Consent Order (LPL Financial LLC, Respondent Case No. 25-20766)

State of Maine
Office of Securities
121 State House Station
Augusta, Maine 04333-0121

I. PRELIMINARY STATEMENT Pursuant to the authority granted to the Maine Securities Administrator ("Administrator"), under the Maine Uniform Securities Act, 32 M.R.S. 16101 et seq. (the Act), and after investigation, careful review, and due consideration of the facts and statutory provisions set forth below, the Administrator hereby finds that there is good cause, and it is in the public interest to enter into this Consent Order (Order) with LPL Financial LLC (LPL), which resolves any and all issues in controversy regarding the specific conduct described herein on the terms set forth in this Order. As the result of a coordinated investigation led by seven jurisdictions, including Massachusetts, Montana, Missouri, Alabama, Washington, Texas, and Iowa (the Multi-State Group), the Administrator concluded that LPL charged unreasonable commissions to retail customers in excess of five percent (5%) of the principal amount on certain small-principal equity transactions. Nationwide, LPL charged unreasonable commissions on approximately 127,045 equity transactions over a five-year period from approximately April 30, 2020 to approximately April 30, 2025 (the Relevant Time Period), totaling $2,486,739.20, which included 445 accounts of residents of Maine who were charged commissions in excess of 5% totaling $18,847.50. LPL in full settlement of this matter neither admits nor denies the facts set forth in Section IV and the Conclusions of Law set forth in Section V below, agrees to the representations and undertakings set forth below, and consents to the entry of this Order by the Administrator. II. JURISDICTION 1. The Administrator has jurisdiction over matters relating to securities pursuant to the Act. 2. This Order is made in accordance with 32 M.R.S. 16412. 3. The acts and practices that are the subject of this Order occurred while LPL was licensed as a broker-dealer in Maine. III. RESPONDENT 4. LPL is a broker-dealer licensed in Maine with a main address of 1055 LPL Way, Fort Mill, South Carolina. LPL is identified by Financial Industry Regulatory Authority (FINRA) CRD No. 6413. LPL maintains 95 branch offices in Maine. IV. STATEMENT OF FACTS A. LPL's Minimum Commission Practices for Equity Transactions Failed to Ensure Transactions Were Executed at a Fair and Reasonable Price 5. During the Relevant Time Period, LPL charged unreasonable commissions to thousands of retail brokerage customers that exceeded 5% of the principal amount of the customers transactions. 6. For equity transactions executed during the Relevant Time Period, LPL generally charged retail brokerage customers according to a tiered commission schedule based on the principal amount of the trade. 7. The commission schedule ranged from .60% to 1.5% of the principal amount plus a $5.00 confirmation fee for each trade. 8. LPL charged a minimum commission of $30 on equity transactions (the Minimum Equity Commission). 9. LPLs fee schedule notes that the maximum commission shall not exceed 5% of the principal. LPLs policies and procedures did not contain a similar restriction on transactions involving the Minimum Equity Commission. 10. The Act and Maine Office of Securities Rules prohibit LPL from charging unreasonable commissions for services performed. 11. FINRA Rule 2121 Supplementary Material .01 (Rule 2121.01) provides a guideline of five percent for determining whether a commission is unfair or unreasonable. However, the 5% Policy is a guide, not a rule. A commission pattern of five percent or even less may be considered unfair or unreasonable. 12. During the Relevant Time Period, LPL executed approximately 958 equity transactions for Maine customers for which the principal trade amount was $2,500 or less and that included an unreasonable commission for services performed (i.e., in excess of 5% of the principal trade amount), totaling $18,847.50. 13. Certain equity transactions executed by LPL included a commission well in excess of 5% of the principal value of the transaction. B. LPL Did Not Reasonably Supervise Transactions that Applied the Minimum Equity Commission 14. LPL did not reasonably supervise transactions that included a Minimum Equity Commission charge to ensure that LPL charged its customers a reasonable commission. 15. LPL only systematically surveilled commissions in ancillary instances of potential sales practice violations-including an alert used to review accounts with potential excessive trading, an alert used to surveil account concentrations, and an alert to identify either customer specific or overall commissions generated by an agent. 16. LPL did not have in place surveillance sufficient to supervise small-principal transactions where the Minimum Equity Commission was in excess of 5%. 17. As a result, LPL failed to adequately supervise small-principal equity transactions where the Minimum Equity Commission was in excess of 5%. V. CONCLUSIONS OF LAW 18. The preceding paragraphs are incorporated by reference as though set forth verbatim herein. 19. Pursuant to 32 M.R.S. 16412(4)(I) and Maine Office of Securities Rule Chapter 504 7(1), it is a violation of the Act for a licensed broker-dealer firm to fail to establish and maintain a system to reasonably supervise its agents. 