LPL Financial Fined $6.5M by FINRA Over Inadequate Supervision

Lax Oversight Purportedly Allowed An LPL Broker to Continue Defrauding Customers in Ponzi Scam

The Financial Industry Regulatory Authority (FINRA) has fined LPL Financial Holdings (LPLA) $6.5M due to purported supervisory inadequacies related to recordkeeping, fingerprinting employees that were non-registered representatives, and its financial advisers’ consolidated reports. The self-regulatory organization (SRO) found that due to weak oversight of these consolidated reports, an ex-broker was enabled to continue committing a $5M Ponzi scheme. 

The former registered investment advisor, identified by Advisors Hub as ex-Norwalk, Connecticut broker James Thomas Booth,  pleaded guilty to securities fraud in November. He was sentenced to 42 months behind bars. Booth has been named in 36 customer disputes.  

Our securities fraud attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm at represent investors that have lost money because of the inadequate supervisory systems, procedures, or actions of broker-dealers. 

If you suffered losses that you think may have been allowed or caused by the unsatisfactory supervision of your brokerage firm, contact us today so that we can help you explore your legal options.

LPL Financial Has Paid Millions Over Supervisory & Administrative Deficiencies  

LPL Financial is the largest independent broker-dealer in the securities industry. This latest settlement with FINRA is for the period ranging from January 2014 to September 2019. 

The SRO found that the brokerage firm did not fingerprint over 7,000 non-registered associated persons or screen them for any criminal convictions that might disqualify them. FINRA said that this made it possible for one person to work at LPL even though they should not have been allowed. 

The SRO said that due to inadequate supervision of consolidated reports, which are documents that summarize client assets and are generated by outside vendors, the latter did not send the reports to LPL to review. FINRA also contends that because LPL Financial did not keep electronic records in the format that was required, at least 87 million records were impacted. This included more than 1.5 million customer communications that were under the maintenance of a third-party vendor.

LPL Financial settled but without denying or admitting to the findings.

The Broker-Dealer Has Faced Multiple FINRA Claims in the Past

This is not the first time that FINRA has sanctioned LPL Financial over similar matters: 

  • 12/2016: LPL agreed to pay $750K over allegations that it failed to properly maintain more than 18.3 million electronic compliance and administrative alerts in a format that was non-rewritable and non-erasable.
  • 12/2016: FINRA fined LPL Financial $900K for not sending 1.6 million account notices to customers.
  • 5/2015: LPL was fined $10M and agreed to pay $1.6M in restitution for not properly supervising the way brokers utilized consolidated reports. 

Over the years, the brokerage firm has come under investigation by FINRA and state regulators for different compliance issues. For example, in 2018 FINRA fined the firm $2.75M for not submitting hundreds of suspicious activity reports (SARs) related to its anti-money laundering program and failing to list that there had been dozens of customer complaints involving LPL brokers. 

LPL Financial has been the subject of many of these complaints. According to InvestmentNews, the broker-dealer paid $70M in fines and restitution over broker fraud claims just in 2014 and 2015. That is because when failure to supervise allows or enables a broker to defraud a firm’s customers, or when supervisory deficiencies lead to customer losses, that broker-dealer can be held liable for those losses.

Failure to Supervise Attorneys

Our experienced lawyers at SSEK Law Firm has been going after the broker-dealers responsible for investors’ losses for more than 30 years. Call us at (800) 259-9010. We have recovered many millions of dollars on our clients’ behalf.

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