Examining LPL Financial’s Regulatory History and Infractions

A Deeper Look into LPL Financial’s Regulatory History

Being an investor can seem like walking a tightrope at times, juggling risk and reward in pursuit of significant financial returns. However, this juggling act becomes even more precarious when the party you have entrusted your hard-earned money with is involved in accusations of regulatory violations.

As Mark Twain once said, “The lack of money is the root of all evil.” While his statement is humorous, the seriousness of the issue at hand cannot be overstated. As an investor, particularly one venturing into LPL Financial (CRD#:6413), understanding the firm’s regulatory history is crucial.

Unraveling LPL Financial’s Regulatory Allegations and Their Impact on Investors

LPL Financial LLC, one of the United States’ largest independent broker-dealers, reportedly has a whopping 250 disclosure events on its broker record. These events encompass 189 regulatory proceedings and 57 arbitrations, amongst others. Allegations leading to arbitration awards against a broker or firm cast a dark shadow over their conduct and can indicate a history of unresolved customer complaints.

Record-Keeping Allegations

For example, in recent reports, LPL Financial was said to have reached a settlement with the SEC concerning accusations of record-keeping failures of off-channel communications. It expects to pay the SEC a $50 million penalty by June 30 which has already caused a $40 million hit to its bottom line in 2023.

Investor Claims

Between June and July 2019, several FINRA Claims were reportedly filed against LPL Financial representing investors alleging unsuitable investments, amongst other things. In such cases, investors contend that their individual risk tolerance and investment objectives were not appropriately considered when investing their money.

A financial fact to keep in mind, according to a 2016 report by the Consumer Financial Protection Bureau (CFPB), “investment fraud ranks third highest in terms of average amount lost by consumers.” This stresses the seriousness of regulatory allegations like those faced by LPL Financial, and their snowball effect on investors.

A Closer Look at Financial Advisors’ Background and Past Complaints

The integrity of a firm’s financial advisors is a critical element that potential investors should thoroughly consider. Several representatives from LPL Financial have faced allegations of misconduct and fraudulent activities.

Andrew Komarow’s ‘Free-Riding’

For example, in December 2023, the SEC barred Andrew Komarow, a former LPL Financial broker, over allegations of engaging in a ‘free-riding’ trading scheme. This led to over $3 million in losses for his brokerage, establishing the extent to which a broker’s misconduct can affect a firm’s bottom line and tarnish investor trust.

Mario E. Rivero’s Fraud

In February 2023, another LPL Financial advisor, Mario E. Rivero, pleaded guilty in federal court to one count of wire fraud and securities fraud. He faces a 20-year prison sentence for allegedly defrauding five clients out of $626,000.

John Terzis’s Unauthorized Borrowing

Furthermore, in December 2022, LPL Financial advisor John Terzis reportedly borrowed $200,000 from one of his senior clients with health issues. Terzis was reportedly registered with LPL Financial from 2008 until March 11, 2022.

For potential and current investors, FINRA Rule 3110 is essential to know. It requires brokerage firms to develop and implement a written supervisory procedure to oversee the business activities of each registered person.

The Consequences and Lessons Learned

The allegations against LPL Financial and its financial advisors illuminate the devastating effects non-compliance can have on a broker-dealer’s reputation and investor trust, especially when illicit activities are involved.

Financial firms must prioritize regulatory compliance and have robust systems in place to ensure record-keeping integrity, transaction transparency, and client-centered investment practices.

Investors, too, can learn a valuable lesson: having the foresight to research financial advisors and ensure they work with reputable firms is of utmost importance. After all, in a world where financial deception is, unfortunately, all too common, investor vigilance is the best defense.

Potential and current investors must also understand the relevant FINRA rules and regulations to protect their financial health. Diving deep into the regulatory history of a broker-dealer not only protects an individual’s investment but also equips them with the knowledge and authority to seek remediation if things go south.

The key takeaway remains: when it comes to selecting a brokerage firm or financial advisor, conducting due diligence is non-negotiable.

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