The registration lapses of Wells Fargo and LPL Financial in Massachusetts should serve as a warning to all broker-dealer firms in all states, according to Christopher Gerold, chief of the New Jersey Bureau of Securities.
In both cases, Massachusetts sanctioned Wells Fargo and LPL for failing to properly register their agents and supervisors in the states that they were doing business in.
“This is the type of matter that I hope — whether you are outside counsel to a broker-dealer or you’re in-house — you look at the case and you read it, and you immediately turn to your own policies and procedures, and say: ‘Am I protecting my client as well?’” Gerold said.
He made the comments last week at the Practising Law Institute’s Broker-Dealer Regulation and Enforcement 2019 seminar in New York.
The non-registration of agents and their supervisors prevents regulators from reviewing their qualifications and records.
“This is the type of case that I could tell you, as a state regulator, I saw and I said, ‘Hey, I wonder if this is happening in New Jersey’, and I think a lot of my colleagues probably felt the same way,” Gerold said.
Gerold noted that although the SEC and Finra may not be looking at state-specific registrations, “it is something that states will look at.”
The lapses of Wells Fargo and LPL should have been “easily preventable,” according to Gerold.
“It was a lack of supervision from the state’s view. They were not getting registrations filed; they want to get fees paid. These are things that, like I said, certainly should raise your eyebrow, and you should be looking at your own firms because when I first saw the case, immediately I started thinking what’s happening in my jurisdiction and who’s doing it,” he said.
During the 30-month period examined by Massachusetts’ Securities Division, 1,098 Wells Fargo agents and 561 Wells Fargo supervisors of agents had a lapse in their registrations in the state. Wells Fargo currently has more than 9,400 agents registered in Massachusetts.
Lapses in registration occurred despite Massachusetts’ Securities Division informing Wells Fargo at least 159 times that certain supervisors are required by state regulations to register.
In addition to the censure and fine, Wells Fargo has agreed to register its agents and supervisors conducting securities business in Massachusetts and to review and enhance its own policies and procedures related to registering its agents.
LPL, meanwhile, was fined $1.1 million by the Massachusetts’ Securities Division for allegedly allowing 651 brokers who weren’t registered in the state to work with investors over the past six years.