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Industry Spotlight > Broker Dealers

LPL Facing Lawsuits Over Stock Drop

By Janet Levaux

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The lawsuits are starting to pile up for LPL Financial (LPLA) in the wake of a sharp drop-off in its stock price.

On Thursday, several attorneys in New York filed a class-action suit on behalf of shareholders. This came one day after a pension fund in Michigan took action in a Southern California court against the independent broker-dealer, alleging that it misled investors in order to boost its stock price while executing a $250 million share buyback plan that benefited a key private equity investor.

Both suits seek to recover damages for shareholders of record between Dec. 8, 2015, and Feb. 11, 2016.

Attorneys have moved to file at least five class-action lawsuits across the country as of Thursday, and several attorneys also state that they are investigating the company and its executives for possible securities fraud.

LPL declined to comment, noting that it does not issues statements on pending litigation. It stock traded at $24.10 on Thursday, off nearly 50% from its 52-week high of $48.18.

Case History

The case in Michigan, brought to the court on behalf of the Charter Township of Clinton Police and Fire Retirement System on Wednesday, claims LPL CEO Mark Casady and CFO Matthew Audette were involved in a “fraudulent scheme to allow” TPG Capital to sell LPL shares at an “artificially inflated price.”

The suit filed Thursday by Bronstein, Gewirtz & Grossman focuses on the argument that the IBD “issued materially false and misleading statements to investors and/or failed to disclose” the weakening state of its client assets and gross profits.

The Michigan lawsuit notes that on Dec. 10, LPL issued a press release in which it stated it had wrapped up its accelerated share repurchase program and that TPG had reached out to Goldman Sachs about selling a block of shares. TPG sold some 3.4 million shares of LPL common stock at $42.37 per share, giving it a net gain of some $187 million.

This sale took place two days after executives of LPL spoke at a Goldman conference and said it was in the midst of “a recovery.”

But on Feb. 11, LPL announced its fourth-quarter and full-year 2015 results, which missed equity analysts’ estimates by a wide margin and reported a 45% decline in quarterly profits. Its shared dropped about 35% and closed at $16.50.

As a result, if TPG had sold LPL shares at this time, it would have earned only $72 million on the transaction, according to the suit filed on behalf of the Michigan pension fund. 

—Check out LPL, Edward Jones Pre-DOL Rule Shifts: Smart Moves or Overreaction? on ThinkAdvisor.

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