The Financial Industry Regulatory Authority (FINRA) has levied a $7.5 million fine against LPL Financial LLC (LPL) for a series of email system failures which prevented LPL from accessing hundreds of millions of emails and reviewing tens of millions of other emails. On top of that. FINRA ordered LPL to establish a $1.5 million fund to compensate affected brokerage customers due to allegedly material misstatements it made to FINRA during the investigation that revealed the email failures.
FINRA alleged that “as LPL rapidly grew its business, the firm failed to devote sufficient resources to update its email systems, which became increasingly complex and unwieldy for LPL to manage and monitor effectively. The firm was well aware of its email systems failures and the overwhelming complexity of its systems.”
As a result, LPL failed to produce all requested email to certain federal and state regulators, and FINRA, and also likely failed to produce all emails to certain private litigants and customers in arbitration proceedings, as required.
According to Brad Bennett, EVP and Chief of Enforcement: “As LPL grew, it did not expand its compliance and technology infrastructure; and as a result, LPL failed in its responsibility to provide complete responses to regulatory and other requests for emails. This case sends a strong message to firms to make sure your business does not outgrow your compliance systems.”
The number of regulatory enforcements continue to increase. It is important for all companies, and particularly those in regulated industries to do periodic compliance audits. If you have questions on social media or IT legal audits please contact us.