LPL to pay $18M settlement in 4th AML case over past 10 years

LPL Financial failed to follow its own anti-money laundering procedures for client identification across more than 12,000 accounts over nearly five years, according to the SEC.

The company agreed to pay $18 million to settle SEC charges that it breached AML laws requiring brokerage firms to perform customer due diligence by closing or restricting accounts that are not verified or allowed under company policies, the regulator said Jan. 17. The SEC and LPL unveiled their agreement in the last days of Chair Gary Gensler's time atop the agency. The announcement came only minutes after another one about a separate $60 million settlement with Wells Fargo and Merrill over the firms' cash sweep practices.

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LPL's case reflected the extent of wealth management companies' efforts to enforce AML standards across a footprint as large as 9,000 employees and 2.2 million brokerage accounts with $307 billion in assets, as of November 2024. It also displayed how the industry often falls short of its own antifraud rules. LPL didn't carry out its guidelines for verification, foreign accounts or links with cannabis under the firm's AML and customer identification programs in at least 12,756 accounts between May 2019 through December 2023, SEC investigators said.

"Federal law requires broker-dealers to ascertain the identity of their customers and to conduct ongoing customer due diligence to aid the government in its efforts to detect and prevent money laundering," Stacy Bogert, associate director of the SEC's Division of Enforcement, said in a statement. "When broker-dealers like LPL fail to comply with their AML obligations, they put the securities markets at risk. Today's case underscores the importance of complying with applicable regulations in the areas of customer identification and ongoing customer due diligence."

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In agreeing to the settlement, LPL didn't admit or deny the allegations in the SEC's investigation, which followed a 2021 settlement with the regulator over AML breaches and two FINRA matters in 2015 and 2018 that also revolved around AML programs. Under the terms, LPL will retain an independent compliance consultant to carry out a review with recommendations for the firm to implement to enhance its AML procedures in the future.

"The settlement relates to recordkeeping and retention issues," LPL spokesperson Kendra Galante said in a statement. "We cooperated with the SEC's investigation and have taken proactive steps to enhance AML policies and procedures. We take our regulatory obligations seriously and are pleased to resolve this matter."

The company "failed to properly verify new accounts; failed to timely close accounts that did not pass its [customer identification program] screening measures; and failed to close or restrict certain accounts, such as cannabis-related and foreign accounts, that were prohibited under LPL's AML policies," according to the SEC's complaint.

In the case of the verification problems, the company's internal audit team detected insufficient information in many client accounts, and LPL revised its AML rules to call for closing any accounts that still lacked the obligatory personal details, the document said. Nevertheless, the company still found 7,356 accounts that did not comply with the customer identification program in October 2022. In addition, LPL botched its AML procedures in about 1,400 accounts with links to marijuana production, distribution or operations amounting to $350 million in assets and with respect to 4,000 foreign accounts in 84 countries around the world, SEC investigators said.

But even prior to the settlement, LPL had hired a compliance consultant and taken remedial steps since the launch of the investigation in early 2023.

"LPL has also made changes to its leadership and organization since the start of the commission's investigation, including the appointment of new personnel in key legal and compliance roles," the complaint noted. "LPL has also increased resources allocated to its compliance program, including specifically in relation to its AML program."

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In other recent compliance and regulatory developments at LPL, the firm has disclosed that it is cooperating with the SEC in a different investigation over its cash sweeps and reached a settlement of $12 million with former CEO Dan Arnold after the company fired him for violating its code of conduct for a respectful workplace. Now under the leadership of CEO Rich Steinmeier, LPL will release its fourth-quarter results on Jan. 30.