FINRA Orders LPL Financial to Pay $9 Million in Sanctions for Systemic Email Failures

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.

LPL Financial Disciplined For Allowing Broker To Improperly Transfer Customer Funds to His Own Account

Earlier this month, LPL Financial, LLC was fined $100,000 by the Financial Industry Regulatory Authority ("FINRA") for failing to maintain supervisory procedures to catch a representative who was transferring assets from a customer account to the broker's personal account with the firm.

In the face of charges by the regulatory agency, LPL Financial submitted a Letter of Acceptance, Waiver and Consent by which the firm consented to a censure and the fine, while at the same time neither admitting or denying the facts.

According to the FINRA enforcement action, LPL Financial did have a supervisory system that was intended to monitor the transfer of funds or securities from a customer account to third parties. However, the firm's system simply failed to address movement of assets from a customer account to a broker's LPL account. This failure allowed a broker to convert for his own benefit more than $1 million in cash and securities belonging to LPL customers.

This is one of three fines, totaling $220,000, that FINRA assessed against LPL Financial this month for various disciplinary violations in March, 2011.

Any investors who suspect that money or securities have been moved from their accounts without proper authority should immediately investigate the circumstances of the transfers.Investment fraud lawyers can assist with that investigation and seek to recoup embezzled funds.