14 million trade confirmations to firm customers.
The SRO also cited examples where LPL, did not have a system in place to monitor the length of time customers held securities in their accounts or to enforce limits on concentrations of those complex products in their customers' accounts. The systems that LPL had in place to review trading activity in customer accounts were plagued by "multiple deficiencies," Finra said. The firm failed to generate proper anti-money laundering alerts, for instance, and did not deliver trade confirmations in 67,000 customer accounts, according to the settlement letter. FINRA also fined LPL for failing to supervise advertising and other communications, including brokers' use of certain reports.
The penalty includes a $10 million fine and restitution of $1.7 million to customers who were sold certain ETFs. Finra said the firm may pay additional compensation to ETF purchasers "pending a review of its ETF systems and procedures." "LPL's supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business," said Brad Bennet, Finra's chief of enforcement, in a statement. "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." As is customary in regulatory matters, LPL consented to the fine without admitting or denying the charges. LPL set aside roughly $23 million last fall to cover the anticipated but at the time, unresolved regulatory issues. The firm also agreed to conduct a written review to improve its supervisory systems as part of the settlement.
The experienced securities fraud attorneys at Colling Gilbert Wright & Carter have successfully represented investors and recovered damages for supervisory failures in the sale of alternative investments, including non-traded REIT's promissory notes, ETFs and limited partnerships as well as variable annuity products. If you have suffered losses as a result of omissions or misrepresentations during the purchase of a security or variable annuity, please contact us for a free case evaluation