The Securities and Exchange Commission announced an $18 million settlement with broker-dealer and investment adviser, LPL Financial LLC, to resolve charges alleging multiple failures related to its anti-money laundering (AML) program.
The penalty, which may be the first of its kind pertaining to financial services to the cannabis industry, came with an 11-page cease-and-desist order issued by the SEC on Jan. 17. It followed years of investigation into suspected failures in AML and customer due diligence policies and procedures.
Among other problems, the SEC said LPL Financial failed to follow its own policies to prohibit cannabis-related accounts.
“As of February 2023, approximately 1,400 accounts holding approximately $350 million in assets were deemed inconsistent with LPL’s AML Policies regarding cannabis-related businesses,” the SEC said in the order.
Anti-money laundering policies allegedly not followed
According to the SEC’s claims, from at least May 2019 through December 2023, Fort Mill, S.C.-based LPL Financial failed to follow its own AML policies and procedures regarding its Customer Identification Program (CIP) and ongoing customer due diligence obligations.
The SEC said LPL “failed to properly verify new accounts; failed to timely close accounts that did not pass its CIP screening measures; and failed to close or restrict certain accounts, such as cannabis-related and foreign accounts that were prohibited under its AML policies.”
Specifically regarding cannabis-related accounts, the SEC said, “As early as May 2019, LPL policies prohibited the company from ‘doing business with any person or entity involved with marijuana [cannabis] production, distribution or other ancillary operations.’”
The policy applied to new accounts and noted that existing accounts discovered after the fact to be involved in cannabis activities would be addressed on a case-by-case basis.
“Despite the policy prohibiting doing business with any person or entity involved, either on a direct or ancillary basis, with cannabis production or distribution, LPL nevertheless permitted numerous cannabis-related accounts to be opened and remain open for years,” the SEC said.
LPL reached the settlement with the SEC without admitting or denying the SEC’s findings and agreed to a censure and a cease-and-desist order in addition to the $18 million penalty. The SEC’s order also directs LPL to continue its engagement of a compliance consultant to review and recommend changes to the firm’s AML policies and procedures.
The fine against LPL takes into consideration the fact that LPL took efforts to improve its compliance after the SEC investigation began, resulting in leadership changes and new employees in legal and compliance roles, according to the SEC order.
“Federal law requires broker-dealers to ascertain the identity of their customers and to conduct ongoing customer due diligence to aid the government in its efforts to detect and prevent money laundering,” said Stacy Bogert, associate director of the SEC’s Division of Enforcement, in a released statement.
“When broker-dealers like LPL fail to comply with their AML obligations, they put the securities markets at risk. Today’s case underscores the importance of complying with applicable regulations in the areas of customer identification and ongoing customer due diligence,” Bogert continued.
