The Financial Industry Regulatory Authority Department of Enforcement filed a complaint Friday against a former LPL Financial representative who it claimed shared commissions with an unregistered former colleague at the firm who had been terminated by LPL in October 2017 for borrowing more than $100,000 from an elderly customer.
LPL declined to comment Monday. In September 2009, Adam James Makkai became associated with the firm as a general securities representative and an investment company and variable contracts products representative, according to FINRA.
Makkai started negotiating to buy the book of business of the former LPL rep, who the regulator identified in the complaint only as “Representative A,” shortly after that rep was terminated from the firm, according to the regulator. The firm transferred the brokerage accounts of Representative A’s former customers to Makkai, using a newly created representative code to direct brokerage revenue received via LPL to Makkai, according to FINRA. Following the reassignment, all revenue generated by securities transactions in the brokerage accounts of Representative A’s former customers was paid to Makkai, according to FINRA.
On Oct. 10, 2017, LPL instructed Makkai that Representative A was prohibited from affiliating with the firm in any capacity, FINRA said, adding: “Although Makkai knew he was prohibited from sharing commissions with Representative A without LPL’s prior written approval, Makkai agreed to pay Representative A all of the commissions generated from the accounts of Representative A’s former Firm customers, less $1,000 per month, until Makkai and Representative A entered into a formal agreement for the purchase and sale of Representative A’s book of business.”
Makkai did not provide notice to, or receive permission from, the firm before entering into or making payments pursuant to his commission-sharing deal with Representative A, according to FINRA. However, from Dec. 20, 2017 through March 19, 2018, Makkai paid Representative A about $27,037, representing a portion of the commissions Makkai received from securities transactions conducted in the LPL accounts of Representative A’s former customers, according to FINRA.
“Makkai did so even though, after he began paying commissions to Representative A, Makkai was expressly instructed by his LPL branch manager that he could not share commissions with Representative A,” FINRA said. “By continuing to meet with his former Firm customers, and receiving commissions from securities transactions conducted in Firm accounts, Representative A engaged in conduct that otherwise required him to be registered.”
In a Form U5 termination notice dated June 20, 2018, LPL reported it terminated Makkai’s association with the firm for sharing commissions and fees with the unregistered person, FINRA alleged in its complaint.
A disclosure on Makkai’s profile at FINRA’s BrokerCheck website includes a broker comment saying: “Makkai agreed, in principle, to purchase the ‘book of business’ of a terminated LPL Financial employee. However, at the time of the seller’s termination, all of the seller’s client relationships were transferred by LPL Financial to Mr. Makkai prior to a written agreement being signed by the parties. This created a drastic imbalance of negotiating power between the seller and Mr. Makkai. In an effort to address this imbalance, Mr. Makkai agreed to provide payments to the seller that were based on the revenue generated by the seller’s ‘book of business.’ LPL Financial determined that these payments were ‘sharing of commissions and advisory fees with an unregistered person,’ whereas Mr. Makkai viewed them as part of the purchase of the seller’s ‘book of business,’ which LPL Financial was aware of and helped support.”
Makkei was no longer registered as a broker, but still registered as an RIA, according to BrokerCheck.