LPL Financial (LPLA) to Settle FINRA Claims, Agrees to Pay $6M
The Financial Industry Regulatory Authority (“FINRA”) announced that LPL Financial Holdings Inc. LPLA has been penalized for securities violations. LPLA has agreed to pay more than $6 million in penalties to settle FINRA claims that the company failed to properly supervise transactions and recommendations that its brokers made, and it sent out inaccurate information to its customers.
Notably, LPL Financial accepted FINRA’s findings without admitting or denying them, according to a letter of acceptance, waiver and consent that the firm submitted to the self-regulatory organization.
LPLA will pay $5.5 million in fines and $651,375 in restitution.
The regulator said in a filing that between Jan 2012 and Nov 2022, LPLA did not reasonably supervise its registered representatives when they made direct business transactions and sent customers letters with fee inaccuracies. Also, the firm failed to ensure that certain recommendations of business development companies complied with the SEC’s regulation best interest.
Per FINRA, till June 2020, LPLA supervised its representative’s transactions in part by reviewing reports that identified potential sales practice violations, including unsuitable transactions that failed to take into consideration customers’ investment profiles.
The company used its daily trade blotter in its automated trading system to generate the exception reports.
However, between January 2012 and August 2019, the broker-dealer did not have a system in the daily trade blotter for including direct business transactions, which representatives transact outside of the automated trading system.
Instead, LPLA would reconcile direct business transactions with the daily trade blotter only when its registered representatives manually reported the transactions, and it had no reasonable system for ensuring that its representatives did that.
FINRA said that if LPLA received commission records from product sponsors that had no corresponding manual entry, the firm would fine the representative $5 per transaction per month.
FINRA stated, “During one six-month period in 2017, LPL identified more than 1,300 representatives who had 10 or more unreported direct business transactions, and the firm issued nearly 82,000 fines. Nonetheless, LPL did not take further action that would have required representatives to report the transactions, and the firm continued to collect fines for unreported transactions.”
Over the past six months, LPLA shares have gained 3.2% compared with the industry’s 12.8% growth.
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Currently, LPLA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Legal Issues Faced by Other Finance Companies
In November 2023, Morgan Stanley MS agreed on a $6.5-million settlement with six state attorneys general, led by New York attorney general Letitia James. The firm’s U.S. wealth management business, earlier known as Morgan Stanley Smith Barney LLC, was charged with failing to protect customers’ personal information while shutting down two data centers in 2016.
MS was accused of negligence in properly decommissioning computers that contained unencrypted customer data.
According to the agreement released by attorney general James, “Morgan Stanley failed to decommission its computers and erase unencrypted data in certain computer devices that were later auctioned while still containing consumers’ personal information, including data belonging to 1.1 million New Yorkers.”
Likewise, Washington Trust Bancorp, Inc.’s WASH wholly-owned subsidiary, The Washington Trust Company, agreed on a settlement with the U.S. Department of Justice to resolve allegations that Washington Trust violated fair lending laws in Rhode Island between 2016 and 2021.
Washington Trust was required to provide $7 million in mortgage loan subsidies for mortgage, home improvement or refinance loans in specific census tracts in Rhode Island over five years.
Also, the company had to commit $2 million for focused community outreach and marketing efforts.
The settlement did not include any civil monetary penalties.
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