Category Archives: LPL Financial

LPL Financial LLC is among five firms fined by the Financial Industry Regulatory Authority (FINRA) for failing to deliver mutual fund prospectuses.

As reported Jan. 2 by Investment News, LPL Financial LLC agreed to pay a $400,000 fine as part of the agreement; State Farm VP Management Corp., $155,000; Deutsche Bank Securities Inc., $125,000; Scottrade Inc., $50,000; and T. Rowe Price Investment Services Inc., $40,000.

In the settlement, FINRA stated that LPL relied on its brokers to deliver prospectuses, but had no procedures in place to determine if the documents were delivered late. Over FINRA’s review period of January 2009 through June 2011, LPL was required to deliver 3.4 million prospectuses.

According to the settlement, State Farm was responsible for delivering 154,129 prospectuses during that period, at first through its brokers and later through a service provider. In each case, however, the firm had inadequate supervision, FINRA said.

Scottrade failed to deliver prospectuses in about 14,000 transactions out of 300,000. Deutsche Bank Securities missed delivery in 3,800 cases out of nearly 71,000 trades, and T. Rowe Price had 2,500 failures in more than 68,000 transactions.

Last month, LPL Financial faced sales abuse charges tied to non-traded real estate investment trusts when Massachusetts Secretary of the Commonwealth William Galvin filed civil charges against the firm for failing to supervise LPL brokers who sold investments in seven non-traded REITs.

It’s more bad news for non-traded real estate investment trusts (REITs) and the broker/dealer firms that market and sell them to investors. Yesterday, Massachusetts securities regulators filed a complaint against LPL Financial, charging the B-D of failing to supervise registered reps who sold the non-traded REITs in violation of both state limitations and the company’s rules.

As reported Dec. 12 by Investment News, the charges stem from sales of $28 million of non-traded REITs to almost 600 Massachusetts clients from 2006 to 2009. Nearly all of the transactions in question violated state securities regulations or LPL’s own compliance practices, the Massachusetts Securities Division says.

Secretary of the Commonwealth William Galvin also charged LPL with dishonest and unethical business practices. He is seeking restitution to investors who bought the REITs, a fine and other sanctions, according to the complaint.

LPL reps sold $28 million in investments in non-traded REITs and collected about $1.8 million in fees as a result, Galvin’s office alleges.

“Non-traded REITs present risks to investors,” Galvin said in a statement. “Massachusetts recognizes those risks and requires limits on an investors’ exposure to the high fees, potential illiquidity, and risky nature of non-traded REIT products.”

REITs own and manage income-producing property or are involved in real estate financing.  Non-traded REITs are more difficult to get one’s money out of, and tend to carry high fees and commissions, Galvin said.

Of the REITs listed in the complaint, the largest amount of sales was for Inland American Real Estate Trust. Inland American is the biggest non-traded REIT in the industry, with more than $11 billion in real estate assets. Massachusetts investors put more than $20 million in Inland American, which currently is the focus of a probe by the Securities and Exchange Commission (SEC).

LPL calls Galvin’s claims “substantially overstated.”

Two Nebraska investors have filed a class-action lawsuit against LPL Financial, alleging that one of the company’s brokers – Bob Bennie – misrepresented the costs and benefits of variable annuities.

As reported in a June 17 article by the Associated Press, more than $365,000 of the products had been sold to investors Richard and Carol Ripley. The Ripley’s lawsuit, which was originally filed last month in a Nebraska state court and which seeks class-action status, has been transferred to a Nebraska federal court.

In their lawsuit, the Ripleys contend that Bennie failed to disclose the unsuitable nature of the annuities and misled them about withdrawing money without facing a penalty and the costs of the annuities.

Boston-based LPL provides trading and support services to 16,000 independent brokers. Bennie is the owner of Bob Bennie Wealth Management.

Variable annuities have faced growing scrutiny lately, with regulators initiating enforcement actions against annuity sellers for unsuitable sales and lack of disclosure.

In the simplest terms, a variable annuity is a tax-deferred investment that comes with an insurance contract in which earnings grow tax-deferred.

