In 2007, a Dec. 24 article in Barron’s magazine lauded David Steckler, an institutional money manager with LPL Financial Services, for his investing strategies to hone in on supposedly solid-performing stocks. Less than six months after the publication of that article, however, Steckler, who joined LPL in 1989, would be fired from the company.
According to disclosures listed on the Web site of the Financial Industry Regulatory Authority (FINRA), Steckler’s termination on March 12, 2008, was based on “violations of company policy with regards to engaging in a referral arrangement with an LPL Financial client and making a personal investment with an LPL Financial client in a private securities transaction without notice to or approval from the firm.”
Documents filed Sept. 11, 2008, in the U.S. District Court for the Northern District of Illinois shed further light on the issue. According to those documents, the Enterprise Trust Company – for which LPL’s Steckler had brought accounts to – caused tens of millions of dollars in client losses, mostly through unsuccessful speculative trading in margin accounts. In order to engage in trading of this magnitude, Enterprise had to pledge as collateral securities that belonged to clients who maintained custodial accounts with Enterprise. The majority of the assets in the custodial accounts consisted of mutual fund holdings, many of which were held in IRA and other qualified retirement accounts. The custodial clients neither knew of nor approved of the margining of their assets.
The documents go on to state that Enterprise was able to use the custodial assets as collateral for the benefit of its managed clients because it caused all securities entrusted to it to be placed in Enterprise’s name. The assets were then commingled in omnibus accounts and used as though they belonged to Enterprise. As a result, Enterprise effectively misappropriated securities of custodial clients, ostensibly to make money for its managed clients. Further, statements that were sent to custodial clients disguised the misuse of their assets, their financial losses and the trading activity that caused the losses.