FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures Related to Complex Products Sales, Trade Surveillance and Trade Confirmations Delivery

LPL Ordered to Pay Approximately $1.7 Million in Restitution to Customers

FINRA has censured LPL Financial LLC and fined it $10 million for broad supervisory failures in a number of key areas, including the sales of non-traditional exchange-traded funds (ETFs), certain variable annuity contracts, non-traded real estate investment trusts (REITs) and other complex products, as well as its failure to monitor and report trades and deliver to customers more than 14 million trade confirmations. In addition to the fine, FINRA ordered LPL to pay approximately $1.7 million in restitution to certain customers who purchased non-traditional ETFs. The firm may pay additional compensation to ETF purchasers pending a review of its ETF systems and procedures.

FINRA found that, at various times spanning multiple years, LPL failed to supervise sales of certain complex structured products, including ETFs, variable annuities and non-traded REITs. With regard to non-traditional ETFs, the firm did not have a system to monitor the length of time that customers held these securities in their accounts, did not enforce its limits on the concentration of those products in customer accounts, and failed to ensure that all of its registered representatives were adequately trained on the risks of the products. Also, LPL failed to supervise its sales of variable annuities, in some instances permitting sales without disclosing surrender fees, and in connection with certain mutual fund "switch" transactions, it used an automated surveillance system that excluded these trades from supervisory review. Additionally, LPL failed to supervise non-traded REITs by, among other things, failing to identify accounts eligible for volume sales charge discounts.

FINRA also found that LPL's systems to review trading activity in customer accounts were plagued by multiple deficiencies. For example, LPL used a surveillance system that failed to generate alerts for certain high-risk activity, including low-priced equity transactions, actively traded securities and potential employee front-running. The firm used a separate, but flawed, automated system to review its trade blotter that failed to provide trading activity past due for supervisory review. LPL failed to deliver over 14 million confirmations for trades in 67,000 customer accounts. In addition, due to coding defects that remained undetected for nearly six weeks, LPL's anti-money laundering surveillance system failed to generate alerts for excessive ATM withdrawals and ATM withdrawals in foreign jurisdictions. FINRA also found that LPL failed to report certain trades to FINRA and the MSRB, and failed to ensure it provided complete and accurate information to FINRA and to federal and state regulators concerning certain variable annuity transactions.

FINRA further found that LPL failed to reasonably supervise its advertising and other communications, including its registered representatives' use of consolidated reports. LPL did not monitor the creation or use of consolidated reports, and failed to ensure that these reports reflected complete and accurate information.

If you lost money after investing with LPL, or any other related financial adviser, you may be able to recover your losses through securities arbitration. Our securities fraud law firm is here to help our clients recover their losses. Our investment fraud lawyers have recovered millions of dollars from the largest banks, insurance companies and brokerage firms in the world on behalf of investment fraud victims. You may have certain legal rights that require your immediate attention. Contact us TODAY for a FREE Consultation and case evaluation.

FINRA Investor Survey Reveals Strong Support for Additional Regulatory Protections

WASHINGTON—The Financial Industry Regulatory Authority (FINRA) released a survey of U.S. investors designed to measure perceptions of fairness and to gauge demand for additional regulatory protections. FINRA's survey of 1,000 adults revealed that 92 percent of investors agreed (62 percent strongly agreed and 30 percent somewhat agreed) that it is important to have a regulatory "cop on the beat" to protect investors and police the markets. In addition, 70 percent of investors surveyed strongly agreed and 24 percent of investors somewhat agreed that it is important that regulators use the latest tools and technology to protect investors.

Overall, investors surveyed by FINRA strongly agreed that regulation and investor protections are important. Highlights include:

• 88 percent of investors believe it's moderately or very important for regulators to detect when unsuitable securities are being sold to investors.
• 90 percent believe it's moderately or very important for regulators to detect when brokers are making trades that benefit themselves and not the investor.
• 89 percent believe it's moderately or very important for regulators to detect when firms are taking risks that potentially harm their investors and the financial system.

Nearly three quarters of investors surveyed (74 percent) would support additional regulatory protections to safeguard them from misconduct by brokers or brokerage firms. Support was strong across age groups and investment levels. In addition, only one in five of those surveyed (22 percent) expressed opposition to additional protections if it meant a minimal increase in the costs that brokerage firms passed on to them. By comparison, 56 percent of those surveyed expressed support for additional protections even if it meant a minimal increase in their costs.