At the same time, variable annuities come with a high commission fee – up to 9% in some instances. Moreover, many investors are often unaware of the early withdrawal penalties associated with variable annuities.

LPL Financial, the nation’s largest independent-contractor broker/dealer, is once again in the news over technology mistakes that could put private client information at risk. The story was first reported April 6 by Investment News.

According to the article, an “unencrypted portable hard drive” was stolen from an LPL representative sometime in late February. The representative, Christian D’Urso, was based in Beaverton, Oregon. It’s unclear exactly how many LPL clients could be affected by the theft.

This isn’t LPL’s first run-in with potential breach of customer information. In 2008, the Securities and Exchange Commission (SEC) issued a cease and desist order against LPL for its failure to implement adequate controls to protect access to customer accounts.

According to the SEC, between mid-July 2007 and February 2008, LPL was subject to hacking incidents in which customer accounts were accessed and the perpetrator placed or attempted to place 209 unauthorized trades in 68 accounts for more than $700,000. Without admitting or denying the SEC’s charges, LPL paid a fine of $275,000 to settle the matter.

LPL Financial has 12,000 representatives and advisers.

LPL Financial Corp. (LPL) will pay nearly $1.3 million in restitution to Montana investors plus a fine of $150,000 to the State of Montana under a settlement reached with the Montana Commissioner of Securities and Insurance. The restitution and fine are tied to alleged illegal activity on the part of a former LPL registered representative, Donald Chouinard, who is accused of operating a Ponzi scheme and the alleged failure of LPL to supervise him.

The settlement with LPL did not resolve any claims against Chouinard individually or his companies, which the Montana Department of Securities continues to pursue.

In September, the state of Montana issued a Temporary Cease and Desist Order against Chouinard and filed a Notice of Proposed Agency Action against him and his companies, DC Wealth Management and DC Associates. The action alleges that Chouinard and his companies committed securities fraud and conducted a Ponzi scheme involving Montana and Idaho investors who invested in what they thought was a “day-trading” program. In reality, however, the investors received proceeds taken from money contributed by newer investors.

Specifically, the Department’s action alleges Chouinard convinced one investor to obtain a $100,000 loan and invest with him because he could guarantee a high return in 30 days. Instead of investing the $100,000 in the “day-trading” program, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal joint-checking account, and gave the other $25,000 to his attorney.

The Department also alleges that Chouinard traded investors’ accounts without their authorization, forged investors’ signatures to authorize certain trades, and failed to provide investors with statements or tax documents for their “day-trading” investments. Chouinard routinely informed the investors about the values of their investments orally or via email. The investors allege Chouinard misrepresented the values of their investments – in one case by as much as 10,000%.

The excessive trades resulted in thousands of dollars in commissions for Chouinard.

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Two investment companies owned by a former LPL Financial broker have been shut down by the Montana Commissioner of Securities and Insurance on allegations their owner, Donald Chouinard, was running a Ponzi-like scheme that bilked investors, including some of Chouinard’s own friends, out of millions of dollars.

In addition to working for LPL Financial as a broker/dealer salesperson and investment adviser, Chouinard operated DC Wealth Management and DC Associates. On Sept. 18, Montana Commissioner of Securities and Insurance Monica Lindeen filed a Notice of Proposed Agency Action and issued a temporary Cease and Desist Order against Chouinard and his companies. According to state officials, Chouinard traded in investors’ LPL accounts without their authorization, traded excessively, and forged their signatures to authorize the trades. The excessive trades resulted in nearly $250,000 in commissions for Chouinard.

The Montana commissioner also says Chouinard failed to provide investors with statements or tax documents for their “day-trading” investments. Instead, he routinely informed investors about the values of their investments orally or via email. The complaints further allege that Chouinard misrepresented the values of various investments—in one case by as much as 10,000%.

Chouinard was fired from LPL in May.

One complaint alleges that Chouinard convinced an investor to make him a $100,000 loan and invest with him because he could guarantee a 40% return in 30 days. Instead of investing the money, however, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal checking account, and gave the other $25,000 to an attorney.

