Old Unsuitable Securities Sales Finally Catch Up With LPL

Friday, November 25, 2011 08:26
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Old Unsuitable Securities Sales Finally Catch Up With LPL

Tags: compliance | independent broker-dealers

State regulators have fined LPL $100,000 for failing to supervise one of its branch managers several years ago -- even though compliance has improved significantly in the meantime.

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Former LPL broker Jack Kleck apparently spent much of the last decade selling oil and gas partnership interests to a largely elderly clientele in La Grande, Oregon.

 

The sales bloomed to 20% of his business by 2005, but went sour when old and sick investors discovered that they could not easily resell the highly speculative securities.

 

The Oregon regulator disciplined Kleck relatively quickly, stripping his securities license and fining him a net $30,000 in 2007.

 

Figuring out what went wrong at LPL took a lot longer as the credit crash unfolded.

 

The problem seems to have been the fact that Kleck was effectively his own manager in a one-advisor operation -- a common enough complaint for broker-dealer networks that focus on solo practitioners.

 

In the intervening years, LPL has built new systems to catch similar abuses in the future, but is paying a $100,000 fine anyway.

 

Cases like this only demonstrate the vast amount of work left for the regulators just to get current, much less ahead of the bad sales practices of tomorrow.

 

It may still take years before we learn exactly how much abuse was perpetrated before the 2008-9 crunch made it impossible for bad players to keep the ball rolling.

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