LPL Financial, considered the largest independent broker-dealer in the United States, has reached a settlement with the Financial Industry Regulatory Authority (FINRA), resulting in a $3 million fine.
The penalty comes in response to alleged supervision failures related to the transmittal of customer funds and the use of forged signatures by employees.
As part of the settlement, LPL has also agreed to pay $100,000 in restitution and received a censure from FINRA, as stated in the regulatory body's order published on Tuesday.
According to FINRA, the firm was found to have multiple supervisory system failures that led to violations of FINRA rules and the Securities Exchange Act. Between May 2018 and August 2020, LPL failed to establish and maintain appropriate oversight regarding the transmittal of customer funds by wire or check to third parties. Consequently, two LPL representatives were able to convert approximately $2.4 million from 13 customers through third-party transfers for personal use, according to the allegations made by the self-regulatory organization.
FINRA noted that most of the affected customers were promptly remediated following the discovery of the violations.
Additionally, from January 2018 through January 2022, LPL failed to adequately supervise potential instances of signature forgery or falsification by its employees. This led to at least 50 LPL registered representatives electronically signing another person's name on more than 1,000 documents, according to the order.
One of the compliance considerations highlighted by FINRA was the firm's use of an automated tool that only reviewed the second line of the check recipient's address. As a result, checks sent to one of the representatives involved in the conversions had address details on the fourth line, avoiding detection by the system. The order also pointed out that LPL did not respond to red flags, such as third-party checks made payable to an entity controlled by a representative being mailed to his "doing-business-as" address.
Regarding the forged signatures, FINRA claimed that LPL did not take additional steps to verify the information contained in the certificates of completion it received against the customer data it had on record. Had they done so, the firm would have discovered numerous instances where documents purportedly electronically signed by customers remotely were, in fact, sent to email addresses associated with LPL representatives.
In response to the settlement, an LPL spokesperson stated, "LPL takes its compliance obligations seriously and has made investments to address the underlying issues related to this matter. The firm fully cooperated with regulators to resolve and remediate this matter."
The fine and censure imposed by FINRA underscore the importance of robust supervision and compliance measures within financial institutions. It also serves as a reminder of the regulatory consequences that firms may face if they fail to detect and address misconduct related to customer funds and document handling. LPL's cooperation with regulators and efforts to rectify the issues will be closely scrutinized as they work to regain trust and maintain regulatory compliance moving forward.
By fLEXI tEAM