The New Jersey Bureau of Securities has levied a large fine against LPL Financial LLC, one of the largest independent broker-dealer in the United States. The $950,000 fine also requires LPL to donate $25,000 to the New Jersey state investor education fund. The Bureau of Securities imposed these judgments against LPL for allegedly conducting unsuitable sales of non-traded real estate investment trusts and business development companies.
The Bureau on its settlement with LPL states; “This substantial settlement with LPL Financial sends a message that the securities industry cannot sell unsuitable investments to clients who are unlikely to be able to bear the financial risks,” said Attorney General Christopher S. Porrino. “The standards governing sales of alternative investments are in place to protect investors, and the Bureau will take action when these standards are ignored.”
Generally, Federal statues regulate suitability standards and limit the sale of certain alternative investments based on a complex calculation that reflects a client’s liquid net worth, or a mixture of a client’s income and net worth and other factors. New Jersey also limits the maximum total ratio of alternative investments held by an individual client’s portfolio to not exceed 10 percent of an investor’s complete portfolio.
LPL says it upholds its own internal guidelines on alternative investments, such that a client under the age of 70 with a liquid net worth below $999,999 and an investment goal of “growth” would be allowable a maximum 20 percent concentration in alternative investments.
New Jersey regulators also alleged that LPL not only failed in the lack of broker supervision in the sale of alternatives by its employees. But also, that LPL violated New Jersey prospectus suitability standards and even failed to follow its own internal supervisory procedures concerning the offer and sale of alternative investments.
New Jersey Bureau of Securities quantified one example demonstrating, a LPL client with a $245,000 liquid net worth and a stated “growth” investment objective had almost 33 percent of their investment portfolio concentrated in alternative investments.
New Jersey regulators detailed numerous cases in which LPL clients either did not meet the requirements to invest in alternative investments based on their liquid net worth or had exceeded the investment concentration limits set by the state or internally by LPL.
In addition, LPL had previously notified its brokers that if clients had existing Al holdings, the net worth must be higher than the liquid net worth by at approximately the amount of those holdings. However, the New Jersey Securities Bureau found that most LPL brokers failed to appropriately account for existing AI holdings.
According to The New Jersey Bureau of Securities, LPL will undertake a remediation and buyback program to evaluate the non-traded REIT transactions and offer to repurchase those investments that were sold to New Jersey investors in violation of its own guidelines and the state’s prospectus requirements.
According to the consent order, LPL fully cooperated with the investigation and voluntarily designed and implemented a supervisory system and supervisory augmentations relating to the sale of alternative investments in New Jersey.
“As part of the settlement, LPL has agreed to offer remediation to New Jersey residents that were sold alternative investments in violation of suitability standards,” said Christopher W. Gerold, Chief of the Bureau of Securities. “Numerous New Jersey residents will be provided the opportunity to recover the amount that they paid for their investments.”
While LPL does not admit or deny the findings, it agreed to the Bureau’s consent order and will pay the near $1 million fine.
Silver Law Group represents the interests of investors who have been the victims of investment fraud or brokerage firm misconduct. If you have incurred losses with LPL or alternative investments and you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll-free at (800) 975-4345.