The Financial Industry Regulatory Authority announced today that it ordered LPL Financial to pay $11.7 million in fines and restitution for widespread supervisory failures related to the sale of certain investments, including certain exchange-traded funds, variable annuities and non-traded real estate investment trusts.
According to the Letter of Acceptance, Waiver, and Consent, beginning in 2007, LPL significantly increased its size, and the number of registered representatives grew from approximately 8,000 to over 17,000 by 2013. FINRA alleged that LPL did not accompany this massive growth with sufficient resources to permit LPL to meet its supervisory obligations. As a result, FINRA alleged that LPL failed to have an adequate system in place to supervise certain aspects of its business.
FINRA alleged that LPL was not reasonably supervising the sales of complex products such as exchange-traded funds, and that LPL failed to monitor the length of time these securities were held in customer accounts. It also alleged that LPL failed to supervise the sale of variable annuities, and in some instances permitted sales without disclosure to the customer of surrender fees. It also alleged that LPL failed to supervise the sales of non-traded real estate investment trusts.
Financial and securities brokerage firms have a legal duty to supervise their brokers and their brokers' recommendations to clients to ensure compliance with and prevent violations of the rules of the security industry. When an individual broker is negligent or acts in an unlawful manner against the interests of the client and that client suffers damages as a result of such wrongdoing, the firm may be held liable for the investor's losses.
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