LPL Financial lost a $462,000 arbitration claim on Tuesday involving a former broker who is in jail for running a Ponzi scheme.
A three-person Finra Dispute Resolution panel ruled that LPL was liable to pay three sets of clients $332,000 in damages and another $130,000 in costs and attorney's fees,
according to the award.
The broker was not named in the arbitration award, but David Gaba, an attorney for the clients who sued LPL, said their broker was Charles Fackrell.
Last year Mr. Fackrell
was sentenced to more than five-years in prison for running a $1.4 million Ponzi scheme that operated under the name Robin Hood.
In October, North Carolina
fined LPL Financial $25,000 and ordered the firm to reimburse the state $270,000 for the cost of its investigation of Mr. Fackrell's scheme.
"I agree with North Carolina that LPL failed to supervise its broker," Mr. Gaba said. "By his own admission he was mentally ill when he started work at the firm. The trading in client accounts was simply irrational and made no sense."
"There were not just losses from the Ponzi scheme, but clients lost far more from his crazy trading," Mr. Gaba said. "How do retirees trade millions in their accounts without setting off red flags for the firm?"
A spokesman for LPL, Jeff Mochal, said the firm declined to comment on the arbitration award. He did not immediately comment when asked about Mr. Gaba's criticism of the firm's supervision of Mr. Fackrell.
Mr. Fackrell operated out of an office in Yadkinville, N.C., and was registered with LPL from June 2010 to December 2014.
The clients alleged negligence, failure to supervise, breach of fiduciary duty and other charges in their complaint.
"Mr. Fackrell's pattern of inappropriate and illegal guidance put [clients] in an unnecessarily perilous financial position, which they are unlikely to be able to repair given their age," according to the customer's complaint, which was filed in 2015. "LPL should have been monitoring Mr. Fackrell's actions; and had they done so with the diligence required by Finra and North Carolina law, the catastrophic financial damage [clients] suffered would have been avoided."
Mr. Fackrell's clients included retirees who worked as a mechanic, machinist and horse trainer, according to the complaint. Not only did Mr. Fackrell's clients invest in the Robin Hood labeled Ponzi scheme, but they bought variable annuities without notice of the high commission structure of the investment and had investment portfolios that were over-concentrated in energy stocks, according to the complaint. Clients' investments in the Ponzi scheme ranged from $30,000 to $100,000.
LPL "completely failed to supervise" Mr. Fackrell's office, according to the complaint, including not knowing that Mr. Fackrell conducted a gold and silver trading operation inside his office, as well as running the Ponzi scheme.
