TRENTON – Attorney General Gurbir S. Grewal and the New Jersey Bureau of Securities within the Division of Consumer Affairs announced today that the brokerage firm LPL Financial agreed to pay the Bureau a $499,000 penalty to resolve violations that LPL offered and sold unregistered securities, and failed to have in place reasonable policies and procedures to prevent those sales.
The settlement results from an investigation regarding the failure by LPL to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, non-exempt securities to its customers between October 1, 2006 and May 1, 2018. As part of the settlement, LPL has agreed to offer repurchases on unregistered securities it sold in New Jersey during that time.
“When investors entrust their hard earned money to registered investment firms they expect, demand and deserve compliance with the law,” said Attorney General Grewal. “This settlement should send a strong message to investment firms that they need to have solid policies and procedures in place to ensure that compliance.”
The North American Securities Administrators Association (NASAA), of which the Bureau is a member, established a task force to investigate LPL’s failure to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, non-exempt securities by LPL to its customers. Headquartered in Massachusetts, LPL employs 15,000 agents nationwide.
While the multi-state investigation found no evidence of willful, reckless or fraudulent conduct by LPL, the NASAA task force did find that LPL failed to maintain adequate systems to reasonably supervise agents, staff and employees to prevent the sale of unregistered, non-exempt securities.
State investigators also determined that LPL failed to maintain books and records necessary to ensure full and proper compliance with state securities registration requirements.
In addition, investigators found that LPL failed to conduct necessary due diligence regarding the retention, use and subsequent cancelation of certain third-party services critical for compliance with state securities registration requirements.
“We are committed to ensuring integrity within the financial markets that serve New Jersey investors, and to holding brokerage firms and other financial institutions accountable when they fail to meet their obligations,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “LPL failed its customers when it failed to comply with the securities laws.”
Under terms of the settlement, LPL has agreed to enhance its processes and supervisory systems to prevent future sales of unregistered securities.
The firm will also extend repurchase offers on any solicited orders of equity or fixed income securities sales in New Jersey between October 1, 2006 and May 1, 2018 that are determined to have been unregistered and non-exempt.
Under the settlement, repurchase offers will be made at the original purchase price plus three percent interest per year. LPL is expected to make repurchase offers to eligible consumers by or before November 2019.
“Broker-dealers have an obligation to ensure that the securities they are recommending to their customers are properly registered or exempt from registration,” said Christopher W. Gerold, Chief of the Bureau of Securities. “When broker-dealers breach that duty, they will be held responsible.”
The Bureau’s action was handled by Deputy Chief Amy Kopleton and Director of Special Investigations Peter Cole, of the Bureau of Securities within the Division of Consumer Affairs.
The Bureau of Securities is responsible for protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.”
Investors can obtain information, including the registration status and disciplinary history of any professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378), or from outside New Jersey at (973) 504-3600. Investors can also obtain information by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New-Jersey-based financial professionals or investments.