Category Archives: LPL Financial

LPL Financial Holdings Inc. will pay more than $3.4 million to settle two separate regulatory probes into how the brokerage sold certain complex investment products.

In one instance, the Boston-based firm must pay $2 million to settle allegations by the Massachusetts Attorney General’s Office and the Delaware Justice Department stating LPL failed to supervise its financial advisers who caused clients to hold ETFs for extended periods. Leveraged ETFs are typically designed to deliver a multiple of an index’s performance each day, but results over longer periods can be far different from what the daily objective might suggest.

According to LPL spokesman, “LPL will make enhancements to its oversight of leveraged ETFs including implementation of a renewed training and monitoring program to ensure the proper and effective use of leveraged ETFs as part of investors’ overall financial plans”.

The other instance, is with the North American Securities Administrators Association, which represents state securities regulators, LPL must pay civil penalties of $1.425 million for lapses regarding the firm’s sale of nontraded real-estate investment trusts.

, including the Financial Regulatory Authority and Securities Exchange Commission, for inadequate disclosure of risks and their high fees, which typically range from 12% to 15% at the time of sale.

LPL is the leading securities firm serving so-called independent investment representatives, who typically own their own local business and sell securities as a financial investor of a separate securities firm. In 2014, the firm spent $36.3 million to settle regulatory charges. These regulatory charges have weighed financially on LPL. They continue to resolve remaining compliance issues, resulting from a period of rapid growth.

As a result of, Alfred Talens being charged with stealing about $600,000 from Ovation where he was the CFO, along with other charges. We are looking into cases against Talens and LPL where he was employed as a stockbroker.

For more on this developing story click these links:

http://www.indystar.com/story/news/crime/2015/06/29/companys-cfo-charged-with-stealing-more-than-half-million/29478899/

http://www.ibj.com/articles/53823-former-ovation-cfo-arrested-on-multiple-theft-charges

LPL Financial LLC facing 11.7M in sanctions by FINRA for widespread supervisory failures related to complex product sales, trade surveillance, and trade confirmations delivery. Supervisory failures include the sales of non-traditional exchange-traded funds, certain variable annuity contracts, non-traded real estate investment trusts, and other complex products, as well as failing to monitor and report trades and deliver customers millions of trade confirmations. In addition, FINRA ordered LPL to pay 1.7M in restitution to specific customers who purchased non-traditional ETFs. The firm may pay additional compensation to ETF purchasers pending a review of its ETF systems and procedures. LPL consented to FINRA’s findings.

In a filing last week, The New Hampshire Bureau of Securities Regulation says they are seeking $2.4 million from LPL in buybacks and restitution for clients in 48 sales of nontraded real estate investment trusts that date back to 8 years ago. The rest of the $3.6M stems from a request for a $1 million fine and $200,000 in investigative costs. The state is claiming the sales were “unsuitable and unlawful” and that the advisors allegedly conducted unsuitable sales of real estate investments for their elderly clients.

The top stories in the investment world for 2013 ran the gamut, from non-traded REIT deals that soured to a stampede of broker/dealers closing up shop. Among the highlights in 2013:

Non-Traded Real Estate Investment Trusts (REITs). In June, William Galvin, Secretary of the Commonwealth of Massachusetts, announced settlements with Ameriprise Financial Services Inc., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates and Securities America over sales involving non-traded REITs.  As part of the settlement, the five firms agreed to make $6.1 million in restitution to investors and pay fines totaling $975,000.

LPL Financial. In February, LPL Financial LLC was order by the Massachusetts Security Division to pay restitution of more than $2 million to investors who bought shares of non-traded real estate investment trusts (REITs). In addition to the restitution order, Massachusetts regulators levied a $500,000 administrative fine against LPL.  The settlement stemmed to allegations that LPL failed to supervise brokers who sold investments in non-traded REITs. LPL also agreed to review all other non-traded REITs offered to Massachusetts residents and to make restitution to investors in the state whose transactions violated Massachusetts or company rules.

Separately, a former adviser affiliated with LPL Financial LLC was charged in May by the Securities and Exchange Commission (SEC) of defrauding investors and stealing $2 million from at least six clients. According to the civil complaint, the adviser, Blake Richards, misappropriated client money that “constituted retirement savings and/or life insurance proceeds from deceased spouses.”

In one instance, Richards allegedly tried to gain an investor’s trust by delivering pain medication during a snowstorm to a client’s husband who had been diagnosed with terminal pancreatic cancer, according to the SEC complaint.

Private Placements.  Four culprits behind a massive multimillion-dollar private-placement fraud known as Provident Royalties were given jail sentences by U.S. District Judge Marcia A. Crone. Brendan Coughlin, 46, and Henry Harrison, 47, were sentenced to 21 months in federal prison. They founded and controlled Provident along with Joseph Blimline, 35, who already had been sentenced to 12 years in prison. Paul Melbye received a sentence of 18 months in prison.

