As the U.S. Financial Industry Regulatory Authority (FINRA) continues to ramp up efforts to prevent financial misconduct, penalties have been increasingly levied against top businesses and personnel. Recently, FINRA suspended an ex-LPL Financial broker from association of any capacity for five months for setting up and using two unapproved email accounts to correspond with customers. The former broker, accused of using secondary email accounts to communicate securities business with customers and circumvent LPL’s supervision of his business, claims he never used the unapproved system to disclose information to LPL clients.
Donald G. Padilla, without admitting his accusations, signed a letter of acceptance, waiver, and consent, with FINRA on May 21 in which he agreed to his suspension and a $10,000 fine. Registered as a general securities representative with LPL since April 2009, Padilla resigned November 4, 2015, while the firm was conducting a review of the use and concealment of an unapproved email address prior to an LPL Branch Exam. The deletion of emails was “entirely a routine house-keeping issue and had nothing to do with any upcoming branch inspection.” He maintains that his use of the Outlook email for personal or calendaring purposes, which he routinely deleted when no longer of any relevance, was not in violation of FINRA rules.
According to FINRA, Padilla’s use of unapproved email accounts to conduct LPL-related securities business, including account funding confirmations, portfolio recommendations, and fee summaries and trade confirmations, prevented the firm from preserving records of his communications with clients. He alleged that the Outlook system was used solely for internal purposes, but that “We also used it for some insurance business that was conducted outside of LPL but was fully disclosed to LPL. It was never intended to be nor was it used for communications with securities account customers.”
Padilla claims that Outlook had been approved for internal use since 2011. “We have since been told that it was not. As soon as we were advised of the problem and before making the decision to leave LPL, we made efforts to bring our system in full compliance with LPL’s requirements.” His actions violated FINRA Rules 2010 (governing standards of commercial honor), 3110 (governing supervision), and 4511 (governing general requirements for records). Padilla is no longer registered as a broker or RIA. He was later discharged from Kestra following allegations that he failed to comply with the firm’s correspondence requirements.