Securities regulators from New Hampshire want LPL Financial to pay $3.6 million in fines and repayments to investors for allegedly unsuitable sales of real estate investments to elderly clients. The New Hampshire Bureau of Securities Regulation, in an action filed earlier this week, claims that it wants $2.4 million from LPL in buybacks and restitution for clients in 48 sales of nontraded real estate investment trusts that go back as far as 2007. The Bureau is also seeking a $1 million fine and wants LPL to pay $200,000 in investigative costs.
The claim arises from an 81 year old New Hampshirite who purchased a nontraded REIT from LPL in January of 2008 and thereafter lost a significant amount on the investment, which typically is not liquid and is accompanied by high fees. The client invested $253,000 in the REIT and had a liquid net worth of $2.5 million. New Hampshire claims that the investment, as well as a number of others, made elderly clients hold a higher percentage of their portfolios in risky alternative investments than is allowed by LPL's own internal rules.
It its petition, the New Hampshire Bureau of Securities wrote that the 48 REIT sales that amounted to about $2.4 million "resulted in an [alternatives] concentration that blatantly exceeded LPL guidelines."
As no decision has been made on the case, LPL will seek a hearing before a bureau hearing officer. LPL spokesman Brett Weinberg stated that LPL was "unable to reach a mutually agreeable resolution with the state. LPL has dedicated substantial resources to addressing these legacy issues and enhancing our practices around the sale and supervision of alternative investments."
Adrian LaRochelle, a staff attorney in the New Hampshire Bureau of Securities who has been communicating with LPL throughout the investigation, believes that "there's a serious enough problem that a hearing is necessary."