LPL Financial has been charged by the Securities and Exchange Commission with failing to comply with its Customer Identification Program rules and allowing a client to defraud a Puerto Rican municipality via wire transfers.
The broker-dealer has agreed to pay about $5 million, including more than $4 million it has already repaid to the city, to settle the charges.
According to the SEC's order, LPL failed to verify and respond to conflicting information when it opened a customer account and processed wire transfers at the request of Eugenio Garcia Jimenez Jr.
As alleged in the Commission's Dec. 1, 2020 complaint against Garcia, he acted as an unregistered investment advisor and misappropriated $7.1 million of taxpayer funds from the Municipio Autónomo de Mayagüez, Puerto Rico, over the course of seven months in 2016.
"The City entrusted Garcia to provide advice and carry out his promised strategy to invest $9 million of City funds such that they had principal protection and 8-10% returns," the order states.
Garcia approached LPL in April 2016 to open an investment account.
"After misappropriating $4.1 million of the City's funds through an account" at an unnamed brokerage firm, Garcia approached LPL in April 2016 to open an investment account, the order states.
During its review before opening the account, LPL failed to comply with its Customer Identification Program procedures and, despite various individuals in different departments questioning the account's beneficial ownership, source of funds and reason for transfer from the brokerage firm.
