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LPL Financial Reaches $50 Million Settlement With SEC for Off-Channel Communications

LPL Financial says it has reached a settlement in principle with the U.S. Securities and Exchange Commission over its recordkeeping of off-channel communications and expects to pay a penalty of $50 million by June 30.

The independent broker-dealer agreed to the settlement with the SEC on March 22, though the agreement “remains subject to the negotiation of definitive documentation and approval by the SEC,” LPL revealed in its first-quarter earnings report.

In October 2022, LPL received a request for information from the SEC in connection with an investigation of the company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms not approved by the company.

The staff of the SEC proposed a potential settlement with LPL to resolve its civil investigation. Under the SEC’s proposed resolution, the company would pay a $50 million civil monetary penalty. As a result of the foregoing, the company recorded $40 million in other expense in the consolidated statements of income for the year ended Dec. 31, 2023, to reflect the amount of the penalty that is not covered by the company’s captive insurance subsidiary. LPL has not yet reached a settlement in principle with the SEC, and any settlement agreement remains subject to the negotiation of the civil monetary penalty and definitive documentation.

Other firms have recently experienced similar regulatory actions. In February 2024, the SEC fined 16 companies $81 million for off-channel communications. This included five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers who admitted to widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.

In other LPL news, due to “an organizational realignment of certain business functions” according to the filing, Kabir Sethi departed the company on March 31, 2024, after two years there. He was managing director and chief product officer.

LPL Financial Holdings Inc. serves nearly 23,000 financial advisers, including advisers at approximately 1,100 enterprises and 570 registered investment adviser firms nationwide. Headquartered in San Diego, its total advisory and brokerage assets totaled more than $1.44 trillion as of March 31, 2024.

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