Western International Securities Inc., one of the broker-dealers that LPL Financial Holdings Inc. over the winter said it was buying in its $800 million - with potentially $200 million more if certain targets are hit - deal for the Atria network, spent July disposing of a variety of compliance and regulatory matters, a common practice before a merger is completed.
LPL Financial Holdings in February said it was acquiring Atria Wealth Solutions Inc., which launched as a broker-dealer aggregator in 2017 backed by Lee Equity Partners and has 2,400 financial advisors and registered reps across seven broker-dealers who work with $100 billion in client assets.
Western International Securities has had high-profile compliance issues in the past. The Financial Industry Regulatory Authority Inc. in 2020 censured Western International Securities for its lax compliance procedures and fined the firm $325,000.
Dawn Bennett, who was sentenced to 20 years in prison in 2019 for defrauding 46 investors as part of a $20 million Ponzi scheme, was an independent contractor registered with Western International at the time she conducted her fraud.
This week, Western International Securities signed off on regulatory matters that totaled close to $1.7 million in penalties.
"This is a standard business practice: firms have to tidy up their books before a merger because they want to quantify the liability," said one senior industry executive who spoke confidentially to InvestmentNews about Western International Securities. "If you don't do that, then you leave the door open potentially to a range of penalties, and that's not preferable. Regulators could change their minds due to circumstances discovered after the merger."
LPL's purchase of the Atria network is expected to close this year. "We expect to close the transaction in the second half of 2024, and the conversion is expected to be completed in mid-2025, subject to receipt of regulatory approval and other conditions," an LPL spokesperson wrote in an email.
On Wednesday, the Securities and Exchange Commission said it had reached a settlement with Western International Securities over charges related to Regulation Best Interest violations at the firm in sale of GWG L bonds that also included five financial advisors.
Without admitting or denying the SEC's allegations, Western International agreed to pay disgorgement of $34,500 and a civil penalty of $160,000. The five advisors also agreed to pay disgorgement and penalties of $12,500.
The SEC in June 2022 took its first substantive enforcement action involving Regulation BI when it charged Western International Securities and five of its advisors with inappropriate sales of an unrated, risky debt security to retail customers.
On Monday, Finra said it fined Western International Securities $475,000 for a years-long failure to establish and maintain adequate supervisory systems to prevent excessive trading that resulted in millions of dollars in trading costs across roughly one hundred accounts. As part of the settlement, the firm also agreed to pay customers more than $1 million in restitution.
And at the start of the month, Finra barred a broker who had been “misappropriating” – meaning taking – client funds for 17 years and was fired from Western International Securities in June.
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