Two compliance matters that ensnared LPL Financial for years have been put to rest.
Last week, LPL agreed to pay nearly $1 million to settle with a New Jersey regulator, and separately, a FINRA arbitration panel ruled against an advisor’s $30 million claim against the broker-dealer.
Former broker James E. Bashaw, who LPL said it fired in 2014 for making unauthorized private transactions, had accused LPL and its former CEO of raiding, defamation and other harmful conduct, according to a Houston FINRA panel’s decision. The arbitrators rejected his case but granted him $25,000 in attorney fees, to be paid by LPL.
Meanwhile, the firm will pay a civil penalty of $950,000 and remit $25,000 to a New Jersey investor education fund after state securities regulators probed LPL’s sales of alternative investments. LPL agreed to a larger settlement with other state regulators two years ago over a similar investigation into nontraded REITs.
LPL praised the FINRA panel’s ruling in the Bashaw claim.
“LPL is pleased with the decision of the independent arbitrators and happy to have this matter resolved,” spokesman Jeff Mochal said in an emailed statement, declining further comment.
When LPL fired Bashaw three years ago, the company had accused him of engaging in undisclosed outside transactions and conflicts of interest, as well as borrowing money from a client. The panel assessed the fees from LPL because the firm didn’t provide documents it was ordered to supply in the case, arbitrators wrote in the decision.
Bashaw initially sought $30 million in the May 2016 filing, about a year and a half after LPL dismissed him. On his FINRA BrokerCheck, he said former CEO Mark Casady had hosted him in Cape Cod, Massachusetts, weeks before his termination and that LPL knew about a series of loans to his practice.
Bashaw’s Houston-based practice, known as Jeb & Co. or James E. Bashaw & Co, had $3.8 billion in assets under management in 2011. Wunderlich Securities hired Bashaw in September 2014, but he left the firm within weeks. The practice then joined International Assets Advisory, according to BrokerCheck.
Bashaw accused LPL of a breach of fiduciary duty, interference with business relationships, false light, negligent misrepresentation and intentional infliction of emotional distress, along with other conduct.
The firm also “commenced an audit of Bashaw in furtherance of its plan to raid Jeb & Co.'s employees, steal Bashaw's clients, and to destroy his career,” according to a description of the filing in the award document.
He scaled back the demand to a range of $16 million to $24 million in September, following six pre-hearing conference sessions and 27 hearing sessions, the document shows. The FINRA panel dismissed his allegations in their entirety, though it didn’t include any explanation in the decision.
Bashaw’s BrokerCheck also shows a pending client claim for $3.8 million in damages over unsuitable investments and a failure to supervise, along with other allegations. Bashaw declined to comment on either case, citing confidentiality agreements, but his lawyer David Cosgrove emailed a statement he says is from him alone and not his client.
The decision in LPL's favor is an example of why FINRA panels shouldn't have arbitrators from the industry in cases against large firms, particularly in U5 defamation cases, Cosgrove says.
In the other case, LPL will pay much more than attorney fees following the settlement and consent order from the New Jersey Bureau of Securities last week.
The state regulator accused LPL of failing to adequately supervise its sales of nontraded REITs and nontraded business development corporations for several years. The investments pushed the illiquid portion of clients’ portfolios above both state and company limits, according to the consent order.
While LPL did not admit wrongdoing under the agreement, the firm agreed to a remediation program. LPL must review all investments into nontraded REITs and BDCs covered by the investigation and offer to buy back any products that breached state and company restrictions on such investments.
The firm carried out a similar program following a September 2015 agreement with members of the North American State Securities Administrators Association over nontraded REITs. In that case, LPL agreed to pay civil penalties of $1.4 million to 51 different jurisdictions, in addition to restitution.
New Jersey regulators didn’t participate in the agreement at that time, Mochal said in a statement.
“We are pleased now to have reached a settlement with the New Jersey Securities Bureau regarding REITS and AIs in this matter,” he said.
“LPL has dedicated substantial resources to enhancing our practices around the processing, sale and supervision of complex products, and we believe these efforts will continue to lower the firm’s risk profile and provide even greater consumer protection moving forward.”
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access