LPL Financial has agreed to pay $750,000 to settle charges related to the sale of nontraded REITs to an 81-year-old investor in New Hampshire, an act which the state claims was both unsuitable and unlawful.
According to the state's Bureau of Securities Regulation, the nation's largest independent broker-dealer sold unsupervised nontraded real estate investment trusts to a resident in 2008 that resulted in “significant losses,” the bureau stated in a press release.
Without admitting or denying the charges, LPL has agreed to pay $750,000: $250,000 in administrative fines, $250,000 to the bureau and $250,000 to the investor education fund. It is the final resolution for the case with the New Hampshire securities bureau,
which began in April.
UNSUPERVISED
The firm could avoid these cases by reviewing its sales when first initiated and taking the appropriate data from the customer to appropriately assess the risk tolerance and suitability of the investments, said Jeff Spill, deputy director of the New Hampshire Bureau of Securities Regulation.
“In this case we examined, we felt it was fairly unsupervised, and that's when mistakes are made,” Mr. Spill said.
“LPL has dedicated substantial resources to improving our processes and technology and enhancing our practices around the processing, sale and supervision of complex products,” said Brett Weinberg, a spokesman for LPL. “We believe these efforts will lower the firm's risk profile and provide even greater consumer protection going forward.”
RISKY BUSINESS
In addition to the $750,000 in fines, LPL has agreed to offer remediation to any New Hampshire client who was sold a nontraded
REIT since 2007 if the sale exceeded LPL's guidelines or product-specific restrictions, the bureau stated in its release.
Nontraded REITs are known to be risky alternative investments, because they are illiquid, have front-end fees that can be as high as 15% of the per share price, have distributions that are not guaranteed, and are based on the discretion of the REITs' board of directors. Nontraded REITs were the center of
a sweep of fines for six broker-dealers by the
Financial Industry Regulatory Authority in October.
This isn't the first time LPL found itself in hot water with regulators for the sale of alternative investments and unsupervised procedures. In September, LPL settled a
$1.43 million multi-state case brought forward by the North American Securities Administrators Association, for certain nontraded REIT sales and inadequate supervision of the transactions. At the same time, the firm agreed to pay a $1.8 million fine to Massachusetts and $200,000 in fines to Delaware for unsuitable sales of leveraged exchange-traded funds.
In May, the Financial Industry Regulatory Authority ordered LPL to pay
$11.7 million in fines and restitution for “widespread supervisory failures” related to the sales of its products.
