Articles Posted in LPL Financial

lpl-150x150On November 1, 2018, the Financial Regulatory Authority (“FINRA”) entered into a $2.75 million settlement with LPL Financial for supervisory failures related to the firm’s anti-money laundering (“AML”) program and customer complaint reporting practices.  Most disturbing for financial consumers is LPL’s failure to disclose and report customer complaints.  Customer complaints must be reported to FINRA within 30 days of a qualifying event.

Although LPL entered into the settlement without having to admit or deny any of FINRA’s findings, FINRA’s factual findings reflect badly on LPL’s supervisory practices which have already been the subject of numerous fines and regulatory inquiries.  LPL recently settled a multi-state action agreeing to pay a fine of $499,000 to each participating jurisdiction that could ultimately reach $26,000,000.

Accurate tracking and reporting of customer complaints is critical to the supervision and monitoring of stockbrokers.  According to FINRA, LPL avoided reporting customer complaints by narrowly interpreting the disclosure rules.  As a result, customer complaints that should have been reported were not.  This disciplinary information is also valuable to financial consumers and is publicly available through FINRA’s BrokerCheck system.  BrokerCheck provides useful information that all financial consumers should use when evaluating and selecting a stockbroker or investment advisor.

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For the past ten years, I have had the pleasure of serving as the supervising attorney for the University of San Francisco School of Law Investor Justice Clinic (IJC). The IJC provides free legal services to financial consumers who wish to pursue a securities arbitration claim against their stockbroker or investment advisor. Nearly all arbitrations handled by the IJC are held before the Financial Industry Regulatory Authority (FINRA). The IJC accepts clients with a family income under $75,000/year that have suffered financial losses that are less than $50,000.   However, these requirements are sometimes relaxed when a prospective client cannot find an attorney to take their case.

The IJC’s latest FINRA securities arbitration win involved a claim by a resident of Olympia, Washington, against LPL Financial LLC. The customer was awarded $25,000, which represented nearly all of her investment losses that occurred between October 2013 and December 2015. During this same period of time, a properly managed portfolio would have enjoyed a reasonable gain, rather than suffer a loss.

With summer almost over, the IJC students will be available to work on new and existing cases beginning August 20, 2017. However, anyone who believes they have a potential securities arbitration claim that meets the IJC’s guidelines should seek assistance without delay.  Click here for the IJC website.  For immediate assistance–or when school is not in session–use the Contact Us link on this website.

symbol_hazard.pngBy now, readers of this blog are hopefully aware that we are very negative on the marketing and sale of leveraged and inverse exchange-traded funds (“ETFs”) to average investors. The New York Times recently published a news piece declaring that ETFs, like those offered by Direxion, were “Public Enemy No. 1.”

Still not convinced? Take a look at the year-to-date results for the worst performing Direxion ETFs through 10/7/2015 according to Morningstar–all of them triple-leveraged funds:

Direxion Daily Nat Gas Rltd Bull 3X ETF (GASL) -84.36%

Thumbnail image for lpl.jpgAs previously reported in this blog, LPL Financial has recently been faced with numerous fines from various regulators and also securities lawsuits from unhappy investors over the firm’s uncontrolled sale of non-traded REITs and leveraged ETFs.

Multi-State Task Force Concludes LPL Overly Sold REITs to Individual Investors

Today, LPL reached yet another million dollar settlement–this time with a Task Force of state regulators. The Task Force investigation determined that LPL sold non-traded REITS in excess of the requirements set forth in the REIT prospectuses, various state concentration limits and LPL’s own guidelines. The investigation also concluded that LPL’s supervisory system was inadequate. Under the settlement, LPL will remediate investor losses for all sales of non-traded REITs from January 2008 through December 2013 that exceeded the requirements of the REIT prospectuses, applicable state concentration limits or LPL’s own guidelines. The Task Formed by the North American Securities Administrators Association (NASAA) included securities regulators from California, Texas, Colorado, Nevada, Maine, Ohio and Virginia.

The Alcala Law Firm has filed a FINRA arbitration claim against LPL Financial LLC arising out of the actions of their registered representative/investment advisor Jane Everingham doing business as Everignham O’Malley in Larkspur, California. The claim, filed on behalf of a customer of Ms. Everingham, involves the following highly risky and speculative investments:

  • Proshares Trust Short 20+ Year Treasury [Symbol: TBF]. An Exchange Traded Fund (“ETF”) that seeks to achieve the inverse of the daily performance of the Barclays U.S. 20+ Year Treasury Bond Index. Because these ETFs are reset daily, this type of ETF is unsuitable for investors who plan to hold the fund for longer than one trading session due to the effects of compounding.
  • Federated Equity Funds Prudent Bear Fund [Symbol: BEARX]. A mutual fund that seeks capital appreciation primarily through short positions on domestic stocks. “Selling short” generally refers to the act of selling borrowed shares with the hope that the shares can be bought back at a lower price.

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.

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.

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.

Related Blog Post:

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.

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.