LPL Financial Firm Under Fire and On Radar with Several Securities Regulators

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According to Nathaniel Popper of The New York Times, investment firm LPL Financial has ratcheted up a sequence of problems with multiple securities regulators

LPL is not unique nor alone in its disciplinary presence—for instance, Citigroup, Merrill Lynch and Wells Fargo have all appeared in disciplinary actions, both separately and as a group of firms fined a total of $4.4 million in 2012—though as Popper points out, LPL's rapid growth has been associated with significant problems.

For instance, in the last 1.5 years, LPL has been disciplined by Illinois, Massachusetts, Montana, Oregon and Pennsylvania state regulators for failure to adequately supervise, while since January 2012, LPL brokers have appeared in FINRA disciplinary documentation "more frequently than brokers at its large competitors."

Earlier this year, for instance, Massachusetts regulators ordered LPL to pay $2.5 million—$2 million in restitution—for non-traded REIT purchases gone wrong due to a lack of supervision. Amongst the list of wrongdoing Massachusetts accused LPL of in the state's lawsuit against the firm were inadequate training, improper sales practices and numerous violations of internal compliance manuals and written supervisory procedures.

In Washington, a similar non-traded REITs case surfaced, with victims described as "dozens of older clients."

In Montana, LPL's 31 brokers have been named in eight complaints over the past five years, compared to zero complaints for Merrill Lynch's 42 representatives and two complaints for large firm Edward Jones' 90 brokers during that same period. Montana regulator Lynne Egan described LPL's oversight approach as "unusual," saying that "LPL is on our radar screen more than any other firm."

For instance, in 2009, LPL broker Donald Chouinard was sentenced to 10 years in prison for operating a Ponzi scheme. LPL was ordered to pay $1.3 million in restitution to Chouinard's defrauded clients.

Selling complex instruments to unsophisticated investors, excessive speculative trading and outright stealing from customers were cited as LPL broker misconduct over the past few years.

LPL is unique and distinct from larger firms because as an independent brokerage firm, LPL brokers are "essentially contractors" with LPL e-mails and compliance requirements, though they must pay office rent and for support staff.

In exchange, LPL provides brokers with a high percentage—over 80%—of its commissions and fees, an attractive figure for financial professionals.

Third party analysts foresees a conflict of interest, explaining that high commissions come at the expense of compliance and invite an atmosphere of "skirting the rules," which unfortunately creates additional regulatory risks.

According to FINRA AWC documents, LPL has a significantly higher rate of regulatory actions per 10,000 advisers since January 1, 2012 than Wells Fargo, Bank of America Merrill Lynch, Mogran Stanley Smith Barney and Edward Jones. With 20.2 actions-per-10,000, LPL has far outpaced second place Morgan Stanley by nearly 5 actions-per-10,000. By comparison, Morgan Stanley is ahead of third-place Merrill Lynch by 1.5 actions-per-10,000.

If you have invested with LPL Financial or with any broker or firm and you suspect a lack of supervision, adherence to company or securities industry policy or any other deviation from standard practice or downright illegal conduct has resulted in a financial loss or otherwise proved harmful to your interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

News: As LPL Financial Expands, Scrutiny of Its Practices Intensifies (NyTimes)