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Archive for the ‘LPL’ Category

LPL Financial settles with Indiana over failure to supervise allegations

Indiana Secretary of State Connie Lawson today announced she has agreed to a settlement with LPL Financial which includes a civil penalty of $450,000.  The settlement stems from an investigation by the Securities Division of the Secretary of State’s office regarding various deficiencies related to LPL’s supervision of its Indiana operations.

The settlement specifically focuses on email review and branch audit requirements.  Over the past several years, a software glitch caused LPL supervisors to not properly review a select number of emails.  When the Secretary of State’s office uncovered the glitch, LPL was contacted and the glitch was corrected.  The investigation also found that LPL did not conduct annual compliance exams of its Indiana branches as required by law.

“Broker-dealers and financial firms are often the first line of defense against fraud.” said Secretary Lawson. “If a firm does not have, or does not follow its own supervisory procedures, Hoosiers could be at risk.”

In addition to the $450,000 civil penalty, LPL agreed to a conduct a 3rd party compliance review of its policies and procedures in Indiana to ensure that they comply with Indiana law.  LPL will provide a report to the Securities Commissioner in 180 days for review.

“Our office is dedicated to keeping Hoosiers’ money safe, and to that end we will hold firms accountable if they do not establish and enact strong supervisory systems.” said Securities Commissioner Alex Glass.  “The law is clear.  A firm must properly and effectively supervise its business in Indiana.”

LPL Financial LLC (Boston, Massachusetts)

An AWC was issued in which the firm was censured and fined $375,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to implement a supervisory system reasonably designed to ensure that its registered representatives were trained on all material risks and features of brokered certificates of deposit (CDs) and that it adequately disclosed all material risks and features of the brokered CDs to customers. The findings stated that in particular, the firm failed to take reasonable steps to ensure that its registered representatives or fixed income desk employees received or had meaningful access to issuer-prepared disclosure documents prior to their sales of these products. In response to FINRA Notice to Members 02-69, the firm prepared and delivered to customers who purchased brokered CDs a generic CD disclosure statement that described the general risks and characteristics of brokered CDs. The firm, however, did not consistently provide its customers, prior to or at the time of sale, with issuer-prepared disclosure documents, despite the firm’s obligation to do so under its selling agreements with the brokered CD issuers, and did not otherwise have a process to disclose fully all material risks and features of the brokered CDs to customers. Because of the firm’s deficient supervisory system, one of the firm’s registered representatives made material misrepresentations to elderly customers regarding the limitations on the ability, upon death, of their estates to redeem their 20-year brokered CDs at par value. The elderly customers or their estates suffered losses of approximately $75,000 because they were unable to fully redeem the brokered CDs and had to sell the brokered CDs on the secondary market. The firm subsequently remediated these customers’ losses. (FINRA Case #2015045703001)

Aidikoff, Uhl & Bakhtiari Announces Filing of FINRA Arbitration on Behalf of Former Customers of LPL Financial Broker Karl Romero

Aidikoff, Uhl & Bakhtiari announces the filing of a FINRA arbitration and its continuing investigation of the sales practices of Karl Romero (Nasdaq:LPLA) for his management of client accounts and the overconcentration of energy and/or real estate related stocks including:

  • Gastar Exploration
  • Arbor Realty
  • Resource Capital Corp.

We are currently investigating whether all material risks of the recommended investments were disclosed to clients as well as whether Karl Romero implemented an appropriate risk management strategy.

“Karl Romero has been the subject of at least 12 customer complaints during his employment in the securities industry. His employer, LPL, knew or should have known that based on his prior complaints, Mr. Romero posed a risk to LPL customers,” said Ryan Bakhtiari.

“Mr. Romero’s transactions raise serious concerns about the level of supervision LPL chose to exercise,” added Philip Aidikoff.

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.

FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures

LPL Ordered to Pay Approximately $1.7 Million in Restitution to Customers

The Financial Industry Regulatory Authority (FINRA) announced today that it has censured LPL Financial LLC and fined it $10 million for broad supervisory failures in a number of key areas, including the sales of non-traditional exchange-traded funds (ETFs), certain variable annuity contracts, non-traded real estate investment trusts (REITs) and other complex products, as well as its failure to monitor and report trades and deliver to customers more than 14 million trade confirmations. In addition to the fine, FINRA ordered LPL to pay approximately $1.7 million in restitution to certain customers who purchased non-traditional ETFs. The firm may pay additional compensation to ETF purchasers pending a review of its ETF systems and procedures.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business. With today’s action, FINRA reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls, and pay restitution to affected customers.”

