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LPL Financial Fined $10 Million For Failure To Supervise Brokers

The Financial Industry Regulatory Authority (FINRA) recently fined LPL Financial $10 million fine and ordered it to pay $1.7 million in restitution to investors who lost money with LPL brokers.  The charges levied by FINRA alleged widespread supervisory failures involving securities such as nontraditional exchange-traded funds, variable annuities and non-traded real estate investment trusts (or REITs).

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LPL’s failure to supervise sales of nontraditional ETFs continued into 2015, according to FINRA.   FINRA also alleged that LPL failed to have adequate supervisory systems and guidelines for sales of nontraded REITs from January 2007 to August 2014. LPL consented to the fine without admitting or denying the charges.


This was not LPL’s first regulatory issue concerning lack of supervision concerning high-commission investments such as non-traded REITs.  In March 2014, FINRA fined LPL $950,000 for supervisory deficiencies related to sales of a wide range of alternative investment products. These include nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.

Real estate investment trusts (REITs) are highly risky products that pose a significant risk that the investor will lose some or all of his initial investment.  REITs are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to risk losing a significant portion of their investment.

Brokers and financial advisors are required  to make investment recommendations that are consistent with their clients’ risk tolerance, net worth, investment objectives and experience in the market.  However, due to the high sales commissions brokers typically earn for selling REITs – as high as 15%- brokers can be tempted to make “one size fits all” recommendations to investors in order to reap commissions. Brokerage firms such as LPL are required by FINRA rules to supervise brokers and investment advisors- even those who work in independent branch offices- to ensure that the brokers make only suitable recommendations.

If you have suffered significant losses as a result of unsuitable recommedations of REITs or other non-conventional investments by a stockbroker or financial advisor, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investor rights attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or for a no-cost, confidential consultation.

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