LPL Financial must pay $462,000 to former clients of a broker currently serving prison time after pleading guilty to a $1.4 million Ponzi scheme.

This week’s FINRA arbitration award marks the first of many pending and future claims against LPL about Charles Caleb Fackrell’s case, according to the clients’ attorneys. LPL may eventually face more than 50 clients in arbitration over Fackrell, say Patti Vannoy of Mattson Ricketts Law Firm and David Gaba of Compass Law Group.

Total penalties, restitution, arbitration awards and settlements relating to the broker have reached $1.9 million. Fackrell has agreed to pay restitution of $819,918 to 18 victims, but the nation’s largest independent broker-dealer already appears to be on the hook for more than $1 million.

LPL FINRA arbitration decision

Fackrell, 38, has bipolar disorder and post-traumatic stress disorder, he said in an affidavit obtained by Financial Planning, and he did not take his prescribed medication for nearly three years. He stole more than $700,000 of his clients’ $1.4 million during that time, according to investigators.

“In 2012, I was prescribed lithium to treat my bipolar disorder. I took it for a brief period of weeks, but did not like how it made me feel, and quit. Thereafter, I did not take lithium or any medication to treat my bipolar disorder until after my arrest in December 2014,” Fackrell said in the affidavit.

“If anyone from LPL had come to observe me in the last year and a half of my employment with LPL, they would have known that I suffered from severe mental illness associated with my bipolar and post-traumatic stress disorders and major depressive disorder.”

North Carolina District Judge Richard Voorhees sentenced Fackrell to five years in prison in December 2016 after he pleaded guilty to securities fraud. He spent nearly half the investments into entities he controlled between 2012 and 2014, investigators say.

LPL fired Fackrell in December 2014 after his arrest on felony charges, according to FINRA BrokerCheck. State regulators in North Carolina and Washington have sanctioned the firm over its supervision of Fackrell, and other former clients have won awards of more than $276,000 from LPL in arbitration.

LPL legal fees 2013-2017

LPL’s compliance expenses in the past five years have amounted to $110 million, according to the firm. In recent enforcement cases, authorities have accused former LPL advisors of spending clients’ money on credit card payments and houses and misleading federal employees into buying high-cost annuities.

Fackrell worked out of an LPL office in Yadkinville, North Carolina, a small town outside Winston-Salem. He convinced at least 20 clients to steer their funds into entities he called “Robin Hood LLC” and variations of the name Robin Hood, according to federal prosecutors.

He told them he would invest or secure their money in gold and other precious metals with guaranteed annual returns of 5% to 7%, investigators say. Instead, Fackrell spent most of the money on personal costs like groceries, hotels and Ponzi-style payments to other investors, according to investigators.

LPL never followed up with Fackrell or his clients after his arrest, according to Gaba, one of the clients’ lawyers. The Dobbins, Idol and Joyce families, three of Fackrell’s former clients, filed the claim in August 2015, alleging failure to supervise, negligence and several other causes of action leading to this week’s decision.

“Most of the firms that we deal with treat their customers well when there’s a broker who misbehaved,” Gaba said. “You don’t see Morgan Stanley or Wells Fargo treating their customers like LPL. We don’t see any other broker-dealer treating their customers like LPL.”

Slideshow
16 compliance trends to watch in the new year
Advisors should expect more regulatory requirements, enforcement actions and uncertainty in 2018, experts say.

A spokesman for LPL declined to comment on the ruling or on any statements or documents provided by the lawyers. A public defender who represented Fackrell in the criminal case didn’t respond to a request for comment. Many documents from Fackrell’s criminal case remain sealed in federal district court.

LPL denied the allegations in the arbitration, and the FINRA panel in Raleigh dismissed the clients’ request for punitive damages. Brad Rounsaville, a lawyer from Bressler, Amery & Ross who represented LPL, argued that Fackrell deceived his family, colleagues and the company and pushed outside investments beyond LPL’s purview.

LPL’s logo never appeared on any Robin Hood-related documents and the investments “we now know were just simply giving money to a thief,” Rounsaville said in his closing statement, according to a transcript of the hearing. “If there’s one thing Caleb did well is he kept all of this separate from LPL.”

The three arbitrators, who did not explain their ruling, assessed compensatory damages plus interest, attorney fees and other expense payments against LPL. The firm must pay the Dobbins’ accounts $156,650, the Joyces’ $138,000 and the Idols’ $37,000, the resolution document shows.

The restitution from Fackrell ordered by Judge Voorhees in the criminal case includes combined payments of $92,747 to Dobbins and Idol family members, according to a listing document filed in the district court. Voorhees ordered Fackrell to pay another former client more than $219,000.

Fackrell had said in his July 2016 affidavit that his PTSD stemmed from his time in the U.S. Air Force, but in his testimony he attributed it to childhood experiences. He often traded in the three clients’ accounts without their permission, Fackrell said, repeatedly calling his actions over much of the period “insane.”

The Air Force provides Fackrell with disability payments for the PTSD, major depressive disorder, diabetes and high blood pressure, he said in the testimony. Representatives for the Air Force didn’t respond to a request for confirmation of his service time and health status.

Charles Caleb Fackrell
Charles Caleb Fackrell pleaded guilty to securities fraud in April 2016.

“I’m not taking any partial responsibility. I’m telling you that — I did the crimes. That’s — that’s period,” Fackrell said in testimony by phone from prison during the arbitration hearing in April. “Now, partial credit, I do think LPL definitely had a responsibility in making sure that I was under regulations, and do I feel they did that? No, I don’t.”

Following Fackrell’s arrest, he received treatment in a mental health institution, and he is now taking medication, according to the affidavit. FINRA barred Fackrell in February 2015 over his refusal to cooperate with its investigation, according to BrokerCheck.

He is serving concurrent federal and state sentences in the Harnett Correctional Institution in Lillington, North Carolina, state Department of Public Safety Records show. The state sentence comes from his April conviction for obtaining property by false pretenses, and his projected release date is February 2023.

Clients have filed at least three other pending arbitration claims involving his conduct, and two others ended in settlements of a combined $78,500, BrokerCheck shows. Fackrell’s full CRD file includes another settlement for $26,510.

Gaba said that the pending matters name LPL as a respondent. He declined to discuss the listed settlements, though, saying he couldn't confirm or deny them.

In September, the state’s Securities Division charged LPL $295,000 for a penalty and reimbursement after a probe of its supervision of Fackrell. Washington’s Office of the Insurance Commissioner had fined LPL $2,000 in 2016 over Fackrell’s sale of an annuity regulators said had not been approved in the state.

Another former Fackrell client won $78,341 in compensatory damages, a sanction and fees from LPL in an arbitration case decided in June 2016. The client, also represented by Gaba and Vannoy, accused LPL of negligent supervision, liability as control person of Fackrell, among other causes of action.

In the other FINRA arbitration award involving Fackrell, former clients won $119,117 in compensatory damages and costs from LPL in December 2016. However, the clients filed a request in March in the Eastern District of North Carolina seeking to vacate the decision, accusing LPL and the arbitrators of not disclosing prior contacts, Gaba notes.

The civil matter has reached the discovery phase, and Gaba says the clients will submit a new arbitration claim if the court vacates their award.