20. LPLs acts and practices, as described above, constitute a violation of 32 M.R.S. 16412(4)(I), as well as Maine Office of Securities Rule Chapter 504, (7)(1). VI. ORDER 21. On the basis of the Findings of Fact, Conclusions of Law, and LPLs consent to the entry of this Order, IT IS HEREBY ORDERED: A. LPL shall permanently cease and desist from conduct in violation of of 32 M.R.S. 16412(4)(I), as well as Maine Office of Securities Rule Chapter 504, (7)(1); B. LPL is censured by the Administrator; C. LPL shall provide restitution to the affected Maine customers set forth in Exhibit A in an amount of no less than $18,847.50, representing the amount of the commission on certain small-principal equity transactions for which the principal trade amount was $2,500 or less and that exceeded five percent 5% of the principal trade amount during the Relevant Time Period, plus interest in the amount of 6% from the date of the transaction to May 19, 2025. LPL shall provide restitution within sixty (60) days of execution of this Order; D. Restitution shall be in the form of a dollar credit to current customer accounts, or a check for all former customers or current customers who are entitled to restitution as a result of transactions involving an individual retirement account; E. LPL shall provide a notice of restitution (Notice) to customers. The Notice shall be sent with the distribution of any restitution. Within forty-five (45) days of the transmission of the Notice, LPL shall provide the Administrator with a list of all Maine residents for whom LPL receives a Notice as returned to sender. To the extent the Administrator has access to different address information, LPL shall send a second Notice to each such Maine resident within thirty (30) days of the Administrator providing such different address; F. Within one-hundred twenty (120) days of the transmission of the final Notice pursuant to paragraph VI(E) above, LPL shall prepare, and submit to the Administrator, a report detailing the restitution paid pursuant to the Order, which shall include: i. Identification of all payments made; and ii. Dates, amounts, and methods of the transfer of funds for all restitution payments; G. LPL shall pay an administrative fine in the amount of $20,000 to the State of Maine within fifteen (15) days following the date of entry of this Order. Payment shall be: (1) made by United States postal money order, certified check, bank cashiers check, bank money order, (2) made payable to Treasurer State of Maine; (3) either hand-delivered, mailed to 121 State House Station, Augusta, ME 04333-0121, and (4) submitted under cover letter or other documentation that identifies payment by LPL and the case number of the proceeding; H. LPL agrees that a person not unacceptable to the Multi-State Group shall certify in writing to the Administrator within sixty (60) days of the date of entry of this Order that LPLs policies and procedures have been changed and enhanced to ensure that all commissions are fair and reasonable. At a minimum, LPL shall certify that its policies and procedures include the following: i. Compliance and operational systems to prevent the imposition of unreasonable or unfair commissions; ii. Incorporation of all securities transactions, regardless of the principal amount of the transaction, into any systems used to identify and review potentially excessive commissions; and iii. Revisions to its policies and procedures sufficient to ensure the adequate implementation of the above; I. LPL shall retain copies of any and all report(s) as set forth in paragraph (F) above in an easily accessible place for a period of five (5) years from the date of the reports; J. LPL shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal or local tax for any amounts that LPL shall pay pursuant to this Order; K. If LPL is the subject of a voluntary or involuntary bankruptcy petition under Title 11 of the United States Code within three hundred sixty-five (365) days of the entry of this Order, LPL shall provide written notice to the Administrator within five (5) days of the date of the petition; L. Any fine, penalty, and/or money that LPL shall pay in accordance with this Order is intended by LPL and the Administrator to be a contemporaneous exchange for new value given to LPL pursuant to 11 U.S.C. 547(c)(1)(A) and is, in fact, a substantially contemporaneous exchange pursuant to 11 U.S.C. 547(c)(1)(B); M. If LPL fails to materially comply with any of the terms set forth in the Order, the Administrator may declare this Order null and void in whole or in part; and N. For good cause shown, the Administrator may extend any of the procedural dates set forth above. LPL shall make any requests for extensions of the procedural dates set forth above in writing to the Administrator. VII. WAIVER 22. LPL hereby waives all rights to contest this Order, including, but not limited to, (A) the right to contest whether the Order is fair, reasonable, and/or in the public interest, (B) the right to contest the Orders findings of fact, and (C) the right to contest the Orders conclusions of law. LPL further waives its right to a hearing and any other procedural rights provided by the Act and the Maine Administrative Procedure Act, 5 M.R.S. 8001 et seq. VIII. NO DISQUALIFICATION 23. This Order does not create any disqualification under the Act or rules or regulations thereunder, including any disqualification from relying upon the licensing exemptions or safe harbor provisions to which LPL may be subject. This Order is not intended to be a final order based upon violations of the Act that prohibit fraudulent, manipulative, or deceptive conduct. This Order is not intended to form the basis of any disqualifications under Section 3(a)(39) of the Securities Exchange Act of 1934; or Rules 504(b)(3) and 506(d)(1) of Regulation D, Rule 262(a) of Regulation A and Rule 503(a) of Regulation CF under the Securities Act of 1933. This Order is not intended to form the basis of disqualification under the FINRA rules prohibiting continuance in membership absent the filing of a MC-400A application or disqualification under SRO rules prohibiting continuance in membership. This Order is not intended to form a basis of a disqualification under 204(a)(2) of the Uniform Securities Act of 1956 or Section 412(d) of the Uniform Securities Act of 2002. Except in an action by the Administrator to enforce the obligations of this Order, any acts performed or documents executed in furtherance of this Order: (a) may not be deemed or used as an admission of, or evidence of, the validity of any alleged wrongdoing, liability, or lack of any wrongdoing or liability; or (b) may not be deemed or used as an admission of, or evidence of, any such alleged fault or omission of LPL in any civil, criminal, arbitration, or administrative proceeding in any court, administrative agency, or tribunal.