The Financial Industry Regulatory Authority fined LPL Financial $3 million for allegedly failing to adequately supervise the firm's registered representatives, according to the regulator.
Without admitting or denying FINRA's findings, Matthew Morningstar, an LPL executive vice president signed a FINRA letter of acceptance, waiver and consent on July 10. FINRA signed the letter on Tuesday.
LPL consented to the regulator's sanctions, which also included paying restitution of $100,000 plus interest to clients and agreeing to conduct a review to identify and, as applicable, pay restitution to affected clients for improper transfers of money, according to FINRA.
LPL also agreed that, within 90 days of the notice of acceptance of the AWC letter, a senior manager and registered principal of the firm will certify in writing that, as of the date of the certification, the firm remediated the issues identified in this AWC letter and implemented a supervisory system, including written supervisory procedures to prevent the same incidents from happening again.
"LPL takes its compliance obligations seriously and has made investments to address the underlying issues related to this matter," an LPL spokesperson told ThinkAdvisor by email on Wednesday. "The firm fully cooperated with regulators to resolve and remediate this matter."
Red Flags Missed
On Dec. 7, 2022, FINRA said it found that LPL "failed to investigate red flags related to a registered representative's undisclosed outside business activities and, as a result, the firm failed to reasonably supervise transfers of customer funds to third parties, in violation of FINRA Rules 3110 and 2010."
In that particular matter, LPL "failed to detect that one of the firm's registered representatives caused five customers to transfer funds from their firm accounts, or from annuity contracts that the customers held, to a third party; the funds were ultimately converted by the third party."
In response, LPL consented to a censure and a $150,000 fine, FINRA said.
On Dec. 3, 2021, pursuant to a consent order, Connecticut's Banking Commissioner ordered LPL to pay $500,000 for its failure to supervise two registered representatives who converted customer funds, including transfers of customer funds from a firm account to a bank account held jointly by a client and one of the registered representatives.
