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LPL Financial LLC Settles E-Mail Surveillance Matter With FINRA By Paying The Largest FINRA Fine For E-Mail Surveillance Cases In The Amount of $7.5 Million

Lax & Neville LLP is investigating claims on behalf of investors regarding possible misconduct in connection with LPL Financial LLC’s (“LPL”) sale and marketing of various investments. As stated in a prior blog, LPL, one of the largest independent-contractor broker-dealers, self-reported to the Financial Industry Regulatory Authority, Inc. (“FINRA”) that it experienced problems with broker e-mail surveillance, and as a result was going to reach a settlement for its violations with FINRA during the summer of 2013. Now, FINRA has reported that LPL has agreed to settle with FINRA by paying a $7.5 million fine for 35 separate e-mail system failures. A FINRA spokesperson stated, “[t]his is the largest fine FINRA has imposed for an e-mail case.” According to FINRA, between 2007 and 2013, LPL’s e-mail review and retention system failed at least 35 times, which caused LPL to be unable to meet its obligations to capture e-mails, supervise its registered representatives and respond to regulators’ requests. Further, it has been reported that LPL’s inadequate e-mail surveillance system resulted in 80 million corrupt e-mails and the failure to review 28 million messages sent to LPL brokers working as independent contractors. FINRA made the following statement, “[a]s LPL rapidly grew its business, the firm failed to devote sufficient resources to update its e-mail system, which became increasingly complex and unwieldy for LPL to manage and monitor effectively. The Firm was well-aware of its e-mail systems’ failures and the overwhelming complexity of its systems.” LPL made the following statement to the media: “[i]n September 2011, we reported to FINRA issues relating to the surveillance and retention of e-mails. We cooperated fully with FIRNA throughout its ensuing investigation. We very much regret our lapse of oversight. We have undertaken a comprehensive redesign of our e-mail systems and associated compliance policies and procedures, and have engaged independent experts to assess and validate our approach.”

Other regulatory matters have recently plagued LPL. Earlier this year, the Massachusetts Securities Division found that LPL violated securities regulations when it sold nontraded real estate investment trusts (“REITS”) to customers, in violation of the state limitations and the company’s own rules and procedures and fined LPL $500,000 and ordered LPL to set aside $2 million for potential restitution to investors who purchased the nontraded REITs. Also, at the end of 2012, FINRA fined LPL for failing to maintain supervisory systems and procedures to ensure delivery of mutual fund prospectuses to investors.

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.