In an agreement reached with the North American State Securities Administrators Association, LPL Financial (LPLA) will pay $26M in fines to a number of US states and jurisdictions over unregistered securities sales going back more than a decade. NASAA reports that the settlement comes after a task force was set up last summer to probe LPL’s sales of unregistered, non-exempt securities to clients. Now, LPL will pay $499K to each state securities regulator. It also must buy back certain securities that it sold to investors going as far back as October 2006.
Details of the LPL Settlement for the Sale of Unregistered Securities
Per the settlement, LPL will offer to repurchase securities in the brokerage firm’s accounts that were found to have been unregistered, fixed-income or non-exempt equity securities. Every buyback offer will come with 3% simple interest annually. Requirements were also put in place for investors with “affected securities” that were moved or sold from an LPL account.
The task force’s probe looked into the brokerage firm’s “retention, use, and subsequent cancellation” of a number of third-party services that were key to its compliance with registration requirements by the states. State regulators also wanted to look at legacy deficiencies within the firms’ compliance structure, reporting and monitoring tools, and other matters.
The regulators found that LPL sold securities that were non-exempt and unregistered and did not reasonably oversee the flow of information with the states to make sure that proper compliance was taking place. Although no proof of “willful, reckless, or fraudulent” behavior by the broker-dealer was discovered, the state securities regulators found that LPL did not maintain systems adequately enough to reasonably oversee employees, staff, and agents to make sure that the securities at issue were not sold to customers.
The jurisdictions that are part of the settlement involving the sale of unregistered securities are 49 US states, Puerto Rico, the District of Columbia, and the US Virgin Islands. California is not part of this settlement.
Other Recent Cases Against LPL Financial and Its Brokers
LPL is the largest independent broker-dealer in the US. According to FinancialPlanning.com, the brokerage firm has had to pay regulatory and legal costs of $116M since 2013. In 2015, the brokerage firm arrived at another agreement requiring it to pay 48 regulators a $1.4M fine and restitution related to its sale of non-traded real estate investment trusts (Nontraded REITs).
NASAA found that the firm put into place a supervisory system for non-traded REITs that was inadequate. Over 2,000 violations related to the sales of these securities were believed to have occurred. The firm agreed to remediate losses for any non-traded REITS sold by LPL between 1/2008 through 12/2013.
There have been other recent securities cases brought against LPL Financial or one of its former representatives in the last 12 months alone. Last year, Massachusetts of the Secretary of the Commonwealth William Galvin fined the brokerage firm $1M for allege misrepresentations made to consumers in the state, as well as over its alleged failure to supervise its advisers. Galvin also sued LPL in 2016 for allegedly failing to supervise broker Roger Zullo, who is accused of bilking clients, especially retirees, when selling them variable annuities. The Massachusetts regulator’s complaint contended that LPL and Zullo made more than $1.8M in variable annuity commissions.
Other LPL brokers to recently come under fire for their alleged misconduct include former LPL investment adviser Jason N. Anderson, whom the Texas State Securities Board suspended for 90 days earlier this year. The state regulator claims that while Anderson was registered with LPL, he charged clients unreasonable fees that paid him commissions.
Meantime, Ex-LPL broker Sonya Camarco was indicted for securities fraud and theft last year. Camarco is accused of stealing more than $850K in client monies. The firm fired her in August. In April of last year, the US Securities and Exchange Commission filed civil charges against ex-LPL Financial representative Thomas Edwards Andrews and his assistant Scott Walter Christensen accusing them of defrauding investors. Andrews allegedly misappropriated more than $8M.
Broker Fraud Cases
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LPL Fined $26M for Unregistered Securities Sales, Financial Advisor, May 2, 2018
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Massachusetts Investigates Wells Fargo Advisers, Stockbroker Fraud Blog, March 16, 2018
Texas Securities Cases: Austin Investment Adviser to Pay Over $715K to Settle Cherry Picking Allegations and Dallas-Based Oil and Gas Company is Accused of $95OK Investor Fraud, Stockbroker Fraud Blog, March 9, 2018