WASHINGTON (AP) -- Brokerage firm LPL Financial will pay a $7.5 million fine to the Financial Industry Regulatory Authority and set aside $1.5 million to compensate clients for email system problems that kept it from retaining and retrieving millions of emails as required by law.
FINRA, the financial-services industry's self-policing body, said Tuesday that LPL's email systems failed at least 35 times, so it couldn't retain email needed to respond to regulatory requests and other matters. The failures to archive the emails may have hurt clients who sued the broker or sought arbitration.
"As LPL grew, it did not expand its compliance and technology infrastructure; and as a result, LPL failed in its responsibility to provide complete responses to regulatory and other requests for emails," Brad Bennett, FINRA's chief of enforcement, said in a statement. "This case sends a strong message to firms to make sure your business does not outgrow your compliance systems."
FINRA also said that LPL made material misstatements during its investigation. FINRA said that LPL knew about the problems as early as 2008 but told regulators that it didn't discover the problems until 2011.
LPL Financial neither admitted nor denied FINRA's claims in agreeing to the settlement.
"We cooperated fully with FINRA throughout its ensuing investigation," LPL Financial Holdings Inc. said in a statement Tuesday. "We recognize the importance of having effective policies, procedures and systems to review and retain emails, and we very much regret our lapse of oversight. We have undertaken a comprehensive redesign of our email systems and associated compliance policies and procedures, and have engaged independent experts to assess and validate our approach."
The company also said that it has taken steps to train employees on escalating compliance issues to senior management.
LPL will notify customers eligible for a claim by letter within 60 days. Customer claimants who brought arbitrations or litigations against LPL as of Jan. 1, 2007, and which were closed by Dec. 17, 2012, will receive, upon request, emails that the firm failed to provide them. Claimants also will have a choice of whether to accept a standard payment of $3,000 from LPL or have a fund administrator determine the amount, if any, that the claimant should receive depending on the particular facts and circumstances of that individual case, up to a maximum of $20,000. If the total payments to claimants exceed $1.5 million, LPL will pay the additional amount.
The company said it booked a charge in the first quarter to cover potential fines and payments, and doesn't expect to book further charges related to this matter in the current quarter.
Shares of Boston-based LPL fell $1.24, or 3 percent, to close at $37.41 on Tuesday.
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