LPL Financial has reached a deal with state securities regulators that requires the independent broker-dealer to repurchase some securities from investors with interest and pay civil fines of up to $26 million, if all 52 U.S. states and territories participate.
The North American Securities Administrators Association, which announced the news, says the settlement is tied to securities sold by LPL since October 2006. It stems from investigations in Alabama and Massachusetts regarding the IBD’s “failure to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, nonexempt [equity and fixed income] securities by LPL to its customers,” according to NASAA.
“This investigation is representative of the aggressive and coordinated enforcement actions of state securities regulators and demonstrates the important investor protection role states serve in safeguarding investors nationwide,” said Joseph P. Borg, NASAA president and director of the Alabama Securities Commission, in a statement.
The group set up a task force with Massachusetts and Alabama in July 2017 to review LPL’s sale of unregistered, nonexempt securities; the IBD “fully cooperated” with the task force, Borg says.
“We take our compliance and risk management obligations seriously and will continue to dedicate resources to this important work moving forward,” LPL said in a statement. “We believe these resources, combined with additional expertise we’ve hired in the field of Blue Sky compliance, position us well with respect to this issue in the future.”
Blue Sky regulations are those set by states to safeguard investors against securities fraud.
The NASAA investigation focused on the IBD’s retention, use and cancellation of third-party services that have been “integral to LPL’s compliance with state securities registration requirements,” according to a press release.
State securities regulators also reviewed other legacy deficiencies within the IBD’s compliance structure, such as controls, monitoring and reporting tools, as well as escalation protocols tied to its response to significant compliance issues.