Industry’s Largest Firm, LPL Financial, Hit With Huge Fine

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Brokerdealer.com blog update profiles Finra hitting LPL Financial, the industry’s largest independent brokerdealer firm, with a huge fine. The firm reportedly failed to properly supervise sales of complex products, such as ETFs, variable annuities and non-traded REITs. In addition to paying a fine to Finra, LPL Financial will also have to pay a substantial amount of restitution to certain customers who purchased non-traditional ETFs, and may pay additional compensation to ETF purchasers following an additional review of its ETF systems and procedures. This update is courtesy of InvestmentNews’ article, “LPL Financial fined $11.7 million for ‘widespread supervisory failures‘”, with an excerpt from the article below.

The Financial Industry Regulatory Authority Inc. ordered LPL Financial to pay $11.7 million in fines and restitution for what it deemed “widespread supervisory failures” related to sales of complex products, according to a settlement letter released Wednesday.

From 2007 to as recently as April, LPL failed to properly supervise sales of certain investments, including certain exchange-traded funds, variable annuities and nontraded real estate investment trusts, and also failed to properly deliver more than 14 million trade confirmations to customers, according to Finra.

LPL, for example, did not have a system in place to monitor the length of time customers held securities in their accounts or to enforce limits on concentrations of those complex products in customer accounts, Finra said.

The systems that LPL had in place to review trading activity in customer accounts were plagued by “multiple deficiencies,” Finra said. The firm failed to generate proper anti-money laundering alerts, for instance, and did not deliver trade confirmations in 67,000 customer accounts, according to the settlement letter.

To continue reading about the industry’s largest independent broker-dealer firm’s huge fines from Finra, click here.

Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

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Brokerdealer.com blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.

The SEC

There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.

FINRA

An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.

Oppenheimer’s Penny Stocks Results in $20M Fine 

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Oppenheimer fined for failure to report suspicious penny stocks

Brokerdealer.com blog update is courtesy of Mason Braswell from InvestmentNews

Brokerdealer firm, Oppenheimer & Co. Inc., has reach a deal with the SEC and FinCEN resulting in the firm paying $20 million, pleading guilty, and hiring an independent consultant over improper penny stock trades. The SEC and FinCEN said,  firm failed to prevent suspicious penny stock trading and pump-and-dump schemes.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

The firm disclosed in quarterly filings earlier this year.

that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.

 

Countdown of Biggest Regulatory Brokerdealer Fines of 2014

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Bgavelmoneymi-resize-600x338rokerdealer.com blog update courtesy of Investment News.

Brokerdealer.com works to provide people with a full and complete database of brokerdealers best suited for their needs. Unfortunately, some brokerdealers do not always follow the rules and this year many received hefty fines. Investment News ranked the top 10 of the biggest fines handed down to brokerdealer firms this year, excluding penalties given to indivuals at the firms.

10.  WFG hit for supervisory failures

Firm Fined: WFG Investments

Fine Amount: $700,000

Reason for Fine: Failing to commit the time, attention and resources to a range of critical obligations in its supervision of registered reps.

9. Berthel Fisher forced to pay over compliance

Firm Fined: Berthel Fisher & Co. Financial Services Inc.

Fine Amount: $775,000

Reason for Fine: Failure to supervise the sale of alternative investments such as non-traded REITs and leveraged and inverse ETFs.

8. LPL’s alternatives sales prove costly

Firm Fined: LPL Financial

Fine Amount: $950,000

Reason for Fine: Supervisory deficiencies related to sales of nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.

7. Stifel’s million-dollar problem

 Firm Fined: Stifel Nicolaus & Co. and its subsidiary, Century Securities Inc.

Fine Amount: $1 million

Reason for Fine: Selling leveraged and inverse ETFs to customers for whom the investments were unsuitable, as well as the firms not having proper training or written procedures in place to make sure their advisers had an “adequate and reasonable basis” for recommending the products.

6. Retired brokers cost Morgan Stanley

Firm Fined: Morgan Stanley

Fine Amount: $1 million

Reason for Fine: Paying approximately $100 million in commissions to approximately 780 unregistered, retired brokers without properly ensuring they were no longer soliciting or advising.

To see the full list of fines and see which firm received the largest fine of 2014, click here

 

 

Finra Boots Out Broker-Dealer, Bars CEO for Ponzi Scheme Targeting Pro Athletes

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BrokerDealer.com blog update courtesy of InvestmentNews.com (subscription required, free registration)

Firm, chief executive ordered to pay $13.7 million in restitution to 59 investors

Finra has barred a broker-dealer and its founder for allegedly defrauding a number of current and former NFL and NBA players out of nearly $14 million as part of a Ponzi scheme.

The Financial Industry Regulatory Authority Inc. expelled Success Trade Securities, an online brokerage, and its founder, Fuad Ahmed, for raising money for the company parent company, Success Trade Inc., through purportedly fake promissory notes.

The notes typically had a 12.5% interest rate and had a term of 36 months, according to Finra. Because of the financial condition of the parent company, there was little chance they would be paid back, Finra said. Instead, the funds went to pay Mr. Ahmed’s personal expenses, including the lease on a Range Rover and balances on personal credit cards and clothes, Finra alleged.

A report from Yahoo Sports last year noted that clients who bought Success Trades’ notes included Detroit Pistons guard Brandon Knight, Cleveland Browns cornerback Joe Haden, San Francisco 49ers tight end Vernon Davis, former Washington Redskins running back Clinton Portis and Chicago Bears defensive end Adewale Ogunleye.

When the notes became due, Mr. Ahmed attempted to persuade the investors to extend the terms, in some cases promising that the company would be listing on a European stock exchange soon. Continue reading →