In a decision citing 'widespread' supervisory failures, FINRA censured and ordered LPL Financial LLC to pay $11.7 million in fines and restitution for a series of supervisory failures across multiple complex products, some of which include non-traded real estate investment trusts (REITs), non-traditional exchange-traded funds (ETFs), and variable annuities (VAs).
The $11.7 million order includes a $10 million fine for the broad supervisory failures and $1.7 million in restitution to certain customers who purchased LPL's non-traditional ETFs, with a potential for the restitution to be increased pending further review of LPL's ETF systems and procedures.
According to FINRA Executive Vice President and Chief of Enforcement Brad Bennett, LPL's widespread supervisory failures were the result of a "sustained failure to devote resources to compliance programs." Referencing "lax" supervision and "substandard" supervisory systems and controls, Bennett said that regulators will continue to punish firms for deficient policies and systems that prove damaging to investors.
In regards to complex product sales, FINRA found that LPL did not have a system in place to monitor how long customers held ETFs in their accounts, did not enforce concentration limits, and failed to ensure representatives and brokers were adequately trained. As for VAs, LPL purportedly permitted some sales without disclosing surrender fees and actually excluded certain switch trades from supervisory review. FINRA found that the firm also failed to identify REIT accounts eligible for certain discounts.
FINRA's review of LPL's supervisory systems turned up additional deficiencies, including flawed automated systems related to supervisory review of trading activity, failure to deliver over 14 million trade confirmations, and other coding defects that contributed to a series of failures in LPL's anti-money laundering (AML) systems. For instance, the weakened AML system failed to alert LPL or their customers of excessive and international ATM withdrawals.
Investigators also admonished LPL for failing to report certain trades to FINRA, failing to reasonably supervise its own advertising, solicitations and communications, and failure to ensure that its consolidated reports were complete and accurate.
If you have invested with LPL Financial or with any firm whose supervisory failures—such as an AML deficiency failing to alert you of suspicious trading activity in an account or unsupervised sales of complex and potentially unsuitable risky products such as REITs or ETFs—have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News Release: FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures Related to Complex Product Sales, Trade Surveillance and Trade Confirmations Delivery (FINRA)