LPL FINANCIAL CENSURED AND FINED FOR FAULTY SUPERVISORY SYSTEMS GOVERNING DELIVERIES OF MUTUAL FUND PROSPECTUSES

Sep. 10, 2013 3:11 PM ET
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 35 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as well as administrative, arbitration, and mediation proceedings before the U.S. Securities and Exchange Commission (SEC), Commodities Futures Trading Commission ("CFTC"), Florida Office Financial Regulation (FlaOFR), Florida Division of Securities & Investor Protection ("FDS"), Financial Industry Regulatory Authority (FINRA), National Association of Securities Dealers regulation, Inc. ("NASD"), New York Stock Exchange, Inc. ("NYSE") and/or National Futures Association ("NFA"). Mr. Pearce is a Florida Circuit Court Civil Mediator and a respected mediator in the FINRA Mediation Program. He also acts as a private judge or arbitrator in mini-trials and arbitration proceedings, respectively. Mr. Pearce has also served as a Federal Court-appointed Receiver- an attorney who is called upon by Federal and state regulators (SEC, CFTC and FlaOFR) to take over companies engulfed in legal problems. Areas of Practice • Courtroom Litigation, Arbitration and Mediation Proceedings Involving • Securities and Commodities Law • Business & Commercial Law • Federal, State and Industry Enforcement Actions • Employment Law A Brokerage Employees Only • Trust / Estate / Guardianship Law • Probate & Estate Administration Education • Hofstra University School of Law, Hempstead, New York J.D. - 1979 • Hofstra University School of Business, Hempstead, New York M.B.A. - 1979 • Florida Tech B.S. – 1973 Professional Associations and Memberships • American Association for Justice • Florida Justice Association • Broward County Bar Association • Broward County Justice Association • Palm Beach County Bar Association • Palm Beach County Justice Association • Public Investor Arbitration Bar Association • South Palm Beach County Bar Association Past Employment Positions • Lerner & Pearce, P.A., January 1, 1990 - December 31, 1999 • Lerner, Harris, Pearce, P.A., March 1, 1983 - December 31, 1989 • U.S. Securities & Exchange Commission, May 1, 1980 - February 28, 1983

LPL Financial LLC, a Boston, Massachusetts based brokerage firm, submitted a letter of acceptance, waiver, and consent to resolve Financial Industry Regulatory Authority (FINRA) findings that it failed to establish and maintain an adequate supervisory system and written supervisory procedures (WSPs) reasonably designed to ensure timely delivery of mutual fund prospectuses. FINRA's findings stated that the firm was required to provide each of its customers who purchased a mutual fund with a prospectus for that fund no later than three business days after the transaction. The firm executed approximately 16 million mutual fund purchase or exchange transactions, and several million of these transactions required the firm to deliver a mutual fund prospectus to the purchasing customer. Therefore, the firm was required to establish and maintain a supervisory system and WSPs reasonably designed to monitor and ensure the timely delivery of mutual fund prospectuses. FINRA censured and fined the firm a total of $400,000 for all violations committed.

A prospectus is a document that discloses important information about an investment. It typically provides investors with material information about mutual funds, stocks, bonds, and other investments. Such information generally includes a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties, and any other material information.

In addition, FINRA's findings stated that the firm relied on its brokers for the delivery of mutual fund prospectuses. Each broker was required to obtain the customer's signature on a prospectus receipt form to have a record of the delivery. However, the firm did not have a supervisory system in place that was reasonably designed to ensure that prospectus receipts had been obtained in connection with mutual fund purchases or that a prospectus had actually been delivered timely. The firm's WSPs did not require an adequate review of its brokers' performance of their prospectus delivery obligations. Instead, the firm's procedures consisted of inadequate measures. FINRA further stated that for some time, the firm was aware that its procedures were failing to ensure that brokers consistently obtained prospectus receipts or other evidence of mutual fund prospectus delivery. On at least two occasions, the firm contemplated proposals to adjust its procedures for tracking prospectus delivery compliance, but the firm did not modify or enhance its procedures and continued to rely upon brokers without adequate safeguards to ensure and monitor mutual fund prospectus delivery.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.

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