BOSTON – An investment firm located in Boston has agreed to pay $1.8 million for placing approximately 200 Massachusetts clients into unsuitable investments, Attorney General Maura Healey announced today.
The assurance of discontinuance, filed Tuesday in Suffolk Superior Court against LPL Financial LLC, a major broker-dealer and investment adviser, alleges violations arising from LPL’s sales, marketing, training, and oversight relating to risky leveraged Exchange Traded Funds (ETFs).
“Massachusetts families shouldn’t have their hard-earned savings put at risk by unsuitable investments,” AG Healey said. “Consumers must be able to place their trust in their financial advisors and feel confident that their money will be invested appropriately.”
The leveraged ETFs at issue are complex investment funds that try to perform at a multiple of the daily returns of an index like the Standard & Poor’s (S&P) 500. For reasons normally not known to casual investors, holding investments in these funds for long periods of time can produce unexpected outcomes. Even an investor who bets correctly on the direction of the index can lose money when holding a leveraged ETF.
Leveraged ETFs are risky investments that have become notorious for their instability, and are unsuitable for retail investors in most cases. The AG’s Office alleges certain LPL clients in Massachusetts experienced losses as a result of holding Leveraged ETFs for long periods of time.
According to the AG’s investigation, LPL also failed to supervise its financial advisors who caused clients to hold these investments for extended periods of time, and did not consistently adhere to its policy of imposing fines on financial advisors who exceeded concentration limits.
Under the terms of the settlement, reached jointly with the Delaware Department of Justice, the $1.8 million LPL will pay covers a $200,000 penalty, as well as $1.6 million to compensate investors and for investor education. The state of Delaware will also receive a total of $200,000 under a parallel agreement with the Delaware Department of Justice.
This case was handled by Assistant Attorney General Aaron Lamb, Division Chief Glenn Kaplan, Legal Analyst Brook Kellerman, and Mathematician Burt Feinberg, all of AG Healey’s Insurance and Financial Services Division.