Fast-Growing Brokerage Firm Often Tangles With Regulators
"If the Indians run off the reservations, you have no one guarding the borders," he said.
LPL's promise, and peril, are evident in Montana. Over the last five years, the company's 31 brokers there have been the subject of eight complaints to the state securities regulators, according to state data. Merrill Lynch, which has 42 representatives in Montana, has not faced any complaints. Two brokers at Edward Jones, a large regional brokerage firm with 90 brokers in Montana, have been the subject of complaints in that period.
Ms. Egan, the Montana securities regulator, said the problems at LPL reflected its unusual approach to oversight. Nearly half LPL's brokers in the state are registered as their own supervisor, while other firms put brokers under a separate manager.
LPL's most serious case in Montana was resolved in 2009, when Donald Chouinard, an LPL broker in Kalispell, was sentenced to 10 years in prison for operating a Ponzi scheme. LPL paid Mr. Chouinard's clients $1.3 million, and Ms. Egan's office a $150,000 fine.
Since then, Ms. Egan said, little has changed in LPL's compliance culture, letting what she called "egregious problems" go unchecked. The case she is preparing to bring involves brokers who she said improperly sold complicated real estate investment trusts, or non-traded REITs, to unsophisticated investors.
William F. Galvin, the Massachusetts secretary of the commonwealth, came to a $2.5 million settlement with LPL in February for selling the same product to investors in his state. Mr. Galvin said LPL had failed to properly examine who the products were being sold to, and had pushed the investments without mentioning that they provided big commissions to LPL and its brokers.
"What we really saw was a complete lack of supervision," Mr. Galvin said.
In Washington State last year, authorities brought a case against a LPL broker who had sold nontraded REITs to dozens of older clients. Richard Bender, one of 36 clients pursuing an arbitration case against LPL with the lawyer David Gaba, said that he had trusted the broker because of the LPL name on his business cards. Mr. Bender, who said he lost about half his retirement savings, is trying to renew his Teamsters membership so he can drive trucks again.
"I can't enjoy my golden years," he said.
At LPL, business continues to boom. In the latest quarterly results, executives said they had added 182 brokers and increased revenue 14 percent from a year earlier. Because of a decline in profits, though, they said that they were looking at laying off employees in the main office, and outsourcing some of the firm's compliance work.
The chief executive, Mark Casady, told investors that executives were striving for long-term success by "continually challenging ourselves to do things better, faster, and at a lower cost."