FINRA slammed LPL Financial with a $950,000 fine for alleged supervisory deficiencies regarding alternative investments, the regulator announced Monday.
FINRA found that from Jan. 1, 2008 to July 1, 2012, LPL failed to have a reasonable supervisory system and procedures in place to determine whether purchases of alternatives would cause a customers account to be unsuitably concentrated in those investments.
LPL at first used a manual process to review whether an investment complied with prospectus, state and LPLs own alternative investment concentration guidelines, relying on information that FINRA said was outdated and inaccurate. The firm later implemented an automated system, but that database contained flawed programming and was not updated in a timely manner to accurately reflect suitability standards, according to FINRA.
LPL also did not adequately train its supervisory staff to analyze state suitability standards as part of their suitability reviews of alternative investments.
FINRA cited the alternative investment recommendations of Gary J. Chackman, one of the firms registered representatives, who engaged in dozens of transactions that exceeded the firms concentration guidelines. Due to the inadequacy of the firms supervisory system, Chackman was able to enter false customer financial information and process these alternative investment transactions without detection, FINRA said in a settlement letter with LPL.
LPL exposed customers to unacceptable risks by not having an adequate system in place that could accurately review whether a transaction complied with suitability requirements imposed by the states, the product issuers and the firm itself and it failed to train its registered representatives to apply all the suitability guidelines appropriately, Brad Bennett, FINRAs executive vice president and chief of enforcement, said in a press release.
LPL neither admitted nor denied the charges, but consented to an entry of FINRAs finding. LPL is pleased to have resolved this matter following an investigation in which we cooperated fully with FINRA staff. When the firm became aware of misconduct by the referenced financial advisor in his non-traded real estate investment trust (REIT) transactions, the firm promptly terminated the advisor. He has been barred from the industry, James S. Shorris, LPLs deputy general counsel, said in an email.
Shorris noted that beginning in 2012, LPL began a rigorous review of its supervisory policies and procedures regarding the processing and sale of alternative investments, including non-traded REITs. We believe that the enhancements we have since made significantly strengthen our ability to review the suitability of these transactions and ensure that sales of these products in the future comply with all applicable requirements, he said.
- B-D Fined $175,000 Over Supervisory, Suitability Failings
- Ex-Bear Stearns Banker Ruiz Gets 2 Years in Prison
- Did Credit Suisse Bankers, Advisors Help HNW Clients Evade Taxes?
- Credit Suisse Fined $197M for Improperly Soliciting Clients