The nation’s presumed top independent broker-dealer will pay more than $4.8 million to settle anti-money laundering (AML) charges stemming from its alleged failure to verify identity documents and reconcile inconsistencies of a new customer who would scam a Puerto Rican city out of millions of dollars.
LPL Financial, headquartered in Fort Mill, S.C., will pay restitution of more than $4.1 million to Mayagüez (P.R.) Economic Development Inc. (MEDI), the government entity defrauded by investment adviser Eugenio Garcia Jimenez Jr., and a $750,000 civil penalty to settle charges levied by the Securities and Exchange Commission (SEC) regarding LPL’s lax AML policies and procedures.
The SEC alleged in an administrative proceeding Thursday that LPL’s know your customer (KYC) policies, like verifying identification, addresses, and other submissions, did not catch inconsistencies in Garcia’s application for an LPL investment account that he eventually used to defraud MEDI, his advisory client, of $3.1 million in public funds.
According to the SEC’s order, Garcia had already misappropriated $4.1 million in public funds at another brokerage firm when he applied to open a new investment account with LPL in 2016. The first brokerage firm had decided to close MEDI’s account because Garcia transferred the $4.1 million to himself, and the funds remaining in the account were invested in a way that they were losing money. The first firm gave Garcia until June 2016 to liquidate or transfer the remaining funds in the account.
“LPL failed to comply with its Customer Identification Program procedures and, despite various individuals in different departments questioning the account’s beneficial ownership, source of funds, and reason for transfer from the Brokerage Firm 1, Garcia opened an account controlled by him at LPL in June 2016,” the order said. “LPL subsequently processed wire transfers that Garcia requested. In the less than one month before LPL froze (and later liquidated) the account, Garcia was able to misappropriate an additional $3.1 million of City funds.”
A previously filed SEC civil complaint against Garcia in federal court in Puerto Rico remains pending.
“We take our compliance and fraud governance obligations seriously and have made significant investments in the last few years to address the underlying issues related to this matter,” said LPL in a statement. “We fully cooperated with our regulators and law enforcement to resolve and fully remediate this matter.”