Finra Fines LPL $6.5 Million over Broad Supervisory Failures
LPL Financial has agreed to a censure and $6.5 million fine for a range of supervisory and compliance failures tied to record-keeping and screening employees, according to a Financial Industry Regulatory Authority settlement.
The violations generally occurred in the past six years, although some remained ongoing, Finra said. The lapses resulted in the deletion of 1.5 million customer communications by a third party vendor, allowed at least one disqualified person to affiliate with the firm despite a conviction for forgery and also allowed a broker to exploit the deficiencies and perpetuate a Ponzi scheme that defrauded LPL customers of at least $1 million, according to Finra.
“Protecting the integrity of these required records is an essential obligation for broker-dealers because review of such records is the primary means by which regulators protect investors and examine for misconduct,” Finra wrote in the letter of acceptance, waiver and consent.
LPL, which maintains a headquarters in Fort Mill, South Carolina, accepted the penalties without admitting or denying the charges.
“We take our compliance obligations seriously, and have been proactive in identifying, reporting and remediating these issues,” spokeswoman Lauren Hoyt-Williams said in a prepared statement. “We’ve made significant investments to strengthen our capabilities related to this important work.”
LPL has hired “third parties” to help it address the recordkeeping, fingerprinting, and consolidated report violations and has also “commenced remediation efforts” by reviewing its record keeping systems and third party vendors to ensure compliance, Finra said. LPL must have written authorization from Finra in order to terminate its relationship with the third parties, according to the letter of acceptance.
The penalties have occurred as LPL has been rapidly expanding its brokerage force through recruiting and by acquisition of smaller independent broker-dealers. It has grown its headcount by nearly 26% to 17,168 at the end of the third quarter this year from 13,673 at the end of 2013.
The regulator noted three other similar “relevant disciplinary actions” it brought against LPL in recent years, two of which also required retroactive compliance reviews.
In December 2016, LPL agreed to a censure and to pay $750,000 over allegations that it failed to properly maintain over 18.3 million internal electronic compliance and administrative alerts in a non-erasable and non-rewritable format between December 2010 and November 2015.
Also in December 2016, Finra censured LPL and fined it $900,000 for failing to send customers 1.6 million account notices that are required to be sent to certain customers at 36-month intervals.
In May 2015, LPL agreed to a $10 million fine and to pay $1.66 million in restitution for failing to supervise brokers’ use of consolidated reports. In both of the latter cases, the firm had agreed to a “comprehensive review: of its compliance policies and procedures.
The Finra sanctions identified the former LPL broker behind the Ponzi scheme as “JTB.” In November, ex-LPL broker James Thomas Booth, in Norwalk, Connecticut, was sentenced to 42 months in prison for defrauding clients of multi-million dollar Ponzi scheme.
LPL, which fired Booth in 2019, has paid restitution to customers affected by the JTB Ponzi, according to the Finra settlement.