Articles Posted in LPL Financial

Former LPL Broker is Barred For Not Disclosing Private Securities Sales
The Financial Industry Regulatory Authority announced a bar against Leslie Koonce, an ex-LPL (LPLA) broker. According to the self-regulatory organization, Koonce lied when he failed to disclose that he had engaged in private securities sales. Koonce allegedly pitched a private company’s convertible promissory notes to at least 30 potential investors.

FINRA contends that not only did Koonce help facilitate the transfer of $175K to at least three LPL customers so they could invest in the private securities, but also, he invested $50K of his own funds. All the while, said the SRO, Koonce failed to notify LPL in writing of his involvement in these transactions. When he filed out compliance questionnaires twice in 2012, Koonce denied any involvement in these types of transactions.

LPL fired Koonce in 2015. He later went to work with Cetera and then EK Riley Investments. The ex-broker no longer works in the securities industry.

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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.

The Financial Industry Regulatory Authority is ordering 12 firms to pay a collective total of $14.4M in fines over deficiencies involving the way they preserved customer and brokerage firm records. The firms who are subject to these sanctions include:

· RBS Securities (RBS) for $2M
· LPL Financial (LPLA) for $750K
· Wells Fargo Prime Services and Wells Fargo Securities (WFC) for a collective $4M fine
· Wells Fargo Advisors, First Clearing LLC, and Wells Fargo Advisors Financial Network for a joint fine of $1.5M
· RBS Capital Markets Arbitrage and RBC Capital Markets for $3.5M
· SunTrust Robinson Humphrey for $1.5M
· PNC Capital Markets for $500K

Under FINRA rules and federal securities laws, electronic records that are business-related have to be maintained in WORM format so that they cannot be modified. According to the US Securities and Exchange Commission, this is necessary to protect investors because monitoring compliance by firms occurs primarily through their records and books.

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A FINRA arbitration panel has ordered Wells Fargo Advisors LLC (WFC) to pay UBS Financial Services Inc. $1.1M to resolve a claim involving financial adviser David Kinnear who went to work for the Wells Fargo & Co. brokerage arm after leaving the UBS Group AG (UBS) unit. UBS claims that Kinnear stole thousands of client and business records, as well as proprietary information, after resigning from the firm.

The Wall Street Journal reports that according to a source, Kinnear downloaded the data and distributed it to clients. UBS contends that the compensation Kinnear received at Wells Fargo was related to his ability to successfully bring UBS clients with him. UBS also claims that Kinnear owes it promissory notes.

Wells Fargo denies UBS’s allegations. It submitted a counterclaim accusing the firm of unfair completion, including preventing clients from moving from UBS to Wells Forgo.

Under the Protocol for Broker Recruiting, brokers are only allowed to bring the names and contact information of clients that they serviced while having worked at a firm when moving to another brokerage firm.

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A number of lawsuits have been brought against LPL Financial (LPLA) after its stock price fell. There is the securities case brought by the Charter Township of Clinton Police and Fire Retirement System, which is a Michigan pension fund. Also, in New York last March, a number of lawyers filed a shareholder lawsuit.

Both securities cases want damages that shareholders of record would have sustained between 12/8/15 and 2/11/16. A major allegation is that LPL misled investors to raise its stock price while putting through a $250M share buyback plan that benefited one private equity investor.

According to the Michigan pension fund, LPL CFO Matthew Audette and LPL CEO Mark Casady took part in a scam to let private equity investment firm TPG Capital sell LPL shares at a price that was artificially inflated. The NY shareholder lawsuit is accusing the independent brokerage firm of issuing statements that were materially false and misleading to investors and not disclosing that its clients’ assets and gross profits were becoming weaker.

Addressing the allegation, Casady downplayed the share buyback program’s timing and execution that allowed the private equity investor to sell 4.3M million stock shares back to the firm soon before the shares, as described by InvestmentNews, “went into a tailspin.” He said the stock buyback happened under a set of expectations that was reasonable.

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The Charter Township of Clinton Police and Fire Retirement System is suing LPL Financial Holdings Inc. (LPLA) for $115M. In the class action securities case, the plaintiff contends that a stock buyback program cost the firm and its shareholders that amount.

Company shares closed trading at $42.91 on October 29 when LPL announced the $500M program. Less than two months later, its stock began to drop in price. The stock was trading at $25.08/share yesterday morning.

The program was supposed to improve shareholder value. The following month, LPL said it had entered into $700M of new term loans while extending $631M of existing debt to pay for the share repurchase plan. Then, in December, the company said it had arrived at an early completion of the plan.

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The Financial Industry Regulatory Authority said that LPL Financial, LLC (LPLA), Raymond James & Associates (RJF), Raymond James Financial Services, Wells Fargo Advisors, LLC (WFC), and Wells Fargo Advisors Financial Network, LLC must pay over $30M in restitution plus interest to customers who were impacted when the firms did not waive mutual fund sales charges for certain retirement and charitable accounts. According to the self-regulatory organization, between July 2009 and the end of 2014 the financial firms either improperly overcharged certain investors who had purchased Class A mutual fund shares or sold them Class B or C shares instead. The latter two come with ongoing, high back-end fees.

Mutual funds typically offer different share classes for sale. Each class has its own sales fees and charges. Although Class A shares come with an initial sales charge, they usually have lower annual fees than Class B and C shares. However, mutual funds will usually waive Class A sales charges when selling them to charities and some retirement accounts.

The broker-dealers offered these waivers for the retirement and charitable plan accounts under limited conditions. The waivers also were disclosed in prospectuses. Yet, according to FINRA, at various times since at least July 2009, the firms did not actually waive the sales charges for these customers when they were offered the Class A shares.

Because of this, contends the agency, over 50,000 eligible retirement accounts and charitable organizations either paid sales charges for the Class A shares or bought other share classes that required them to pay higher ongoing fees and other expenses. FINRA said that the firms did not properly supervise the sale of these mutual funds and depended on its brokers to offer the waiver discounts even though they weren’t properly trained.

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The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

More broker-dealers are suspending their sale of Nicholas Schorsch-affiliated nontraded real estate investment trusts. The suspensions are coming in the wake of the announcement of a $23 million accounting error involving American Reality Capital Properties Inc., which is the traded REIT under Schorsch’s control. Even after the error was found it was purportedly purposely left unfixed.

Now, LPL Financial Holdings Inc. (LPLA), the biggest independent broker-dealer in the country, has said that it has put a stop for now to the sale of products sponsored Schorsch’s RCS Capital Corporations, American Realty Capital Properties Inc., and their affiliates. LPL has almost 14,000 advisers.

Another brokerage network, AIG Advisor Group, which has four broker dealers and 6,000 registered representatives and advisers, said it was suspending its sale of two Schorsch-related nontraded REITS: the Phillips Edison-ARC Grocery Center REIT II and the American Realty Capital New York City REIT Inc.

The Financial Industry Regulatory Authority says that LPL Financial LLC must pay a $7.5 million fine for inadequately supervising more than 28 million business emails between 2007 and 2013. This is the largest fine the SRO has ever imposed over an e-mail case.

According to FINRA, LPL’s systems for overseeing and storing e-mails failed a minimum of 35 times. It contends that the firm did not succeed in fulfilling its duty to retain e-mails, supervise its representatives, and properly respond to requests by regulators. The SRO attributes these problems to the brokerage firm’s failure to put enough resources toward updating its e-mail system as its business grew quickly.

Among the e-mail failures: