[Updated through 2021] 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.
While certainly not the largest fine ever levied against a stockbroker, the real “crime” was committed by LPL by hiring Lebel. According to FINRA, 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. Most brokers have nothing on their record
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. They also say he failed to cooperate in their investigation. The net result was an order barring Schmidt from the securities industry.
Ultimately, LPL Financial settled with the two customers that filed complaints saying they were cheated by Schmidt. The branch manager who was supposed to be supervising Schmidt was fined $15,000 and suspended from the industry for 6 months.
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 first checked with FINRA , there was little public information as to why he was terminated. Now 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.
And to begin 2021, LPL Financial was fined again, this time by FINRA for a wide variety or wrongdoing. The total fines are $6.5 million. The latest fine reads like a horror movie… that is a horror for customers. According to FINRA,
“WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, INCLUDING WRITTEN PROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH REGULATORY OBLIGATIONS INCLUDING RECORD RETENTION, FINGERPRINTING AND SCREENING OF ASSOCIATED PERSONS, AND SUPERVISION OF CONSOLIDATED REPORTS.
THE FINDINGS STATED THAT, AMONG OTHER THINGS, THE FIRM FAILED TO RETAIN ELECTRONIC RECORDS IN THE REQUIRED FORMAT, PRESERVE CERTAIN ELECTRONIC RECORDS, AND NOTIFY FINRA PRIOR TO EMPLOYING ELECTRONIC STORAGE MEDIA… THE FIRM’S FAILURE AFFECTED AT LEAST 87 MILLION RECORDS AND LED TO THE PERMANENT DELETION OF OVER 1.5 MILLION CUSTOMER COMMUNICATIONS MAINTAINED BY A THIRD-PARTY DATA VENDOR.
FURTHER, THE FIRM FAILED TO SEND ACCOUNT NOTICES THAT ARE REQUIRED TO BE SENT TO CUSTOMERS AT 36-MONTH INTERVALS FOR EACH ACCOUNT IN WHICH A SUITABILITY DETERMINATION HAD BEEN MADE.
THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO FINGERPRINT NON-REGISTERED ASSOCIATED PERSONS AND THUS FAILED TO SCREEN THESE PERSONS FOR STATUTORY DISQUALIFICATION BASED ON CRIMINAL CONVICTIONS… “
So why do these things matter?
First, without an adequate supervisory system, customers are like sitting ducks for predatory stockbrokers. A good analogy is Fort Knox deciding to layoff its guard force. Bad things happen when a brokerage firm has inadequate security.
Second, brokerage firms are required to keep customers records. There are very specific rules. According to FINRA, LPL poor record keeping “affected at least 87 million records.” We aren’t sure what that means but it doesn’t sound good. Even more ominous, FINRA said over 1.5 customer records were improperly and “permanently deleted.”
Brokerage firms are required to do background checks on who they hire. Part of that process includes finger print checks. You can’t do a complete background check, however, without those fingerprints. According to FINRA, at least one disqualified person was able to get a job because of the lack of fingerprinting.”
Anyone of these violations wouldn’t be terrible but with LPL, they aren’t isolated incidents and keep happening over and over again. (LPL paid the fine but without any admission of wrongdoing. In a statement the company said, “We take our compliance obligations seriously, and have been proactive in identifying, reporting and remediating these issues.”
Were You the Victim of Fraud at LPL Financial?
Brokerage firms like LPL Financial are generally responsible for the misconduct or their employees and agents. If you lost money because of churning, unsuitable investment recommendations, or fraud, we can help.
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 $100,000 or more (however for smaller cases, call us – we still may be able to help).