FINRA found that, at various times spanning multiple years, LPL failed to supervise sales of certain complex structured products, including ETFs, variable annuities and non-traded REITs. With regard to non-traditional ETFs, the firm did not have a system to monitor the length of time that customers held these securities in their accounts, did not enforce its limits on the concentration of those products in customer accounts, and failed to ensure that all of its registered representatives were adequately trained on the risks of the products. Also, LPL failed to supervise its sales of variable annuities, in some instances permitting sales without disclosing surrender fees, and in connection with certain mutual fund “switch” transactions, it used an automated surveillance system that excluded these trades from supervisory review. Additionally, LPL failed to supervise non-traded REITs by, among other things, failing to identify accounts eligible for volume sales charge discounts.

FINRA also found that LPL’s systems to review trading activity in customer accounts were plagued by multiple deficiencies. For example, LPL used a surveillance system that failed to generate alerts for certain high-risk activity, including low-priced equity transactions, actively traded securities and potential employee front-running. The firm used a separate, but flawed, automated system to review its trade blotter that failed to provide trading activity past due for supervisory review. LPL failed to deliver over 14 million confirmations for trades in 67,000 customer accounts. In addition, due to coding defects that remained undetected for nearly six weeks, LPL’s anti-money laundering surveillance system failed to generate alerts for excessive ATM withdrawals and ATM withdrawals in foreign jurisdictions. FINRA also found that LPL failed to report certain trades to FINRA and the MSRB, and failed to ensure it provided complete and accurate information to FINRA and to federal and state regulators concerning certain variable annuity transactions.

FINRA further found that LPL failed to reasonably supervise its advertising and other communications, including its registered representatives’ use of consolidated reports. LPL did not monitor the creation or use of consolidated reports, and failed to ensure that these reports reflected complete and accurate information.

In settling this matter, LPL neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Houston-based Ajamie LLP Investigating Customer Losses after LPL Financial Firing of James “Jeb” Bashaw

Ajamie LLP and Aidikoff, Uhl & Bakhtiari continue to investigate and discuss with investors potential claims for recovery.

LPL Financial Holdings, Inc. branch manager James “Jeb” Bashaw was fired on September 24, 2014 for among other things allegedly engaging in private securities transactions, borrowing money from a client and engaging in activities that created conflicts of interest according to Mr. Bashaw’s report on FINRA’s CRD (Central Registration Depository).

“Private securities transactions are usually driven by high fees collected by brokers,” said Houston attorney Tom Ajamie. “It appears that Mr. Bashaw may have engaged in risky private securities transactions that were known to LPL.”

“Mr. Bashaw’s prior private transactions raise serious concerns about the level of supervision LPL chose to exercise,” added Ryan Bakhtiari.

Mr. Bashaw once managed over $3 billion in total assets and is now employed by Wunderlich Securities, Inc. in Houston, Texas.

To discuss your options please contact us.

LPL growth causes legal and compliance headaches

In February, the country’s largest independent broker-dealer, with more than 13,000 contractor representatives and advisers, was ordered by Massachusetts to pay up to $2 million in restitution to clients and a fine of $500,000.

Ameriprise Financial Inc. and LPL Financial are the two largest sellers of nontraded REITs, accounting for about 20% of the annual $10 billion in sales of such investments.

A problem for LPL is that sales of alternative investments represent a growing stream of revenue. Commission revenue for alternative investments jumped 25% to $143 million last year, from $114 million in 2011.

As demand increases, regulators are watching how financial advisers sell the products more closely than ever.

As a consequence of Massachusetts’ investigation into its sale of nontraded REITs, LPL already has made some changes to the oversight of its alternative products, including nontraded REITs.

“In July of 2012, LPL changed its policies and procedures, creating a separate complex-products team to review all alternative investments,” according to the Massachusetts lawsuit.

In a move that shows how wary the firm has become of complex products, LPL this year also put restrictions on its advisers’ sales of leveraged, inverse and monthly- reset mutual funds.

LPL’s recent rash of compliance problems stem from inadequate oversight of its far-flung group of reps and advisers, according to the Times story.

State regulators, who operate as local cops on the beat, have long faulted the independent-broker-dealer industry for a shortcoming in overseeing its reps.

Notice to LPL Financial, LLC Customers — Aidikoff, Uhl & Bakhtiari Launches Investigation of non-traded REIT recommendations — LPLA

Aidikoff, Uhl & Bakhtiari announces the launch of an investigation of the sales practices of LPL Financial, LLC in recommending non-traded REITs to their clients.  The investigation follows the recently filed complaint by the Commonwealth of Massachusetts Securities Division into similar non-traded REIT sales practices.  The Massachusetts complaint charged LPL with dishonest and unethical business practices.

“People who purchased non-traded REITS through LPL may have been led to believe they were suitable for conservative income seeking investors.  In fact, these investments were very different,” stated attorney Philip M. Aidikoff.

 “The Massachusetts complaint offers a behind the scenes look at business practices allegedly engaged in by LPL,” said attorney Ryan K. Bakhtiari.  “Investors should consider all of their options if they have suffered losses in non-traded REITs sold by their brokerage firm.” 

The Massachusetts complaint focused on seven non-traded REIT products:

  • Inland American
  • Cole Credit 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

The individual brokers and advisors who sold non traded REITs are not targets of this investigation.   

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters.  Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.  More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.

Philip M. Aidikoff, pma@aublaw.com

Ryan K. Bakhtiari, rkb@aublaw.com

Aidikoff, Uhl & Bakhtiari

(800) 382-7969 Toll Free

Massachusetts files complaint against LPL for non traded REITs

LPL one the largest independent U.S. broker-dealers, was accused by Massachusetts regulators today of dishonest and unethical business practices and failure to supervise agents who made improper sales.

The complaint relates to sales of seven non-traded real estate investment trusts in violation of state and company rules, according to a statement from the state’s senior securities watchdog, Secretary of the Commonwealth William F. Galvin. LPL earned at least $1.8 million in commissions on the sales from 2006 through 2009, the state said.

The complaint seeks a cease-and-desist order, censure and restitution for investors.

LPL Fined for Supervisory Problems

LPL Financial has been fined $100,000 for failing to properly oversee one of
its brokers in Oregon who sold risky investments to people, many of them
elderly and without the mental capacity to make investment decisions.

The Oregon Division of Financial and Corporate Securities says LPL
Financial, a division of LPL Investment Holdings Inc.,, has since improved
it oversight procedures.

The fine stemmed from the actions of Jack Kleck, branch manager for LPL
Financial in La Grande, Ore., who sold investments in high-risk oil and gas
partnerships to nearly three dozen Oregon residents. Many of the investors
were elderly and the investments were not suitable for the clientele, given
their age and investment objectives, the division says.

The division found LPL Financial violated securities laws, including failing
to diligently supervise the actions of its broker and failing to ensure
company policies and procedures were enforced.

Kleck’s securities license was revoked in 2007, barring him from doing
business in Oregon, and a subsequent investigation led to the fine against
LPL, says Melanie Mesaros, division spokeswoman. Kleck was fined $30,000.

Many of Kleck’s clients were in their seventies and eighties and some were
not capable, due to poor health, of making sound investment decisions, the
division says.

“This case underscores the importance of investing with individuals and
firms licensed by the state of Oregon,” says David Tatman, division
administrator. “The state examines licensed brokerage firms and the division
will take appropriate action against firms that do not comply with the law.”

LPL has taken numerous steps to improve its compliance and supervisory
practices, the division says. The company has increased the number of
employees devoted to compliance and supervision related functions, increased
its pre-sale review of transactions and enhanced branch office examinations.

Michael Herley, LPL spokesman, says, “LPL Financial worked closely with the
Division of Finance and Corporate Securities to resolve the matter, which
was isolated and limited to one advisor. As a matter of practice, the firm
always looks for opportunities to enhance the effectiveness of its
compliance, supervisory and surveillance systems, and will continue to do so
in the future.”

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