LPL Gets Fined $6.5 million By FINRA for Compliance Lapses That Cost Investors Millions

Chicago-based Stoltmann Law Offices has represented investors in cases against securities brokers and has been investigating claims against LPL and filing arbitration complaints for investors. Can securities brokers who’ve been fleecing investors somehow keep working in the industry? If a firm’s records systems are poorly managed, sadly, the answer is yes. Sometimes they slip through the cracks and continue to steal customers’ funds and place them in bad or fraudulent investments that turn out to be Ponzi schemes.

That was the case with former LPL broker James T. Booth, who worked for the firm from 2018 through 2019. Booth pled guilty to one count of securities fraud in October, 2019, and was barred from the industry by the U.S. Securities and Exchange Commission (SEC). LPL was also cited for “supervisory deficiencies” by FINRA, the industry regulator, in connection with Booth stealing “at least $1 million of LPL customers’ money as part of a multi-year Ponzi scheme,” according to thediwire.com. The regulator fined LPL $6.5 million.

There was a bigger problem at LPL, though: FINRA claims that LPL’s recordkeeping system failed to report millions of customer communications. The firm’s failure “affected at least 87 million records and led to the permanent deletion of more than 1.5 million customer communications maintained by a third-party data vendor. These included mutual fund switch letters, 36-month letters, and wire transfer confirmations that were required to be preserved for at least three years.”

When a firm fails to keep proper records on its advisors, customers suffer when a rogue broker takes advantage of clients.  Booth was “briefly registered with LPL from February 2018 through May 2019 before being fired for misappropriating multiple clients’ funds for his personal and business use,” according to his BrokerCheck profile. LPL has since paid restitution to LPL customers “whose money was stolen by Booth,” thediwire reported.

As one of the largest independent broker-dealers in the U.S., LPL has more than 21,500 registered representatives operating out of nearly 13,000 branch offices. The firm has repeatedly been cited by regulators for violations. In 2018, LPL was fined $2.75 million for “complaint reporting and program failures” by FINRA. State securities regulators fined the firm nearly $26 million in 2019 for “selling unregistered securities to clients across the nation and failing to develop and maintain systems and procedures to prevent the sale of unregistered, non-exempt securities to certain customers between October 1, 2006 and May 1, 2018,” reported Marketwatch.com.

Last year, FINRA fined former LPL broker Donald S. Woods “for violating FINRA rules by submitting applications for risky real estate investment trusts (REITs) that inflated the net worth of his elderly clients,” according to thinkadvisor.com.

Have you invested with broker-advisors who have invested in high-risk investments or not honestly reported their performance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!