LPL to pay $1.4 million fine and return investor money for certain nontraded REIT sales

While settling with state regulators over this investment vehicle, the firm also agreed to fines from Massachusetts and Delaware over leveraged ETFs

Sep 23, 2015 @ 1:15 pm

By Mark Schoeff Jr.

LPL Financial will pay a $1.43 million fine and return money to investors for inappropriate sales of real estate investments, according to a settlement reached Wednesday with state regulators.

As part of the agreement, the country's largest independent broker-dealer will remediate losses for unsuitable nontraded real estate investment trusts the firm sold from Jan. 1, 2008, through Dec. 31, 2013. The total amount of restitution will be determined by a third-party review of approximately 2,000 sales.

The settlement is the result of a multistate investigation conducted by the North American Securities Administrators Association Inc.

A NASAA task force found that LPL agents violated minimum net worth, income, and concentration standards set by product issuers, state concentration limits and the firm's internal guidelines when selling nontraded REITs. They also concluded that LPL did not provide adequate supervision of the transactions.

The alternative investments are touted as a way to diversify portfolios for higher returns, but also are criticized as being too risky for many investors.

The LPL civil fine will be split among 48 states. The settlement was negotiated with regulators from Nevada, Maine and Texas.

“Non-traded REITs can be risky and have limited liquidity,” said Nevada Securities Division administrator Diana Foley, who led the NASAA investigation. “It's very important that broker-dealers are complying with the offering's suitability standards and enforcing their own policies and procedures when selling them.”

LPL reached a separate settlement with Massachusetts in 2013 and is still involved in a case brought by New Hampshire regulators.

But LPL said it has now reached a turning point.

“[T]he NASAA agreement represents resolution of the last of the most significant historical regulatory matters that we have been working through,” LPL spokesman Peter Gilchrist wrote in a statement.

In the settlement, LPL did not admit or deny the charges. LPL and state regulators said the firm cooperated with the investigation and has attempted to improve its supervisory system.

“The task force's investigation is representative of the aggressive and coordinated enforcement actions of state securities regulators and demonstrates the important investor protection role states serve in safeguarding investors nationwide,” William Beatty, securities director for the state of Washington and NASAA president, said in a statement.

LPL has been hit with millions of dollars in regulatory fines over the last several years.

On Wednesday, LPL also reached an agreement with Massachusetts Attorney General Maura Healey to pay a $1.8 million fine for unsuitable sales of leveraged exchange-traded funds to 200 investors in the state.

LPL said it also had reached a settlement with the Delaware Department of Justice on Tuesday regarding leveraged ETFs. The firm will pay a $50,000 administrative fine and set up a $150,000 investor-restitution fund, according to Gregory Strong, director of the department's Investor Protection Unit.

The settlements with Massachusetts and Delaware follow the national settlement LPL reached with the Financial Industry Regulatory Authority Inc., according to LPL.

“LPL will make enhancements to its oversight of leveraged ETFs, including implementation of a renewed training and monitoring program to ensure the proper and effective use of leveraged ETFs as part of investors' overall financial plans,” Mr. Gilchrist said.

LPL had anticipated today's settlement activity and set aside money to fund it, Mr. Gilchrist said.


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