LPL Financial is certainly not a bucket shop or “boiler room” in the tradition of the Wolf of Wall Street and Stratton Oakmont Securities but lately, its beginning to behave like one. An industry leader with over 16,000 representatives, LPL is a big brokerage firm with offices throughout the United States. Recent enforcement actions targeting the company suggest that it may growing too big to properly manage and supervise.
Brokerage firms are responsible for the behavior and conduct of their employees. Stockbrokers are held to very high ethical standards. Among their responsibilities are obligations to not mislead customers, to fully understand their customers’ needs and to only make suitable recommendations.
In this post we will examine some of the many recent problems involving LPL Financial or its brokers. [Use the search box on our blog to search our many LPL stockbroker misconduct posts.]
Ex- LPL Financial Charged with Churning
Churning is a practice where a stockbroker engages in excessive trading in a customer’s account for the purpose of racking up commissions. The broker makes money at the expense of the customer. Churning is illegal and violates both SEC and FINRA (Financial Industry Regulatory Authority) rules. Former LPL broker Paul Lebel was fined $56,000 for excessive trading (churning).
Brokerage firms such as LPL Financial have a duty to supervise their employees. Even if the broker is broke, the employer is still responsible for any losses.
Lebel had nine reportable events on his securities’ record. That’s huge and we seriously wonder how he was able to stay in the industry and land a job with LPL. (Seven of his reportable events occurred while he was at LPL.) A disclosable event is a customer claim, bankruptcy, tax lien, regulatory action, judgment or criminal conviction.
After this post was first written, the SEC barred Lebel from the securities industry. According to the SEC,
“Paul T. Lebel. Lebel defrauded four customers by churning several of their accounts. In particular, Lebel exercised de facto control over these customers’ accounts and excessively traded mutual fund shares which carry large front-end load fees (A shares). Lebel’s excessive trading was inconsistent with the customers’ investment objectives, and willfully disregarded the customers’ interest. Mutual fund A shares are designed for long-term, buy-and-hold investing and are unsuited for any known strategy involving frequent trading. From August 2008 through August 2014, Lebel executed numerous mutual fund A share trades that, in light of Lebel’s customers’ investment objectives, were fraudulent, made to the detriment of Lebel’s customers, and without justification other than the generation of commissions for Lebel.”
LPL Broker Barred after “Borrowing” Money from Customers
Technically, it isn’t against the law for a broker to borrow money from a client. We can’t imagine a legitimate brokerage firm permitting the practice, however. The potential for problems is extreme. That is what happened with former LPL Financial broker Raymond Schmidt.
FINRA claimed Schmidt borrowed $2.25 million from his customers. As noted above, borrowing money isn’t illegal. Schmidt ran afoul of the law, however, when he borrowed money without telling his employer. He also broke the law when he lied on compliance questionnaires asking about private transactions with customers. FINRA say the money was used to construct a luxury home in Hawaii.
As of this writing, two customers have pending complaints claiming that Schmidt owes them $375,000 and $3.9 million respectively.
LPL Broker Accused of Selling Away
Selling away is another common stockbroker scam. Selling away occurs when a stockbroker or investment advisor sells or solicits securities not offered by the brokerage firm with which he is associated.
James “Jeb” Bashaw is a legendary stockbroker. A few years ago Barron’s magazine ranked Bashaw as the top financial adviser in Texas with a client portfolio of $3.8 billion. That’s when he was at LPL Financial. When we checked with FINRA last week, there was little public information as to why he was terminated. Today InvestmentNews says he was let go for selling away.
InvestmentNews reported that Bradshaw participated in private securities transactions without “providing written disclosure to and obtaining written approval from LPL Financial. The report also says he borrowed money from a client and was involved in a business transaction that created a conflict of interest.
In September 2019 he was suspended for 4 months. He consented to the suspension without any admission of wrongdoing.
[We also have cornerstone content on selling away stockbroker fraud.]
Elder Financial Abuse Charge Against Former Ex LPL Rep
In 2014, the SEC obtained a $1.8 million judgement against Blake Richards of Buford, Georgia. Buford was accused of elder financial abuse. The SEC said he stole almost $2 million from his clients, some of whom were elderly.
At the time of the offense, Richards was working for LPL Financial. In addition to stealing, he was also accused of “selling away. According to FINRA’s records, “customer alleges that he [customer] wrote checks to an entity that [Richard] told him would be for an LPL investment.” The money was returned by LPL.
Once again, brokerage firms are responsible for most misconduct of their representatives and agents. As of October 2019, there is still a complaint pending by a customer seeking $1,698,645.21.
Massachusetts Fined LPL Financial $250,000
The Massachusetts Securities Division fined LPL for using misleading designations on business cards. Massachusetts law prohibits stockbrokers from falsely using titles that suggest the holder has some enhanced level of expertise or training in senior issues. Although there is no indication that anyone lost any money, regulators believe that seniors are especially vulnerable to deceptive or high pressure marketing campaigns.
In announcing the settlement, Secretary of State William Galvin said, “In these days when workers are increasingly having to assume responsibility for their retirement savings, it is vital that the financial services industry not employ titles that suggest an expertise in advising senior citizens when none exists.”
LPL Financial is no stranger to enforcement actions by Massachusetts’ Secretary of State Bill Galvin. Previously the company agreed to reimburse seniors over $500,000 after Galvin said the company failed to examine the fees charged to senior citizens when switching variable annuities. (LPL had to pay almost $3 million to settle similar charges by Illinois authorities.)
The announcement from Massachusetts regulators does not name any of the individual brokers allegedly using improper designations nor does it indicate that any seniors were actually harmed. LPL told an industry publication that it is reviewing its compliance procedures.
As American baby boomers reach retirement age, we expect more instances of financial elder abuse. If you lost money because of the misdeeds of a stockbroker or other financial professional, we may be able to get back your hard earned money.
FINRA Issues $2.75 Million Fine for Money Laundering and Customer Complaint Procedures
The complaints just keep rolling in. In November 2018, FINRA fined LPL Financial supervisory failures related to the firm’s anti-money laundering (“AML”) program and customer complaint reporting practices.
We are most concerned about FINRA’s failure to disclose customer complaints. We have long suggested customers check out FINRA’s BrokerCheck system. It is a free and instant way of checking the records of both brokerage firms and individual brokers. The system only works, however, if brokerage firms input reportable events. Current regulations say that brokers and brokerage firms must self report within 30 days.
Since we wrote the above, LPL Financial was fined $1.1 million byMassachusetts for not properly reporting disclosable events.
Perhaps the biggest recent LPL Financial fraud finding stems from a multi-state investigation brought by the North American Securities Administrators Association. The company agreed to pay each participating state $499,000 for failing to supervise their representatives and selling unregistered, non exempt securities. The total settlement was estimated to be $26 million.
Although regulators found no evidence of “willful, reckless, or fraudulent conduct by LPL,” the company is still responsible for the conduct of its agents and brokers.
Separately in July 2019, the SEC charged an individual former LPL Financial broker, Kerry L. Hoffman, with selling $3.3 million in unregistered securities. He was assisted by a childhood friend who had been previously convicted of stealing money from customers.
For more information, visit our stockbroker fraud claims page. Ready to see if you have a case? Contact the LPL financial fraud lawyers at Mahany Law online, by email or by telephone at (202) 800-9791. All inquiries are kept strictly confidential. Cases handled nationwide and on a contingent fee basis. We handle cases with a minimum loss of $1 million or more (however for smaller cases, call us – we still may be able to help).