In May 2013, the Financial Industry Regulatory Authority
(FINRA) announced that it sanctioned LPL Financial $7.5 million for a large
number of significant email system failures that prevented the firm from
accessing hundreds of millions of emails.
FINRA also ordered LPL to reimburse $1.5 million to customers who may
have been affected by the firm’s failure to produce emails.
Email communications are a necessary tool for brokerage
firms to manage the complex relationships with their expanding client base and
to ensure customer transactions are being handled in an appropriate manner. LPL’s
rapid growth demanded that the firm devote sufficient resources to update and
maintain its email systems. The firm,
however, knowingly failed to do so, as reflected by its failure on at least 35
separate occasions to capture email, supervise its representatives and respond
to regulatory requests. LPL’s repeated
failures resulted in the firm failing to produce requested emails to federal
and state regulators as well as, likely, private litigants in arbitration
proceedings.
With regard to customer arbitrations, LPL was ordered to
notify eligible claimants within 60 days of the create of a $1.5 million fund
designed to pay customers for discovery abuses.
Claimants who brought arbitration proceedings against LPL by January 1,
2007, and which were closed by December 17, 2012, will also receive emails that
the firm failed to provide in the course of their dispute. Such customers will have the option of
accepting a payment of $3,000 from LPL or have a fund administrator determine
an appropriate amount of compensation based on the particular failures of LPL
in their cases.
Brokerage firms are required to maintain and manage email
communications with their customers, and to produce all required documents in
arbitration and litigation proceedings. Failure to do so can prejudice customers’
right to ensure that brokers are properly managing their accounts and to seek
just reimbursement for improperly caused investment losses. Investors who have questions about their LPL
brokerage accounts should contact Block & Landsman for a free, confidential
consultation.
