A FINRA arbitration panel has ordered LPL Financial to pay $630,000 to one of its former brokers for allegedly defaming him by sending letters to about 300 clients implying that he stole money.
The fine comes at a time when the stock of the country's largest independent broker-dealer has sunk by almost 50% since the end of last year and when a series of activist investors have purchased a substantial share of LPL stock.
Repeated trouble with regulators has lead LPL to pay series of fines, including $11.7 million to FINRA in May.
Broker Jonathan D. Freeze, now with Fortune Financial in Canonsburg, Pa., asked FINRA for $2.3 million in damages for the letters which he claims lead clients to terminate their accounts with him.
LPL had fired him in July 2013 for not reporting a $20,000 loan he took out from a high school friend, who was also a client, and which he repaid with interest, his lawyer Alan H. Perer says.
"We'd hoped to get more," Perer says. "Mailing out over 300 letters that essentially implied very strongly that Mr. Freeze had misappropriated funds, which was totally false, really affected his business. The company, even when they realized when they should not have sent the letters, they refused to mitigate [the impact] by sending a letter saying it wasn't true."
A spokesman for LPL declined to comment.
NO DUE DILIGENCE?
On his BrokerCheck report, Freeze says he kept the promissory note for the loan in his office. During an LPL audit, he says he admitted he'd taken out the loan. He and his high school friends had provided loans to each other "back and forth" over the years, Freeze wrote on BrokerCheck.
"Nobody lost any money. We said they have the right to terminate him," Perer says. However with the letter, "They went way over the top."
It appears the B-D lumped Freeze's case in with more egregious ones in which brokers had actually stolen client funds, Perer says.
Thanks to LPL's size and the challenges inherent to policing compliance for about 14,000 brokers nationwide, the firm may not have understood the reality of Freeze's situation, Perer says. In 20 years in the industry, Freeze had no client complaints on his BrokerCheck record.
"They were very indifferent to their own rep, who was a good rep,” Perer says. “They just treated him very poorly."
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