LPL Financial LLC has agreed to pay a $5.5 million fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From January 2012 to August 2019, LPL failed to reasonably supervise transactions that the firm’s registered representatives placed directly with product sponsors on behalf of firm customers (i.e., direct business transactions) in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010.
LPL did not take steps reasonably designed to ensure that its representatives reported such transactions on the trade blotter the firm used to identify potential sales practice violations, resulting in approximately 830,000 such transactions not appearing on the blotter. The firm did not supervise these transactions since it did not generate exception reports from these transactions to identify potential sales practice violations, including potentially unsuitable transactions.
For approximately two million additional direct business transactions, LPL also failed to ensure that it collected information for customers’ investment profiles (e.g., customers’ ages, investment time horizons, and liquidity needs) that was relevant for making certain suitability determinations.
By failing to collect required customer information, LPL failed to make and preserve required books and records in violation of Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-3, NASD Rule 3010, and FINRA Rules 3110, 4511 and 2010.
Additionally, from February 2016 through June 2020, LPL sent to customers approximately 11,300 switch letters that contained inaccurate information about the charges customers incurred by switching from one security to another in violation of FINRA Rule 2010.
LPL also violated FINRA Rules 3110 and 2010 by failing to reasonably supervise the suitability of certain transactions because the firm’s supervisory review tool contained incorrect information about the charges customers paid in connection with certain switches.
Finally, from May 2017 to November 2022, LPL violated FINRA Rules 3110 and 2010 and Rule 15l-1 of the Securities Exchange Act of 1934 by failing to establish, maintain, and enforce a supervisory system, including written procedures, reasonably designed to ensure that recommendations of publicly traded securities of business development companies (Listed BDCs) complied with FINRA Rule 2111 and Regulation Best Interest’s Care Obligation.
On top of the fine, the firm has agreed to a censure and to pay restitution of $651,374.51 plus interest.