Columbia Property Trust. Non-traded REITs again made headlines when Columbia Property Trust went public in October at $22.50 a share. Before going public, however, the REIT underwent a complicated reverse 4-for-1 share split, raising its price to around $29 a share from just over $7.33. Investors who initially bought into the REIT at $10 a share essentially were offered the opportunity to cash out at a net asset value of around 45% less than the price they paid at their initial purchase.

Making matters worse is the fact that Columbia Property Trust had cut its distributions twice since 2009.

Bambi Holzer. Known as the broker to the stars, Bambi Holzer made a name for herself in the securities industry by providing financial advice to Hollywood names like Julia Louis-Dreyfus (who ultimately sued Holzer over a dispute concerning $4.4 million invested in annuities). In October 2013, the Financial Industry Regulatory Authority (FINRA) also sued Holzer for allegedly lying to one of her former firms, Wedbush Securities, about the net worth of several clients when she sold preferred shares of one of the series of fraudulent deals issued by Provident Royalties LLC in 2008.

In December 2013, Holzer was officially barred from the securities industry as part of a settlement with FINRA.

Elder Fraud. Elder financial fraud and abuse came to the forefront of the big investment stories in 2013 as several research studies reported that the elderly were losing more than $3 billion every year to financial fraud and investment scams. Many of the scams involved unsuitable investments, variable annuities and alternative financial products like non-traded REITs and private placements.

Protecting investors – and especially the elderly – was in part behind a move by the Securities and Exchange Commission (SEC) to release a special bulletin warning investors about the myriad of financial titles in existence today. Among other things, the bulletin stressed that financial professional designations and licenses are not the same and that investors should never rely solely on a title to determine whether a financial professional has the expertise they need.

UBS Puerto Rico Bonds. In November, a unit of UBS AG offered to repurchase shares of closed-end municipal bond funds invested in Puerto Rico muni securities from certain clients. During the summer, the market for Puerto Rico’s $70 billion muni debt went south after Detroit filed for bankruptcy in July. UBS Financial Services of Puerto Rico is a huge player in the muni debt market in Puerto Rico, packaging and selling $10 billion in proprietary closed-end bond funds through the end of 2012. Meanwhile, the net asset value (NAV) of the 14 UBS closed-end funds have plummeted.

Investors purchased the proprietary bond funds for $10 a share. According to a story by Investment News, the NAV for the $375 million Puerto Rico Fixed Income Fund was $3.63 at the end of October, down 85% since the end of June. The NAV for the $449 million Puerto Rico Fixed Income Fund III was $4.08 at the end of October, a decrease in value of 68% since June.

Sales involving alternative investment products sold to elderly investors has an unleashed an investigation by Massachusetts securities regulators into 15 brokerage firms. The firms include LPL Financial LLC, Morgan Stanley, Merrill Lynch, UBS Securities LLC, Fidelity Brokerage Services LLC, Charles Schwab & Co. Inc., Wells Fargo Advisors, TD Ameritrade Inc., ING Financial Partners Inc.,  Commonwealth Financial Network, MML Investor Services LLC, Investors Capital Corp., Signator Investors Inc., Meyers Associates LP, and WFG Investments Inc.

As reported yesterday, the Massachusetts securities division has sent subpoenas to the firms being targeted, asking for information on sales of the products to state residents who are 65 or over.  Among the non-traditional investments included on the list:  Oil and gas partnerships, private placements, structured products, hedge funds and tenant-in-common offerings.

Massachusetts is demanding information on any such products that have been sold over the past year, the investors who purchased them, the commissions generated, how the sales were reviewed, and all relevant compliance, training and marketing materials used for marketing and sales purposes.

The firms have until July 24 to respond.

This isn’t the first time that Massachusetts has come down hard on broker/dealers for alleged improper sales of certain alternative investments. In May, the state settled cases involving non-traded REITs with Ameriprise Financial Services; Commonwealth Financial Network; Lincoln Financial Advisors Corp., Royal Alliance Associates; and Securities America. The five firms agreed to pay a total of $6.1 million in restitution to investors, as well as fines totaling $975,000.

In February, Massachusetts reached a similar settlement with LPL Financial, which agreed to pay at least $2 million in restitution and $500,000 in fines related to sales of non-traded REIT investments.

The REIT investigations “heightened my concern that the senior marketplace is being targeted for the sales of these high-risk, esoteric products,” said Massachusetts Secretary of the Commonwealth William F. Galvin in a statement yesterday.

“While these products are not unsuitable in and of themselves, they are accidents waiting to happen when they are sold to inexperienced investors by untrained agents who push the products to score … large commissions.”

A former adviser affiliated with LPL Financial LLC has been charged by the Securities and Exchange Commission (SEC) of defrauding investors and stealing $2 million from at least six clients.

According to the civil complaint, former LPL adviser Blake Richards misappropriated client money that “constituted retirement savings and/or life insurance proceeds from deceased spouses.”

In once instance, Richards allegedly tried to gain an investor’s trust by delivering pain medication during a snowstorm to a client’s husband who had been diagnosed with terminal pancreatic cancer, according to the SEC complaint.

