According to FINRA, LPL Financial LLC was censured, fined $3,000,000, and ordered to pay $100,000 plus interest in restitution to customers for failing to reasonably supervise the transmittal of customer funds, which allowed two registered representatives to convert approximately $2.4 million of customer funds.

One representative converted funds from nine customers, five of whom were seniors, by convincing them to issue checks from their brokerage accounts payable to an entity he controlled, purportedly for investment purposes. Instead, the representative used the funds for personal and business expenses, totaling approximately $550,000. A second representative converted funds from four customers, three of whom were seniors, by convincing them to wire money to an outside business he controlled. This representative misappropriated approximately $675,000 and also electronically forged a senior customer's signature on a wire transfer form to transfer approximately $1.2 million for his own real estate purchase.

FINRA found that the firm did not have a reasonable supervisory system to review transmittals of customer funds to third parties. The firm used an automated tool programmed to only review the second line of the check recipient's address, missing checks with addresses on other lines. The firm also did not have a system to review transmittals from unrelated customer accounts made payable to the same third party.

The firm also failed to have a supervisory system reasonably designed to detect possible instances of signature forgery or falsification. The firm did not regularly review certificates of completion from electronic signatures or compare them to known customer information. Investors, especially seniors, must be protected from conversion of their funds. This case highlights the critical importance of robust supervisory systems to prevent and detect fraud.