FINRA’s Department of Enforcement recently investigated LPL and determined its supervisory systems and procedures were inadequate and contributed to several specific supervisory failures. FINRA cited the following supervisory deficiencies as evidence LPL’s supervisory and compliance functions were faulty and evidenced “widespread supervisory failures.” According to FINRA, LPL failed to supervise sales of certain complex structured products, including ETFs, variable annuities and non-traded REITs.
According to FINRA, LPL’s misconduct potentially affected hundreds of customers throughout the United States. With regard to non-traditional ETFs, the firm did not have a system to: 1) monitor the length of time that customers held these securities in their accounts; 2) did not enforce its limits on the concentration of those products in customer accounts, and 3) failed to ensure that all of its registered representatives were adequately trained on the risks of the products. FINRA alleged LPL also failed to supervise its sales of variable annuities, in some instances permitting sales without disclosing surrender fees. With respect to certain mutual fund “switch” transactions, LPL utilized an automated surveillance system that excluded these trades from supervisory review. Additionally, LPL failed to supervise non-traded REITs by, among other things, failing to identify accounts eligible for volume sales charge discounts.
As a result of the aforementioned misconduct, FINRA alleges LPL engaged in multiple violations of federal securities laws and industry rules and regulations. Specifically, under NASD Rule 3010, a brokerage firm owes a duty to all of its clients to monitor and supervise its employees properly. The rule states: “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…” If a FINRA-member fails to supervise its employees or conduct proper due diligence on investment products, then the firm may be liable to the customer for damages or disciplined by FINRA, or both.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment losses as an LPL customer, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please complete the contact form or contact one of our attorneys at (800) 627-2179 to schedule a free consultation.