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Jackson, Miss.—Mississippi will soon receive $499,000 in civil penalties from LPL Financial LLC, a national wealth management group which had been selling unregistered, non-exempt securities since October 2006. A consent order made the settlement final this week.
The penalties are part of a $26 million multi-state settlement with LPL, which stemmed from an investigation regarding the failure to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, non-exempt securities by the company to its customers.
In July 2017, the North American Securities Administrators Association (NASAA) established a task force with Massachusetts and Alabama as lead states 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. Mississippi is a member of NASAA. NASAA President Joseph P. Borg said LPL fully cooperated with the NASAA task force.
“We are grateful for the hard work of our partners in neighboring and other states in bringing this case to a conclusion,” Secretary of State Delbert Hosemann said. “Firms must be held accountable when they fail to follow state and federal laws designed to protect investors.”
The investigation in this case focused on LPL’s retention, use, and subsequent cancellation of certain third-party services integral to compliance with state securities registration requirements. Investigators also uncovered deficiencies within LPL’s compliance structure related to controls, monitoring and reporting tools, and escalation protocol regarding response to significant compliance issues.
Regulators concluded LPL offered and sold unregistered, non-exempt securities and failed to reasonably supervise the flow of information to ensure full and proper compliance with state securities registration requirements.
While no evidence was found of willful, reckless, or fraudulent conduct by LPL, investigators did find that the firm failed to maintain adequate systems to reasonably supervise agents, staff, and employees. State investigators also determined that LPL failed to maintain books and records necessary to ensure full compliance with state securities registration requirements, and failed to conduct due diligence regarding the retention, use, and subsequent cancelation of certain third-party services.
LPL also acted negligently in canceling certain third-party services; failed to supervise agents, staff, and employees in the performance of duties related to systems operation, process, and checks and balances; and failed to invest sufficient and appropriate resources in personnel, expertise, systems, and operations to adequately comply with state securities registration statutes, rules, and regulations.
In addition to civil penalties, the settlement calls for LPL to offer to repurchase from investors securities held in LPL accounts determined to have been unregistered, non-exempt equity, or fixed-income securities sold since October 1, 2006. Each offer must include 3 percent simple interest per year.
LPL also agreed to a review of the integration of new securities products to assess the firm’s ability to comply with state securities registration requirements applying to the offer and sale of these new products. The firm also agreed to a similar review of its vendor service protocols.
For more information about the settlement or other securities matters, visit www.sos.ms.gov/securities or call the Mississippi Secretary of State’s Securities
