Lincoln Financial Securities Corporation (CRD #3870, Concord, New Hampshire) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $175,000. The firm has already paid $5.63 million in restitution to investors.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish and maintain a supervisory system and establish, maintain and enforce WSPs reasonably designed to supervise its registered representatives, and otherwise detect and prevent a specific registered representative’s fraudulent solicitation and sale of investments in a purported bond fund. The findings stated that the firm lacked an effective system for responding to certain red flags of potential misconduct by its representatives. As a result of those supervisory deficiencies, the firm failed to detect and prevent a Ponzi scheme the registered representative operated.
The findings also stated that the firm’s WSPs provided that the firm should not accept a registered representative subject to an open regulatory body investigation. The firm learned about an open inquiry concerning the registered representative by the securities regulator in his home state, which thereafter approved his registration. Despite knowing about that open inquiry, the firm chose not to terminate the registered representative or even place him on heightened supervision. The findings also included that the firm permitted the registered representative to operate a branch office and for the first several months, designated the firm’s president as his Office of Supervisory Jurisdiction (OSJ) manager. The firm’s registration and compliance departments failed to inform the OSJ manager, who was also the registered representative’s supervisor, about the state securities regulator’s inquiry. The firm’s advertising review department had numerous concerns about the advertising that the registered representative proposed to use in his approved outside business activities, but did not relay its recommendations to the OSJ manager.
FINRA found that although the firm recognized an inherent conflict of interest in permitting the registered representative to hire and compensate his own supervisor, it did not take any meaningful steps to ensure that the OSJ manager properly supervised registered representative. In contravention of the firm’s procedures, the firm failed to contact the OSJ manager when he resigned. Had the firm contacted the OSJ manager, he would have told the firm his suspicion that the registered representative was perpetrating an offering fraud. FINRA also found that in contravention of its WSPs, the firm chose not to review the email account that the registered representative used for his outside business activity when it conducted its branch examinations because the registered representative was not in the branch office at those times. Had the firm reviewed the communications transmitted through that email account, it might have detected that the registered representative offered investments in the purported bond fund through that email account.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
If you have questions about investments you made with Lincoln Financial Securities Corporation, the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
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