LPL Financial agreed Tuesday to pay a total of $3.2 million to settle penalties regarding its sale of nontraded real estate investment trusts and leveraged ETFs.
Under a settlement reached with the North American Securities Administrators Association’s Non-Traded REIT Task Force, the San-Diego based LPL will pay civil penalties of $1.425 million to be distributed among 48 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, for its failure to implement an adequate supervisory system regarding its sale of nontraded REITs as well as its failure to enforce its written procedures regarding the sale of the illiquid trusts.
In a joint settlement reached the same day with the Massachusetts Attorney General and the Delaware Attorney General, LPL’s Boston arm agreed to pay $1.8 million for placing approximately 200 Massachusetts clients into "risky" leveraged ETFs.
LPL reached a separate settlement with Massachusetts securities regulators in 2013 regarding its sales of nontraded REITs and faces a separate action by New Hampshire securities regulators. New Hampshire regulators want LPL to pay $3.6 million in fines and restitution for alleged unsuitable sales of nontraded REITs.
LPL said in a statement that while the indie BD continues “to be engaged — like most others in our industry — with our regulators on various matters, including as noted by NASAA …, the NASAA agreement represents resolution of the last of the most significant historical regulatory matters that we have been working through.”
LPL said that it “provided ‘extensive cooperation’ in NASAA’s review of this matter, and the agreement we reached neither admits nor denies wrongdoing.”
The Massachusetts AG’s office alleges violations arising from LPL’s sales, marketing, training and oversight relating to “risky” leveraged ETFs, and notes that certain LPL clients in Massachusetts “experienced losses as a result of holding leveraged ETFs for long periods of time.”
According to the AG’s investigation, LPL also “failed to supervise its financial advisors who caused clients to hold these investments for extended periods of time, and did not consistently adhere to its policy of imposing fines on financial advisors who exceeded concentration limits.”
Under the terms of the joint settlement, the $1.8 million LPL will pay covers a $200,000 penalty, as well as $1.6 million to compensate investors and for investor education. The state of Delaware will also receive a total of $200,000 under a parallel agreement with the Delaware Department of Justice.
LPL said in its statement that under the Massachusetts and Delaware agreement, the indie BD will “make enhancements to its oversight of leveraged ETFs including implementation of a renewed training and monitoring program to ensure the proper and effective use of leveraged ETFs as part of investors’ overall financial plans.”
Both states, LPL said, “acknowledged LPL’s cooperation in this matter” and that the agreement follows the national settlement the firm previously reached with the Financial Industry Regulatory Authority relating to ETFs.
In 2015, FINRA levied a $11.7 million charge against LPL for supervisory failures in the sale of complex products and ordered that $6.3 million be paid in restitution for failing to waive mutual fund upfront charges on certain retirement and charitable organization accounts.
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