While FINRA has previously surveyed investors regarding "investor literacy"–the understanding ordinary investors have of market principles, instruments, organizations and regulation–the survey FINRA released today is designed to assess investor attitudes regarding regulatory protections.

Charts and graphs from the Investor Survey, as well as the underlying survey data are available for download.

FINRA's Investor Survey was conducted October 7 through October 9, 2014 (n=500) and October 27 through October 29, 2014 (n=500). Survey respondents were recruited from a nationally distributed online panel and were screened to meet the following criteria: U.S. adults ages 21 or older, having primary or shared responsibility in their household for investment decisions. Although the cut-off for inclusion was at least $10,000 in securities investments, not exclusively in tax-deferred retirement accounts, more than 70 percent had investments over $100,000.

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.

FINRA Fines Merrill Lynch a Total of $6 Million for Reg SHO Violations and Supervisory Failures

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has censured and fined Merrill Lynch Professional Clearing Corp. (Merrill Lynch PRO) $3.5 million for violating Regulation SHO, an SEC rule that established a regulatory framework to govern short sales and prevent abusive naked short selling. FINRA also censured and fined its affiliated broker-dealer, Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), $2.5 million for failing to establish, maintain and enforce supervisory systems and procedures related to Regulation SHO and other areas.

In addition to curtailing naked short selling, among other things, Regulation SHO also aims to reduce the number of instances in which sellers fail to timely deliver securities. Regulation SHO requires a firm to timely "close out" any fail-to-deliver positions by borrowing or purchasing securities of like kind and quantity. Additionally, Reg SHO permits firms to reasonably allocate fail-to-deliver positions to its broker-dealer clients that caused or contributed to the firm's fail-to-deliver position.

FINRA found that from September 2008 through July 2012, Merrill Lynch PRO did not take any action to close out certain fail-to-deliver positions, and did not have systems and procedures in place to address the close-out requirements of Regulation SHO for the majority of that period. FINRA also found that from September 2008 through March 2011, Merrill Lynch's supervisory systems and procedures were inadequate and improperly permitted the firm to allocate fail-to-deliver positions to the firm's broker-dealer clients based solely on each client's short position without regard to which clients caused or contributed to Merrill Lynch's fail-to-deliver position.

FINRA's investigation was conducted by the Departments of Enforcement and Market Regulation.

If you lost money after investing with Merrill Lynch, or any other related financial adviser, you may be able to recover your losses through securities arbitration. Our securities fraud law firm is here to help our clients recover their losses. Our investment fraud lawyers have recovered millions of dollars from the largest banks, insurance companies and brokerage firms in the world on behalf of investment fraud victims. You may have certain legal rights that require your immediate attention. Contact us TODAY for a FREE Consultation and case evaluation.

FINRA Names Richard Berry Director of Dispute Resolution

WASHINGTON – The Financial Industry Regulatory Authority (FINRA) announced today that Richard W. Berry will become Executive Vice President and Director of Dispute Resolution, starting December 1. Berry will report directly to Richard Ketchum, FINRA's Chairman and CEO. He is replacing Linda Fienberg, who is retiring on November 30.

Berry joined NASD in 1995 as head of Dispute Resolution's Los Angeles satellite office and was later promoted to Director of Case Administration in NASD's New York City office in 2001. In his current role as Senior Vice President, Mr. Berry oversees FINRA Dispute Resolution's four regional offices—New York, Boca Raton, Chicago and Los Angeles—and the New York Case Administration unit. Prior to joining NASD Dispute Resolution, he taught American law for one year in Budapest. Berry began his career practicing law in San Francisco. He is a graduate of the University of California at Santa Barbara and Hastings College of the Law. Berry is a member of the California Bar.

Richard Ketchum said, "Rick is an effective and thoughtful leader who brings a fresh perspective at a crucial time as we build the future of the forum. We are fortunate to have someone who throughout his career with FINRA has demonstrated an unwavering commitment to ensuring that our forum provides the highest level of service to the investors and other parties who use it. I would also like to thank Linda for the exceptional contributions she has made to FINRA's Dispute Resolution Forum over the past 18 years."

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business—from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.