LPL continues to grapple with email, exam and alternative investment snafus

Indiana and Mississippi last month fined LPL a total of $490,000

Jan 7, 2019 @ 2:07 pm

By Bruce Kelly

LPL Financial was fined a total of $490,000 last month by two states for its alleged failure to review emails of its brokers, failure to conduct yearly exams of branch offices, and misclassification of nontraded REITs and BDCs, which are alternative investments, as equities, according to the firm's profile on BrokerCheck.

LPL, the largest independent contractor broker-dealer with more than 15,000 affiliated brokers and financial advisers, has been dogged for years by issues relating to emails, broker supervision and nontraded real estate investment trusts.

In 2013, the Financial Industry Regulatory Authority Inc. said had fined LPL a stunning $7.5 million for 35 separate significant email system failures. Finra had said at the time it was the largest fine it had imposed because of a firm's violations of industry email rules. Two years later, Finra ordered LPL to pay $11.7 million in fines and restitution for what it deemed to be "widespread supervisory failures" related to sales of complex products.

Sales of nontraded REITs have also been a persistent thorn in the firm's side. In 2017, LPL said it could end up refunding $8 million to clients under a settlement it reached with the New Hampshire Bureau of Securities over sales of nontraded REITs.

A spokesman for LPL, Jeff Mochal, did not return a call Monday morning for comment.

From 2013 through September 2017, LPL allegedly failed to review certain emails of brokers in Indiana and also failed to conduct annual examinations for certain branch offices in the state, according to the BrokerCheck report. The Indiana Securities Division fined LPL $450,000 on Dec. 3.

LPL agreed to undertake an independent review of its Indiana operations related to email supervision and branch exams.

And on Dec. 12, the Mississippi Securities Division fined LPL $40,000 for allegedly misclassifying certain nontraded REITs and business development companies as equities on certain client account statements, in violation of state rules, according to BrokerCheck. LPL neither admitted nor denied the findings in the state's order.

The firm has had a steady stream of regulatory issues with the states.

In May, LPL and the North American Securities Administrators Association announced a settlement that could total as much as $26 million when it is eventually closed. Under the terms of that state settlement, LPL also agreed to repurchase from investors securities held in LPL accounts that are determined to have been unregistered, non-exempt equity or fixed-income securities sold since Oct. 1, 2006.


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