LPL Financial LLC has signed a Letter of Acceptance, Waiver and Consent (“AWC”) to resolve allegations by FINRA that it made material misrepresentations to the regulator during its investigation of significant and repeated e-mail failures by the firm.
According to the AWC, between 2007 and 2013, LPL suffered 35 separate, significant failures in its e-mail review and retention system resulting in the firms’ inability to access hundreds of millions of e-mails and its failure to review tens of millions of e-mails. FINRA further alleged that LPL’s failure to review and retain e-mails, resulted in its failure to produce responsive e-mails in federal and state regulatory proceedings, and to customers in arbitration proceedings.
FINRA claims that, as LPL rapidly grew its business during this time frame, it failed to devote significant resources to managing and integrating the various and fractured e-mail systems of its newly acquired independent contractors and financial institutions. According to the AWC, LPL was aware of the e-mail problems, but failed to invest in the compliance and technological resources necessary to correct the problem.
The AWC also reflects that LPL made material misrepresentations to FINRA during its investigation of the matter, including LPL’s statement that it first discovered the problem in 2011, when in reality, the firm was aware of problems and red flags as early as 2008.
LPL has agreed to pay a fine of $7.5 million and to establish a $1.5 million fund to compensate LPL customers for any failure by LPL to produce e-mail discovery in arbitrations initiated on or after January 1, 2007 and that were closed before December 17, 2012. The Plan of Distribution contained within the AWC, reflects that notice to the eligible LPL customer claimants will be sent out within 30 days. Upon request, the eligible claimants may elect to receive payment of $3,000 or request that the fund administrator determine the appropriate monetary sanction for LPL’s actual or apparent failure to produce e-mails in the arbitration – up to a maximum amount of $20,000.