On May 6, 2015, LPL Financial reached a settlement with the Financial Industry Regulatory Authority (“FINRA”) agreeing to pay FINRA a $10 million fine and make restitution payments totaling $1.7 million to a select group of customers who were sold leveraged and inverse exchange traded funds (“ETFs”).
Restitution Will be Limited to 327 Customer Accounts
Only customers who purchased certain ETFs are entitled to receive any restitution under the terms of the settlement with FINRA. A total of 327 customer accounts are covered under the restitution program. Payments will range from a high of $83,034.97 to a low of $1.02 per account. LPL has 120 days to provide regulators with proof that payment has been made.
Restitution Will Not Cover Other Investment Losses
LPL’s regulatory troubles reached critical levels during a period of time when the firm more than doubled in size. LPL Financial is now one of the nation’s largest independent broker/dealers and is a leading distributor of financial products. Along the way, LPL has received numerous regulatory fines and penalties–all relating to the firm’s failure to properly supervise their financial advisors.
The latest $10 million fine involves widespread supervisory failures by LPL. The $1.7 million in restitution offered to select customers looks paltry compared to the $10 million fine FINRA is collecting for itself. The seriousness of this disciplinary action recognizes that LPL’s supervisory problems go well beyond the sale of risky ETFs in a handful of customer accounts. As the old saying goes: “Where there’s smoke, there’s fire.” In LPL’s settlement with regulators, FINRA lists numerous examples of LPL’s supervisory deficiencies, including:
- Failing to monitor the length of time leveraged and inverse ETFs were held in customer accounts even though such funds are designed as short-term investments.
- Failing to deliver prospectuses to customers.
- Permitting the sale of ETFs by financial advisors who had not taken the mandatory training on the risk of these products.
- Failing to supervise the sale of variable annuity contracts and mutual funds.
- Failing to supervise the sale of non-traded real estate investment trusts (“REITs”).
Arbitration: Another Avenue of Relief
Restitution is not the only relief available to LPL customers. For example, our securities law firm recently filed a FINRA arbitration claim against LPL on behalf of a woman who had invested in ETFs as well as several other risky investments offered by LPL that are not covered under the restitution plan. The lawsuit against LPL Financial seeks to recover losses over and above any amount that the customer receives through restitution. The bottom line: LPL customers need to carefully weight their options and, when in doubt, get in touch with an experienced securities lawyer.