LPL Financial, a securities broker dealer now headquartered in Fort Mill, South Carolina, was censured and fined $3,000,000.00 by Financial Industry Regulatory Authority (FINRA) because LPL Financial failed to supervise certain representatives, resulting in their conversion of customer funds. Letter of Acceptance, Waiver, and Consent No. 2020067897601 (July 25, 2023).
Between May of 2018 and May of 2019, Stockbroker 1 of LPL improperly used funds from nine customers, five who were seniors. He lured them into writing checks from accounts held at LPL accounts to an undisclosed entity he managed, claiming it was for investment-related purposes. However, he made use of these funds for his own personal and business purposes. In sum, he made his customers issue checks amounting to around $550,000.00. LPL distributed 25 of these checks to his business address, while the remaining 11 were mailed to the customers’ registered addresses.
In August of 2020, another LPL representative, Stockbroker 2, inappropriately used funds from four customers, three being seniors. He persuaded three customers to transfer money from their accounts at LPL to another business he managed, alleging it was for investing. He then misused an estimated $675,000.00 of these funds for personal purposes. Additionally, he electronically forged a senior customer’s signature to move about $1,200,000.00 from the customer’s account for his real estate purchase.
From May of 2018 to August of 2019, LPL’s supervision system was found by FINRA to be deficient. The securities broker dealer employed a tool that had its limitations, allowing several discrepancies to go unnoticed. For instance, the tool did not detect during the time that 25 checks were distributed to Stockbroker 1’s business address. It also failed to recognize when nine of Stockbroker 1’s customers issued checks to a shared external entity. The system’s design for checking electronic signatures was flawed, leading to LPL not catching an August 2020 forged wire transfer by Stockbroker 2.
The company also overlooked multiple red flags, such as checks mailed to Stockbroker 1’s business address and different customers sending checks to a shared payee. In April of 2020, even after executing a common payee report, LPL failed to take adequate action during the time that they detected seven suspicious wire transfers by Stockbroker 2’s customers to his undisclosed business.
FINRA also found that from January of 2018 to January of 2022, LPL’s method for detecting possible electronic forgery or falsification was insufficient. The securities broker dealer did not routinely cross-check the information provided after an electronic signature. This oversight enabled Stockbroker 2 to forge an electronic signature, transferring around $1,200,000.00. Furthermore, LPL stockbrokers were found to have signed electronically on behalf of customers on more than 1,000 occasions during this period without proper verification.
FINRA found LPL to have violated FINRA Rules 3110(a) and 2010, Securities Exchange Act of 1934 Section 17(a), and SEC Rule 17a-3.