As reported May 23 by Investment News, the charges against Richards follow recent negative news about LPL. Earlier this week, the Financial Industry Regulatory Authority (FINRA) fined LPL $7.5 million in connection to 35 separate e-mail system failures.

One day later, Secretary of the Commonwealth of Massachusetts William Galvin announced that LPL had been ordered to pay $4.8 million in restitution to investors over improper sales of non-traded real estate investment trusts (REITS).

LPL is not named in the recent SEC complaint against Richards.

According to FINRA’s BrokerCheck Web site, Richards worked as an LPL broker from May 2009 until May 2013.

Reportedly, when investors approached Richards with funds to invest from a retirement account rollover or proceeds from a life insurance policy, he allegedly instructed them to write out checks to an entity called “Blake Richards Investments” or “BMO Investments.”

Alternative investments like non-traded REITs and private placements have levied financial havoc on many investors in recent years. Now, facing pressure from regulators, some broker/dealers are making changes to how they sell these kinds of products.

Earlier this year, VSR Financial Services, Berthel Fisher & Co. Financial Services and the Cetera Financial Group Inc. announced revisions to their policy guidelines and procedures regarding sales of certain alternative investments.

As reported May 16 by Investment News, such action could lessen the amount of alternative investments that clients can hold in their accounts at any one time.

The changes particularly impact illiquid alternative investments. Because these types of investments are not traded on a national securities exchange, investors have little or no ability to sell their shares if they need immediate access to cash.

The changes that some B-Ds are making in regards to illiquid investments are not entirely unexpected. The Financial Industry Regulatory Authority (FINRA) has heightened its scrutiny of these products in recent years, issuing several bulletins warning investors about the hidden risks they may pose.

Recent news concerning alternative investments occurred in February 2013, when broker/dealer LPL Financial LLC agreed to pay restitution of $2 million to Massachusetts investors who bought seven non-traded REITs, as well as a $500,000 administrative fine. In December, Massachusetts Commonwealth Secretary William Galvin had charged LPL with failure to supervise registered representatives who sold the non-traded REITs in an alleged violation of both state limitations and the company’s rules.

For now, some broker/dealers, including VSR, are scaling back the amount of illiquid alternative investments that clients can hold in their accounts, particularly the elderly, said Don Beary, VSR chairman, in the Investment News article. “FINRA in the past year did a ‘senior sweep,’ and we’ve had guidance that we have to be careful about what seniors buy,” he said.

Maddox Hargett & Caruso continues to investigate sales of non-traded REITs on behalf of investors. If you believe you suffered losses in a non-traded REIT investment because your broker/dealer or financial adviser misrepresented certain facts, please contact us.

LPL Financial LLC has been fined by the Financial Industry Regulatory Authority (FINRA) over supervisory system failures tied to the delivery of mutual fund prospectuses to customers. Without admitting or denying FINRA’s findings, LPL Financial agreed to pay a $400,000 fine and consent to FINRA’s findings that it failed to establish and maintain an adequate supervisory system of written procedures to ensure timely delivery of the prospectuses in question.

According to FINRA’s February 2013 report of disciplinary actions against firms and individuals, LPL was required to provide each client who purchased a mutual fund with a prospectus for that fund no later than three business days following the transaction. LPL apparently executed some 16 million mutual fund purchases or exchange transactions – several million of which required LPL to deliver a mutual fund prospectus and/or summary prospectus to the purchasing customer.

However, FINRA says that LPL did not have the proper supervisory systems in place to effectively monitor whether the prospectuses were in fact delivered to customers as required by Section 5 of the Securities Act of 1933.

Moreover, FINRA’s stated in its findings that LPL had been aware for some time that its procedures were failing to ensure the firm’s registered reps consistently obtained prospectus receipts or other evidence of delivery of the mutual fund prospectuses.

Non-traded real estate investments trusts, or REITs, have come back to bite brokers/dealers and investors alike in recent years. Most recently, LPL Financial announced that it would pay a multimillion-dollar settlement connected to allegations by Massachusetts’ securities regulator that it failed to supervise representatives who sold investments in the products.

Secretary of the Commonwealth William Galvin filed a complaint against LPL in December 2012. In the complaint, Galvin alleged that LPL was in violation of both state limitations and the company’s rules. The Securities Division also charged LPL with dishonest and unethical business practices.

The Massachusetts complaint focused on seven REITs: Inland American, Cole Credit Property Trust, II, Cole Credit Property Trust, III, Cole Credit Property 1031 Exchange, Wells REIT II, W.P. Carey Corporate Property Associates 17 and Dividend Capital Total Realty.

As part of the Massachusetts settlement, LPL will pay restitution of $2 million to Massachusetts investors who bought the seven non-traded REITs in question, as well as a $500,000 administrative fine.

Maddox Hargett & Caruso continues to investigate sales of non-traded REITs on behalf of investors. If you believe you suffered losses in a non-traded REIT investment because your broker/dealer or financial adviser misrepresented certain facts, please contact us.