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Regulation and Compliance > State Regulation

LPL to Pay Fine, Repurchase Securities in New York

By Janet Levaux

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The New York Attorney General’s Office says LPL Financial will buy back some unregistered securities from investors by November and pay the state a penalty of $499,000. 

The development is part of a nationwide agreement that LPL made in May 2018 — totaling about $26 million in civil fines — with the North American Securities Administrators Association in which each of the 52 states and U.S. territories are receiving $499,000. 

“When New Yorkers invest with financial firms, they trust those firms to obey the law and act with integrity,” according to Attorney General Letitia James. “LPL failed to meet these standards and was not transparent while making purchases on behalf of its clients.” 

The nationwide settlement deal is tied to unregistered securities sold by the independent broker-dealer from October 2006 to May 2018.

It stemmed 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.

“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 at the time the NASAA agreement was reached. “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.

State securities regulators said LPL offered and sold unregistered, nonexempt securities and failed to reasonably supervise the flow of information to ensure full and proper compliance with state securities registration requirements.

While regulators said they did not find evidence “of willful, reckless or fraudulent conduct by LPL, they did find that the firm failed to maintain adequate systems to reasonably supervise agents, staff and employees to prevent the sale of unregistered, nonexempt securities,” according to Joseph P. Borg, NASAA president and director of the Alabama Securities Commission.

State investigators also said that the IBD did not maintain books and records necessary “to ensure full and proper compliance with state securities registration requirements; and failed to conduct appropriate and necessary due diligence regarding the retention, use and subsequent cancellation of certain third-party services critical for compliance with state securities registration requirements.”

Furthermore, they point out, LPL acted negligently in its cancellation of third-party services “critical for compliance with state securities registration requirements; failed to supervise agents, staff and employees in the performance of duties with respect to systems operation, process, and checks and balances to ensure compliance with state securities registration statutes, rules and regulations; and failed to invest sufficient and appropriate resources in personnel, expertise, systems and operations to adequately comply with state securities registration statutes, rules and regulations.”

As part of the settlement, the IBD agreed to a full review “of the integration of new securities products to assess this firm’s ability to comply with all state securities registration requirements, and all operations and procedures in connection with state registration requirements, that apply to the offer and sale of that product.”

Janet Levaux

@Think_JanetL

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