LPL Financial Settles with State Regulators over Improper Non-Traded REIT Sales
State securities regulators have reached a settlement with LPL Financial following an investigation over allegations that the nation’s largest broker-dealer failed to enforce procedures relating to the sale of non-traded REITs and failed to implement a supervisory system that was reasonably designed to achieve compliance with state law.
The North American Securities Administrators Association (NASAA) announced on Wednesday that under the terms of the settlement, Boston-based LPL agreed to remediate losses for all non-traded REITs sold by the firm from January 1, 2008 through December 31, 2013 “in violation of prospectus standards, state concentration limits or LPL’s own guidelines.”
LPL agreed to retain an independent third party to review and verify its executed sales transactions for violations during this period, believed to be more than 2,000. LPL will make offers of remediation upon completion of the third-party review.
The settlement is the result of a multi-state investigation of the firm led by the Nevada Secretary of State Securities Division.
“The task force’s investigation is representative of the aggressive and coordinated enforcement actions of state securities regulators and demonstrates the important investor protection role states serve in safeguarding investors nationwide,” said William Beatty, NASAA president and Washington securities director.
In addition to remediating investor losses, LPL also agreed to pay civil penalties of $1.43 million to be distributed among 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The firm reached a separate settlement with Massachusetts securities regulators in 2013 and faces a separate action by New Hampshire securities regulators.
Beatty noted that during the negotiations regarding a penalty amount, the NASAA Non-Traded REIT Task Force took into consideration LPL’s attempts to identify sales transaction violations, its efforts in contacting certain states to self-report violations, its efforts to improve its supervisory system, and its cooperation with the task force.
The task force includes securities regulators from California, Colorado, Maine, Nevada, Ohio, South Carolina, Texas and Virginia.
In other LPL news, Marcato Capital Management acquired a 6.3 percent stake in LPL Financial Holdings Inc. (NASDAQ:LPLA), the parent company of LPL Financial, in the “belief that the shares are undervalued and are an attractive investment,’ according to a filing with the Securities and Exchange Commission on Tuesday. Marcato’s share acquisition was made through various funds it controls.
According to the filing, Mercato may “enter into discussions with directors and officers, other shareholders or third parties…to review options for enhancing shareholder value through various strategic alternatives or operational or management initiatives including, but not limited to, improving capital structure and/or capital allocation, mergers and acquisitions, asset allocation, and general corporate strategies.”
While the rest of the S&P is down, LPL’s stock continues to climb following the announcement, reaching $41.57 per share at the time of publication. This is a nearly 5.7 percent increase from the Tuesday low of $39.33.
NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.
LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc. provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,100 independent financial advisors and more than 700 banks and credit unions. LPL Financial is the nation’s largest independent broker-dealer, an RIA custodian with $112 billion in retail assets served, and acts as an independent consultant to more than 40,000 retirement plans with an estimated $120 billion in retirement plan assets served, as of June 30, 2015.
