Securities Cases: LPL Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

FINRA Fines LPL Financial $900K
The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However an LPL spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

News of this fine comes just weeks after news that Massachusetts’ regulator had ordered LPL to pay up to $3.7M in restitution and fines over unsuitable variable annuity sales involving an ex-adviser. In December, LPL was fined $750K for breaches involving electronic client records. In the last few years, the broker-dealer has paid over $70M in fines and restitution over compliance issues.

Sidoti & Co. LLC Agrees to $100K in SEC Case
A NY-based broker-dealer will pay a $100K penalty to resolve charges alleging trading surveillance and compliance failures. Sidoti & Company LLC (SDTI) consented to the Securities and Exchange Commission’s order that it violated the Securities Exchange Act of 1934’s Section 15(g). However, the firm did not deny or admit to the findings.

Under federal law, firms must enforce procedures and policies to stop the improper use of nonpublic, material information that is routinely accessible to employees. The regulator found that Sidoti did not have such written procedures and policies from 11/2014 to 11/2015, especially as they pertained to the making of investment choices for one affiliated hedge fund, in particular. In 126 instances, this caused the hedge fund to trade in a stock that was on a restricted list.

The Commission believes that the New York-based brokerage firm failed to direct enough resources to establish the required trade compliance and surveillance systems and it did not fulfill its duty to prevent the wrongful use of information that is material and nonpublic.

Private Equity Adviser Must Pay $1.25M Penalty Over Improper Fees
Scott M. Landress, a private equity adviser, is now barred from the securities industry. The US Securities and Exchange Commission was the one that brought the civil case against Landress, who owns the investment advisory firm SLRA Inc. The regulator claims that he withdrew improper fees from two private equity funds. Landress also must pay a $1.25M penalty.

According to the SEC order, Landress established the equity funds for investing in real estate trusts that had underlying investments in UK properties. SLRA was paid management fees based on the underlying investments’ net asset value.

However, during the financial crisis, the investment advisory firm’s fees were reduced even as management costs went up. Limited partners of the private equity funds refused Landress’ requests for more compensation that could take care of the shortfall.

The SEC said that Landress had his firm take out 16.25M pounds from the private equity funds under the supposed guise that the money was for an affiliate for years of service. Instead, he moved the money into his own account.

LPL Fined $900K Over Failure to Send 1.6M Notices to Clients, Think Advisor, February 15, 2017

Read the SEC Order About Sidotti & Co. (PDF)

Read the SEC Case Against Scott Landress (PDF)