LPL Financial LLC (CRD #6413, Fort Mill, South Carolina)

July 25, 2023 – An AWC was issued in which the firm was censured, fined $3,000,000, ordered to pay $100,000, plus interest, in restitution to customers, required to conduct a review to identify, and as applicable pay restitution to affected customers for other improper transfers of money from firm customer accounts to common payees and required to remediate the issues identified in the AWC and implement a supervisory system, including WSPs, reasonably designed to monitor the transmittals of customer funds and electronic signatures to achieve compliance with applicable securities laws, regulations, and FINRA rules. Without admitting or denying the findings, the firm failed to reasonably supervise the transmittal of customer funds thus allowing two firm registered representatives to convert approximately $2.4 million of customer funds. The findings stated that one firm registered representative converted funds from nine of his customers, five of whom were seniors, by convincing the customers to issue checks from their firm brokerage accounts payable to an entity the representative did not disclose that he controlled, purportedly for investment purposes. Instead, the representative used the funds to pay for his own personal and business expenses. In total, the representative caused his customers to issue checks totaling approximately $550,000. In addition, a second representative converted funds from four of his customers, three of whom were seniors, by convincing most of the customers to wire money from their firm accounts to an outside business he controlled, purportedly for investment purposes. The second representative then misappropriated approximately $675,000 of the customers’ funds for his own personal use. The second representative also electronically forged a senior customer’s signature on a wire transfer form to transfer approximately $1.2 million from her firm account to a law firm in connection with his own purchase of real estate. The findings also stated that the firm did not have a reasonable supervisory system to review transmittals of customer funds to third parties by wire or check. among other things, the firm used an automated tool that was programmed to only review the second line of the check recipient’s address. The checks that were sent to the first representatives at his business address contained the address on the fourth line and, as a result, were not identified by the firm’s automated tool. In addition, the firm did not have a system to review transmittals from unrelated customer accounts made payable to the same third party. Thus, the firm’s systems did not detect that customers of the first representative were issuing checks to the same outside entity. Furthermore, the firm failed to reasonably respond to certain red flags of potential conversion. All third-party checks that were made payable to the undisclosed entity that the first representative controlled were mailed to his disclosed DBA and were reviewed and approved by firm supervisory personnel. In addition, firm compliance personnel flagged wire transfers that were sent by the second representative’s customers to his outside business. Although the second representative failed to disclose his outside business to the firm, he was identified in public filings as its Chief Executive Officer (CEO). The firm questioned the second representative about the wire transfers but accepted his representation at face value that the wires represented unsolicited investments by his customers. The findings also included that the firm failed to have a supervisory system reasonably designed to detect possible instances of signature forgery or falsification. The firm did not regularly review the information contained on certificates of completion that it received after an individual electronically signed a document, nor did it compare it to other information known to the firm about the customers, including their email addresses. Moreover, the firm did not review the certificate of completion for the $1.2 million wire transfer that indicated that the customer allegedly signed the document in person, even though she lived approximately 1,000 miles away from the second representative’s office. Nor did the firm take any other reasonable steps to verify the transfer, such as calling the customer. In addition, at least 50 firm representatives electronically signed customers’ names on over 1,000 firm documents, including on documents that were required books and records of the firm. (FINRA Case #2020067897601)