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LPL Agrees to $26 Million Settlement Following Allegations of Selling Unregistered Securities

August 24, 2018 Blog

LPL Financial, the largest independent securities brokerage firm in the United States, recently agreed to pay up to $26 million in fines for the sale of unregistered and non-exempt securities. The multi-million-dollar settlement is the result of an investigation conducted by the North American Securities Administrators Association (NASAA), which is an organization of state, provincial and territorial securities regulators in the U.S., Mexico and Canada that pursues enforcement actions against brokerage firms and investment professionals suspected of engaging in securities fraud.

LPL also Offers to Refund Investors, with Interest

As reported in a recent issue of Financial Advisor magazine, the NASAA task force that looked into LPL’s brokerage practices found that the firm, “was negligent in its duty to supervise,” multiple brokers who sold unregistered securities to individual investors.

In addition to the fines, LPL has also reportedly agreed to, “repurchase the unregistered and non-exempt securities at the full amount paid plus three percent interest, or pay damages for the purchases of those securities as required by state regulators.” Investors who purchased unregistered securities from LPL brokers will be able to choose which option they prefer.

Why is It Illegal for Brokers to Sell Unregistered Securities?

In the United States, most investments sold to the public are subject to registration with the Securities and Exchange Commission (SEC). For investors, this registration requirement serves a number of important purposes. As part of the registration process, companies wishing to sell securities must submit financial information to the SEC. So, while the SEC does not recommend or approve individual investments, registration at least minimally indicates that a security has met the federal standards for being offered to the public.

Additionally, information about registered securities is available free online through the SEC’s EDGAR database. Before investing in any security, it is important to do your research, and EDGAR provides an independent source of information in addition to any documentation or recommendations you may receive from your broker.

The registration requirement also serves to weed out many high-risk and fraudulent securities for individual investors. By sticking to registered securities, investors can minimize their chances of enduring substantial losses due to a crash or fraudulent scam.

So, why do some brokers still sell unregistered securities – exposing themselves to fines and exposing their clients to the potential for fraudulent losses? In most cases, the answer is simple: For these brokers, the risk is worth the potential reward. If an investment in an unregistered security is successful, the broker could reap substantial fees and commissions. However, even if the investor loses, the broker could still pocket sizable transaction fees. For these reasons, selling unregistered securities is considered a form of broker fraud, and investors who are sold on unregistered securities will often be entitled to recoup their investment losses.

Speak With a Financial Fraud Lawyer at Zamansky, LLC

If you purchased unregistered securities through an investment broker and would like more information about your recovery options, you can contact the law offices of Zamansky, LLC for a free, no-obligation consultation. To schedule a confidential appointment, please call (212) 742-1414 or tell us how we can help online today.