LPL failed to establish, maintain and enforce a supervisory system, including written supervisory procedures reasonably designed to review and monitor all transmittals of funds and securities from customer accounts to third party accounts and to registered representatives’ accounts.
The firm’s supervisory control procedures for third-party transmittals included the use of an Office of Supervisory Jurisdiction Review Tool (ORT) to monitor third-party disbursements; ORT was designed to identify only transmittals of cash, e.g. in the form of checks, Automated Clearing House (ACH) transactions, or wire transfers to third parties. The firm’s control procedures for review using ORT did not address journals between accounts and one of the firm’s registered representatives exploited this failure and journaled $40,000 in cash as well as securities out of customers’ accounts to his personal account, and converted the cash and proceeds from the sale of the journaled securities in the aggregate amount of over $1 million.
The firm’s procedures required that any journal that results in assets being journaled into a registered representative’s personal account must be submitted to a supervisor for approval, and the firm failed to document any approvals of the subject journals or document that the requests were escalated to a supervisor for further review. While the firm’s procedures required that the firm send a written confirmation to the customer’s address of record in conjunction with all third-party journals, the firm failed to send written confirmations in conjunction with some third-party journals.