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LPL Financial Settles Probes over Alleged Sales Violations

Legal hassles and probes continue to haunt Boston, MA-based LPL Financial Holdings Inc.LPLA . This broker-deal firm will pay over $3.4 million to settle the allegations of sales violations in two separate investigations.

Of the total amount, LPL Financial has agreed to pay $2 million to settle accusations by the Massachusetts Attorney General's ("AG") Office and the Delaware Justice Department. The remaining amount, $1.425 million, will be paid as civil penalties to the North American Securities Administrators Association ("NASAA"). The civil fine will be then distributed among 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

The NASSA is an international organization devoted to investor protection. Its members comprise of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

Allegations & Terms of Settlement

The Massachusetts AG Office and Delaware Justice Department had accused LPL Financial of lack of oversight while selling leveraged exchange-traded funds ("ETFs") that were not suitable for the buyers. The probe concluded that the company failed to supervise its financial advisors properly.

A company spokesperson said, "LPL will make enhancements to its oversight of leveraged ETFs including implementation of a renewed training and monitoring program to ensure the proper and effective use of leveraged ETFs as part of investors' overall financial plans."

The other matter pertained to LPL Financial's alleged lapses while selling non-traded real-estate investment trusts ("REITs") and was being investigated by the NASAA. The company was accused of failing to enforce written policies related to the sale of non-traded REITs.

While neither admitting nor denying any wrong doings, LPL Financial has agreed to compensate for losses caused by the sale of non-traded REITs from Jan 1, 2008 through Dec 31, 2013. Further, the company agreed to hire an independent third party firm that will review and verify sales transactions for violations. Following the completion of the review, the company will make offers to remediate investors.

Are Legal Hassles Over?

Over the last couple of years, LPL Financial has been facing heightened regulatory scrutiny regarding its sale of complex investment products. In 2014, the company paid $36.3 million (in aggregate) to settle various regulatory charges. Further, in May this year, the company agreed to pay the Financial Industry Regulatory Authority $11.7 million for its supervisory breakdown.

Notably, earlier this month, LPL Financial announced splitting of its Regulatory Affairs group into two - Regulatory Inquiries and Investigations group and Regulatory Counseling group. This indicates increased importance of compliance in the company.

While LPL Financial has settled with almost all the states over sale of non-traded REITs, it still faces a separate action from New Hampshire securities regulators. We believe such enforcement actions will weigh on the company's financials in the near term.

Currently, LPL Financial holds a Zacks Rank #4 (Sell). Some better-ranked investment brokers are BGC Partners, Inc. BGCP , Cowen Group, Inc. COWN and JMP Group LLC JMP . All these stocks carry a Zacks Rank #2 (Buy).

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BGC PARTNRS INC (BGCP): Free Stock Analysis Report

COWEN GROUP INC (COWN): Free Stock Analysis Report

JMP GROUP INC (JMP): Free Stock Analysis Report

LPL FINL HLDGS (LPLA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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