Commissioner Lindeen’s complaint charges Chouinard and his companies of violating the antifraud provisions of the Montana Securities Act. Lindeen’s office is seeking to revoke Chouinard’s Montana securities license and suspend or revoke Chouinard’s Montana insurance producer license, as well as levy fines and demand restitution for investors. Chouinard could face penalties amounting to millions of dollars.

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Linsco Private Ledger, which now goes by the name of LPL Financial Services, is at the center of a growing list of arbitration claims and lawsuits in connection to one of its former brokers, Raymond Londo. LPL is accused of failing to supervise Londo, who allegedly scammed millions of dollars from investors in an elaborate Ponzi scheme. Londo’s victims include friends, neighbors and even his own family.

Londo was fired from LPL on March 6, 2008. During his lengthy tenure with the company, however, there was an abundance of customer complaints and red flags regarding Londo’s service and investing strategies. Complaints about Londo’s sales practices also occurred at his former place of employment, Edward Jones.

Despite these warning signs, LPL not only hired Londo but chose to forego taking any action against the financial advisor until his termination in March 2008. By that time, investors in Illinois, Iowa and Wisconsin, as well as elsewhere, had lost millions and millions of dollars to Londo. 

Specifically, Londo is accused of borrowing money from the accounts of investors and then promising them a certain rate of return. Under FINRA Rule 2370, it is illegal for registered representatives to borrow funds from their clients. Investors now contend if LPL had exerted proper supervision of Londo, the abuses would never have occurred.

LPL was formed in 1989 through the merger of Linsco Financial Group and Private Ledger Financial Services. Today, the company is considered the fifth-largest brokerage firm in the United States, with nearly 13,000 financial advisors.

Investors are continuing to sue LPL by filing arbitration claims with the Financial Industry Regulatory Authority (FINRA) for the financial losses they incurred in Londo’s Ponzi scheme.

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.

Long before Bernie Madoff made news, there was financial advisor Raymond Londo. In March 2008, Ray Londo was fired from Linsco Private Ledger (now known as LPL Financial, or LPL for short) for failing to follow company policies on lending or borrowing funds from clients. Before his termination, however, Londo allegedly operated a multimillion-dollar Ponzi scheme that entailed converting millions of dollars of clients’ assets.

As with Madoff, Londo’s victims reportedly included neighbors, country club associates and family members. Today, Londo and LPL are at the center of ongoing investigations connected to the alleged fraud, as well as numerous arbitration claims filed with the Financial Industry Regulatory Authority (FINRA) by investors who suffered financial losses.

LPL’s role in the alleged actions focuses on the fact that LPL ignored repeated warning signs concerning Londo and that it failed to properly supervise his actions during his employment with LPL. It was only after Londo had defrauded dozens of clients, bilking millions of dollars from their accounts, that LPL terminated Londo’s employment.

This isn’t the first time LPL has been accused of failing to supervise its brokers. In 2002, FINRA announced a $500,000-plus award (Case Number: 01-05344) in favor of an investor who claimed the company failed to supervise one of its independent brokers, which ultimately caused the claimant to suffer substantial financial losses.

In 2008, LPL Financial and a former broker lost another arbitration claim – this one totaling $1.8 million. The claim alleged that LPL and a former broker, Michael McClellan, violated state and federal securities laws, committed fraud, breached fiduciary duties and made unauthorized trades, among other violations.

As reported July 3, 2009, in the Wall Street Journal, LPL was formed in 1989 through the merger of Linsco Financial Group Inc. and Private Ledger Financial Services Inc. Since then, LPL has experienced explosive growth. It is now the fifth-largest brokerage firm in the United States, with 12,294 financial advisors. The company has headquarters in Boston and San Diego.

One of the key attractions of companies like LPL Financial may have to do with money: Brokers at LPL get to keep 80% to 95% of commissions on their trades, compared with 40% or less at bigger brokerage firms, according to the Wall Street Journal article.