LPL Financial is one of the largest financial services companies in the United States. The broker-dealer reports that it has more than $500 billion in assets under its management and has around 14,000 financial advisors. Based in Boston, Massachusetts, this brokerage firm is licensed to operate in all 50 states and in several U.S. territories.
LPL Financial: Notable Cases Involving Broker Negligence or Misconduct
According to BrokerCheck, LPL Financial has accumulated 127 FINRA disclosures. A “disclosure” refers to customer disputes, disciplinary events and financial matters on the brokerage firm’s record.
To access information regarding the company, please reference the firm’s Central Registration Depository (CRD) number: 6413. Here, our securities fraud attorneys discuss three of the most notable recent cases that have been brought against LPL Financial.
Improper Transactions Involving Non-Traded Real Estate Investment Trusts (REITs)
An REIT is a complex financial product, by purchasing one, investors can get access to the real estate market. While the product does offer some benefits for certain investors, it is also risky. As such, it is simply not appropriate for many retail investors. Nonetheless, LPL Financial sold REITs to thousands of different retails investors between 2008 and 2013.
In far too many cases, LPL brokers were recommending REITs to investors who had no business making such a trade. According to the North American Securities Administrators Association (NASAA), in making these sales, LPL Financial violated:
- Overall prospectus standards;
- Suitability requirements;
- State concentration limits; and
- Their own internal guidelines.
In relation to the misconduct, LPL Financial agreed to pay $1.43 million in fines, disgorgement and financial restitution. Customers across many different states were affected by LPL Financial’s improper sale of non-traded REITs.
This required the firm to reach settlement with many different state authorities. For example, in 2016, the brokerage firm reached a final settlement with the Florida Office of Financial Regulation, the Colorado Division of Securities, the California Department of Business Oversight and several other state regulators.
The Inappropriate Use of Leveraged and Inverse ETFs
On September 15th, 2015, LPL Financial reached a settlement agreement with the Commonwealth of Massachusetts; the company agreed to pay $1.8 million in fines and restitution. This agreement was reached after accusations that the brokerage firm inappropriately sold unsuitable exchange traded funds (ETFs) to several hundred Massachusetts investors.
An ETF is a security that trades like a common stock, but that tracks a specific index or basket of goods. ETFs are not necessarily risky. The risk level depends on the underlying product. For example, you could hold an ETF that tracks high grade corporate bonds, and you could hold that ETF as a small part of an all around well diversified portfolio.
In that case, such an investment would not be particularly risky. However, in this case, LPL Financial was selling investors speculative, and highly leveraged ETFs.
Indeed, LPL brokers were instructing their clients (many of whom had conservative-leaning investment objectives) to buy Proshares Ultra S&P 500. This an extremely speculative ETF. Worse yet, brokers were not even trading this ETF correctly. In many cases, LPL Financial customers held this fund for more than one year.
In reality, this fund should never be held for more than a single day. In its Summary Prospectus, Proshares warns investors that their Ultra S&P 500 ETF:
- Seeks investment results for only one day;
- Will likely lose money if held for more than one day, even if the index rises;
- Is far riskier than other benchmarked funds; and
- Is not suitable for most investors, but only for those who fully understand and accept the high risks of daily leveraged trading.
On December 1st, 2016, Massachusetts regulators brought an investment fraud claim against LPL broker Roger S. Zullo (CRD#: 1882087). Mr. Zullo has since ended his employment with the company. Additionally, on January 27th, 2017, LPL Financial agreed to pay $3.7 million to settle claims pertaining to Mr. Zullo.
According to the complaint from the Massachusetts Securities Division, LPL Financial broker Roger S. Zullo actively fabricated suitability profiles for a number of different investors. The reason he did this was so that he could sell them large amounts of unsuitable, high commission financial products. Both he and LPL Financial made considerable profits from these sales.
In all, Mr. Zullo raked in more than $1.8 million of personal commissions selling variable annuities. The vast majority of his commissions (nearly 99 percent) were related to the sale of one single annuity product: Polaris Platinum III (B Shares). While he was bringing in considerable fees for himself, many of his clients had to pay unnecessary (and unwanted) surrender charges just to buy these annuities. Worse yet, these annuities were never in their best financial interests.
Due to the fact that Polaris Platinum III annuities are only appropriate for a very narrow subset of investors, those who are high net worth and young, Mr. Zullo often had to make misrepresentations on client paperwork to complete these sales. For example, on one woman’s financial documents, Roger S. Zullo decreased her age by twelve years and then inflated her overall net worth by a multiple of ten.
When pushed into unsuitable investments, investors can suffer tremendous losses. LPL Financial was extremely slow to take action to correct this issue. Additionally, the brokerage firm did not have proper oversight procedures in place to protect its clients.
Brokerage firms have a legal duty in place to ensure that their individual brokers are acting in the best interests of their clients. If they fail to conduct adequate supervision, the brokerage firm can be held financially responsible for their clients’ damages.
Contact Our Office Today
If you lost money because of broker negligence or misconduct, our investor losses attorneys can help. To set up a free review of your claim, please do not hesitate to call us today at 844-689-5754. At the Sonn Law Group, we take all claims on a contingency fee basis. We will only collect our legal fee if we help you secure compensation for your losses.