LPL Financial, headquartered in Fort Mill, S.C., will pay restitution of over $4.1 million to Mayagüez (P.R.) Economic Development Inc. (MEDI), the government entity defrauded by investment adviser Eugenio Garcia Jimenez Jr., and a $750,000 civil penalty to settle charges levied by the Securities and Exchange Commission (SEC) regarding LPL’s lax AML policies and procedures.
The SEC alleged in an administrative proceeding Thursday that LPL’s know your customer (KYC) policies, like verifying identification, addresses, and other submissions, did not catch inconsistencies in Garcia’s application for an LPL investment account that he eventually used to defraud MEDI, his advisory client, of $3.1 million in public funds.
According to the SEC’s order, Garcia had already misappropriated $4.1 million in public funds at another brokerage firm when he applied to open a new investment account with LPL in 2016. The first brokerage firm had decided to close MEDI’s account because Garcia had transferred the $4.1 million to himself, and the funds remaining in the account were invested in a way that they were losing money. The first firm gave Garcia until June 2016 to liquidate or transfer the remaining funds in the account.
“LPL failed to comply with its Customer Identification Program procedures and, despite various individuals in different departments questioning the account’s beneficial ownership, source of funds, and reason for transfer from the Brokerage Firm 1, Garcia…