New York Securities Lawyer Blog
LPL Financial LLC (“LPL”) has become the nation’s fourth largest brokerage firm, with 13,3000 brokers, 6,500 offices nationwide, and 4.3 million customers. With this growth, however, has come increased censure and scrutiny from federal and state regulators. Specifically, LPL has been penalized by securities industry regulators for selling complex investments to unsophisticated investors, for engaging in speculative trading practices, and for theft of client assets. As a result of these sales practice abuses, LPL has been the subject of actions brought by state securities regulators in Illinois, Massachusetts, Montana, Oregon and Pennsylvania. Indeed, Lynne Egan, Deputy Securities Commissioner in Montana, stated, “LPL is on our radar screen more than any other firm.” Further, according to a review of data compiled by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the brokers of LPL have been subject to more disciplinary and enforcement actions and investigations than brokers at LPL’s largest competitors. For example, in 2009, the state securities regulators in Montana sentenced one of LPL’s brokers to 10 years in prison for operating a Ponzi scheme. Furthermore, in February 2013, the Massachusetts Secretary of the Commonwealth, William Galvin reached a $2.5 million settlement with LPL regarding the brokerage firm selling non-traded real estate investment trusts (“REITS”) to unsophisticated LPL customers. It seems that regulators believe that the increased regulatory scrutiny on LPL and its brokers is due to their “Independent Contractor” model of business. In LPL’s “Independent Contractor” model its brokers pay for their own overhead, including office space and staff, which allows for the brokerage firm to allocate upwards of 80% of commissions directly to the brokers. Some in the industry believe the unusually high commissions provided by LPL to its brokers leaves the broker-dealer with a smaller budget for compliance, and attracts brokers who are interested in breaking the rules.
Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of sales practice abuses. Please contact our team of attorneys for a consultation at (212) 696-1999.