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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Lax supervisory systems leads to $11.7 million in sanctions

In our last post, we highlighted a few of the many forms of investment fraud that can befall otherwise prudent investors. Specifically, we highlighted the actions of biased investment advice and unfounded advice. Both are harmful in that they ignore (or fail to include) information that would have been obtained through prudent research, and could lead unwitting investors into bad investments while the brokerage firm (or agent) profits.

When investment fraud or similar malfeasance occurs, an action could be brought before FINRA, the Financial Industry Regulatory Authority. This organization is authorized by Congress to enforce security industry rules and protect investors. An example of FINRA's enforcement authority was detailed last week in an action against LPL Financial LLC. 

According to a report, LPL was sanctioned for a number of supervisory failures; including, but not limited to, continuing offenses by representatives who made misleading claims about products the company offered, failing to improve shortcomings in its surveillance system of low-trading stocks and failing to properly monitor risky exchange traded funds.

In the course of reaching a settlement with FINRA, LPL reportedly has not admitted to any wrongdoing, but the financial consequences are telling. LPL will pay a $10 million fine and $1.66 million in restitution to affected customers.

The settlement and the fine are important because they are hefty reminders of the fiduciary duty that investment firms owe to their customers. The organization and integrity of a firm's operations is paramount, because of the trust that investors put into such firms to guide their investment decisions. 

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