LPL Financial Fined $3 Million: E-Signature Allegations

LPL Financial agreed last year to pay a $3 million fine imposed by the Financial Industry Regulatory Authority. According to a Letter of Acceptance, Waiver, and Consent (No. 2020067897601[1]) released in July 2023, FINRA alleged that the form failed to establish and maintain supervisory procedures governing customer fund transfers to third parties. It also alleged that the firm failed to reasonably address red flags of conversion of customer funds. Finally, the AWC Letter alleged that between 2018 and 2020, two firm representatives converted roughly $2.4 million from 13 customers via third party transfers.

Sanction Alleges Supervisory Failures

As the sanction describes, FINRA rules require member firms to establish and maintain procedures to supervise the activities of their representatives. FINRA Rule 3110 requires firms to look into red flags of potential misconduct, and to act upon the results of these investigations. When firms violate Rule 3110, they also violate FINRA Rule 2010, under which a firm must “observe high standards of commercial honor and just and equitable principles of trade in the conduct of its business.” 

Broker Allegedly Defrauded Seniors

Between May 2018 and May 2019, according to FINRA, a broker registered with the firm “converted funds from nine of his customers,” including five senior citizens. He allegedly accomplished this by inducing the customers to write checks from their firm accounts payable to an entity controlled by the representative.

However, FINRA alleged, the broker “did not disclose that he controlled” the entity, representing that the transfers were for investment purposes. Contrary to his representations, the firm allegedly used the funds for personal and business expenses. “In total,” FINRA found, he “caused his customers to issue 36 third-party checks totaling approximately $550,000 from their LPL accounts payable to the entity he controlled.”

The sanction goes on to describe a second representative who engaged in similar conduct. In this case, the representative converted funds from four customers, including three senior citizens. He induced the customers to wire funds from their firm accounts to an outside business under his control, representing that the transfers were for investment purposes.

However, FINRA found, he “misappropriated approximately $675,000 of the customers’ funds for his personal use.” He also allegedly electronically forged a senior customer’s signature on a wire transfer form. As a result, he allegedly caused the transfer of roughly $1.2 million from the customer’s account “to a law firm in connection with [his] own purchase of real estate.”

FINRA Issues Fine, Censure

According to FINRA, LPL Financial’s supervisory system was not reasonably designed to prevent the above-described conduct. Specifically, FINRA found that LPL lacked adequate tools “to review transmittals of customer funds to third parties by wire or check.” It also lacked a system “to review transmittals from unrelated customer accounts made payable to the same third party,” according to FINRA. The sanction alleges further that the firm failed to respond to red flags of conversion, including instances when compliance personnel “flagged seven wire transfers that were sent by [the second representative to his outside business.” Finally, FINRA found that the firm lacked a reasonable system to supervise electronic signatures. 

The AWC Letter notes that in the instance when the representative electronically forged a customer’s signature on a wire transfer form, the firm “did not review the certificate of completion for that wire transfer, which indicated that the customer allegedly signed the document in person, even though she lived approximately 1,000 miles away.” As a result of these findings, FINRA censured the firm, fined it $3 million, and required it to undertake a review to identify and redress improper fund transfers. 

As an article[2] by AdvisorHub reported, the firm did not admit or deny to FINRA’s findings. In a statement to the publication, a spokesperson for the firm addressed the sanction. “LPL takes its compliance obligations seriously,” the spokesperson said, “and has made investments to address the underlying issues.”

LPL Financial Complaints? Contact MDF Law

MDF Law’s seasoned attorneys have secured tens of millions in recoveries for the victims of investment fraud. Our team takes cases on a contingency basis, meaning we only receive a fee when our clients win. We provide free consultations to investors nationwide. If you lost money working with LPL Financial, call 800-767-8040 to speak with an attorney today.