LPL Financial was fined $3 million as part of a settlement with the Financial Industry Regulatory Authority (FINRA) over alleged supervision failures related to transmittal of customer funds and forged signatures by employees.
LPL, believed to be the largest independent broker-dealer in the United States, also agreed to pay $100,000 in restitution and was censured as part of FINRA’s order published Tuesday.
The details: LPL was faulted for multiple alleged supervisory system failures that resulted in violations of FINRA rules and the Securities Exchange Act.
From May 2018 to August 2020, the firm failed to establish and maintain oversight regarding transmittal of customer funds by wire or check to third parties, according to FINRA. This resulted in two LPL representatives converting approximately $2.4 million from 13 customers through third-party transfers for personal use, the self-regulatory organization alleged.
FINRA noted most of the affected customers were promptly remediated.
From January 2018 through January 2022, LPL failed to supervise potential instances of signature forgery or falsification by employees, resulting in at least 50 LPL registered representatives electronically signing another person’s name on more than 1,000 documents, according to the order.
Compliance considerations: The firm’s alleged transmittal violations went undetected by an automated tool programmed to only review the second line of the check recipient’s address, according to FINRA. Checks sent to one of the representatives carrying out conversions had address details on the fourth line.
The firm also did not respond to red flags, for example, when third-party checks made payable to an entity a representative controlled were mailed to his “doing-business-as” address, the order stated.
Regarding the forged signatures, LPL allegedly did not take additional steps to verify information contained in the certificates of completion it received against the data it had on its customers.
“If they had, LPL would have discovered hundreds of instances where documents purportedly electronically signed by customers remotely were, in fact, sent to email addresses associated with LPL representatives,” the order said.
Firm response: “LPL takes its compliance obligations seriously and has made investments to address the underlying issues related to this matter,” an LPL spokesperson said in an emailed statement. “The firm fully cooperated with regulators to resolve and remediate this matter.”