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May 8, 2015

LPL Financial: What Customers Need to Know About Restitution

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.

May 6, 2015

LPL Financial Ordered to Pay $10 Million Fine and $1.7 Million in Restitution to Customers for Supervisory Lapses

Thumbnail image for lpl.jpgToday, the Financial Industry Regulatory Authority ("FINRA") reached a settlement with LPL Financial LLC totaling $11.7 Million over multiple failures in the firm's supervision of customer transactions involving non-traditional exchange traded funds ("ETFs"), variable annuities, mutual funds and non-traded real estate investment trusts ("REITs").

As part of the settlement, LPL will be required to pay $1,664,592.04 million in restitution, plus interest, to customers affected by the firm's failure to supervise the sale of non-traditional ETFs. FINRA has stepped up its enforcement efforts over the sale of non-traditional ETF such as leveraged and inverse ETFs, which are complex and risky investments that we have covered at length in several blog posts. Click here for more information about leveraged and inverse ETFs.

LPL has 120 days to locate and provide proof of payment to all affected customers. According to the settlement, a total of 327 unidentified customer accounts are entitled to receive payments ranging from $1.02 to $83,034.97 per account.

Related Blog Posts:

Alcala Law Firm Files FINRA Arbitration Claim Against LPL Financial Over Risky Investments

May 1, 2015

Alcala Law Firm Files FINRA Arbitration Claim Against LPL Financial Over Risky Investments

The Alcala Law Firm, a California-based securities law firm, has filed a securities arbitration claim against LPL Financial before the Financial Industry Regulatory Authority (FINRA) involving the sale of risky and unsuitable investments in a managed account causing a customer to suffer significant losses between 2011 and 2013--a period of time when the overall stock market enjoyed positive returns. The customer's investments included an inverse exchange traded fund ("ETF"), a bear fund that bet against the market and several gold funds.

In related news, on May 6, 2015, LPL was fined $10 Million by FINRA for widespread supervisory violations and ordered to pay $1.7 in restitution to customers who were sold leveraged and inverse ETFs. Click here for related blog post. LPL, headquartered in Boston, has grown from approximately 8,300 registered representative in 2007 to 18,433. However, LPL's rapid growth has created problems with regulatory authorities who have repeatedly fined the firm for failure to supervise their growing legion of financial advisors. LPL paid disciplinary fines totaling $2.95 million in 2014 and $8 million (plus $2 million in restitution) in 2013 for supervisory lapses.

March 24, 2014

Regulators Fine LPL Financial LLC $950,000 Over Unsuitable Alternative Investments Sales

Thumbnail image for lpl.jpgToday, LPL Financial LLC reached a settlement with the Financial Industry Regulatory Authority (FINRA) over the firm's failure to adequately supervise the sale of non-traded REITs and other risky alternative investments. LPL's settlement with FINRA specifically mentioned former LPL broker Gary J. Chackman for his role in selling "dozens" of alternative investments that were unsuitable and exceeded the firm's guidelines, which he was able to conceal by using false customer financial information. Chackman has been the subject of numerous securities arbitration claims.

Last year, LPL agreed to pay a fine of $500,000 and approximately $2 million in restitution to Massachusetts investors for violating Massachussets suitability rules while selling non-traded REITs, including:


  • Inland American, Cole Property Trust II, Inc.

  • Cole Credit Property Trust III, Inc.

  • Cole Credit Property 1031 Exchange

  • Wells Real Estate Investment Trust II, Inc.

  • W.P. Carey Corporate Property Associates 17

  • Dividend Capital Total Realty


Related blog posts:

LPL Financial, LLC Under Fire for Sale of Non-Traded REITS

Investors Beware: Non-Listed REITs

December 24, 2012

LPL Financial, LLC Under Fire for Sale of Non-Traded REITS

lpl.jpgThe Enforcement Section for the Commonwealth of Massachusetts has filed an administrative lawsuit against LPL Financial, LLC for violation of securities laws in connection with the sale of non-traded REITs. [R-E-I-T is an acronym for "Real Estate Investment Trust."] The term "non-traded" refers to the fact that the REITs are not listed on a national stock exchange and investors have limited redemption rights. The Commonwealth is demanding that the firm make full restitution to Massachusetts investors who were improperly sold non-traded REITs. Following an investigation of 597 non-traded REIT transactions made by LPL, the Enforcement Section determined that 569 of those were made in violation of the prospectus requirements. For example, many of the non-traded REITs sold by LPL contained a requirement in their prospectuses limiting an individual investor's purchase to 10% of their liquid net worth. The Commonwealth's investigation focused on seven non-traded REITs sold by LPL:


  • Inland American, Cole Property Trust II, Inc.

  • Cole Credit Property Trust III, Inc.

  • Cole Credit Property 1031 Exchange

  • Wells Real Estate Investment Trust II, Inc

  • W.P. Carey Corporate Property Associates 17

  • Dividend Capital Total Realty


LPL Financial, LLC is the largest independent broker-dealer in the United States with 12,800 financial advisors. Although the administrative action taken by Massachusetts is primarily concerned with the sale of non-traded REITs to its own residents, LPL's financial advisors sold non-traded REITs to thousands of investors across the country. The Commonwealth of Massachusetts should be commended for their aggressive efforts to protect the rights of financial consumers. In the past, lawsuits such as the one filed by the Commonwealth of Massachusetts have encouraged investors nationwide to seek their own form of justice through individual securities arbitration claims.

See related blog post:

October 5, 2009

FINRA Dispute Resolution Expands Pilot Program for Securities Arbitration Panels

Here is a bit of good news for investors with securities arbitration claims against 14 of the largest brokerage firms, including Merrill Lynch, Morgan Stanley Smith Barney and Wells Fargo. The Financial Industry Regulatory Authority (FINRA) has agreed to extend its year-old pilot program established to give investors the option to request an arbitration panel composed entirely of arbitrators that are not affiliated with the securities industry. Currently, a 3-person arbitration panel must include one industry arbitrator and two public arbitrators. The pilot program was created in response to criticism over whether an industry arbitrator, such as a stockbroker or branch manager, can act impartially when a customer is complaining about securities fraud or account mismanagement by their broker. I've participated in arbitrations with both good and bad industry arbitrators. The trouble is, allowing an industry arbitrator to sit on a panel gives the appearance of bias and takes away from the legitimacy of the proceedings. That should be reason enough to dump the industry arbitrator. My California securities law firm is in favor of the pilot program and we have been actively encouraging clients to participate whenever possible.

The brokerage firms who have agreed to participate in the pilot program are:

Ameriprise Financial Services
Charles Schwab
Chase Investment Services
Citigroup Global Markets
Edward Jones
Fidelity Brokerage Services
LPL Financial
Merrill Lynch
Morgan Stanley Smith Barney
Oppenheimer
Raymond James
TD Ameritrade
UBS Financial Services
Wells Fargo Advisors / Wachovia Securities

Each of the above firms has committed to participate in a limited number of cases under the program on a first come, first served basis. The pilot program will end on October 5, 2010. Since the average arbitration hearing takes 14 ½ months to conclude, most cases in the pilot program have not gone to hearing yet. FINRA plans to compare the results of the pilot program cases with non-pilot cases. Of the 396 arbitration cases that have been decided this year, only 139 (45%) recovered anything at all. Hopefully, the arbitration award results for cases in the pilot program will be much better. If the pilot program results in more awards in favor of customers, will the brokerage industry lobby to keep the industry arbitrator? Let's hope not.