LPL Financial plans a spirited defense against claims that it was negligent in its supervision of a rogue broker who allegedly stole $5 million from at least 40 victims, many from his church in Phoenix.
LPL of Boston was sued this month in Maricopa (Ariz.) County Superior Court for its alleged role in the affinity fraud case.
The lawsuit alleged that the broker, James Buchanan, was able to steal $382,376 from an elderly married couple because LPL "completely failed in its supervisory and compliance duties regarding" him. Mr. Buchanan and his wife, Lori, also were named in the lawsuit.
Affinity fraud is a scam that preys on members of an identifiable group, such as a religious community.
"LPL Financial denies the allegations," said spokesman Kevin Dinino. "The firm has retained counsel and will vigorously defend itself. LPL Financial fired Mr. Buchanan in March."
Court documents give an inkling of LPL's planned defense over the matter.
In July, the attorney representing the elderly couple, James Burgess, filed a civil complaint against LPL, Mr. Buchanan and his wife on behalf of a different family.
That lawsuit makes similar allegations against LPL, claiming it was negligent when Mr. Buchanan stole $162,000 from the family.
LPL filed a motion to dismiss charges against it in August.
"Although Buchanan was a registered representative for LPL at the time of the alleged activities, there is no allegation that plaintiffs were customers, had any accounts or any relationship whatsoever with LPL," the motion stated. "As a result, LPL owed no duty of care to plaintiffs."
TRACK RECORD
The lawsuit's claims hinge on Mr. Buchanan's spotty track record in the brokerage industry and LPL's alleged indifference to that history.
According to the lawsuit, in August and September 2006, Mr. Buchanan's prior brokerage firm, Ameriprise Financial Services Inc. of Minneapolis, told regulators that Mr. Buchanan "had committed two cardinal violations of industry rules and regulations."
First, he had loaned money to a client, the lawsuit stated.
Second, Mr. Buchanan accepted a check that a customer had made payable to him, as opposed to Ameriprise, and then cashed the check, it said.
"These disclosures should have been a giant red-flag warning to LPL about Buchanan, who had only joined LPL a few months earlier in June 2006," according to the suit. "Instead, LPL ignored the fact that Buchanan had blatantly violated two of the security industry's cardinal rules."
Lawsuits and arbitration claims against him and LPL are stacking up in the wake of a criminal investigation against the adviser.
According to his record with the Financial Industry Regulatory Authority Inc. of Washington and New York, Mr. Buchanan has 18 customer disputes pending against him, while five claims have been finalized.
So far, Ameriprise has settled one claim for $316,000, while Ameriprise and LPL have settled another for $129,000.
Mr. Buchanan was registered from 1994 through January 2006 with Ameriprise, formerly known as American Express Financial Advisors.
According to industry records, he was out of the brokerage business for six months before becoming affiliated with LPL in June 2006.
LIVING MONTH TO MONTH
In the lawsuit from Oct. 14, the couple, Warren Atkinson, 84, and June Atkinson, 79, claim that Mr. Buchanan wiped out what was left of their life savings, and they now live from month to month on Social Security checks.
"Since 2001, Buchanan took advantage of his victims' religious faith and trust in him as a leader in his church," according to the lawsuit. "In some instances, Buchanan lied to widows to steal the proceeds of their deceased husbands' life insurance."
From January through May 2007, Mr. Buchanan told the Atkinsons he would put their money in LPL investments that would earn 8.5% interest annually, according to the lawsuit.
Because he never opened a brokerage account for the Atkinsons, they have the ability to file a civil claim against LPL and him rather than file a securities arbitration, said Mr. Burgess, an attorney with Fennemore Craig PC in Phoenix, who is representing the Atkinsons and the family in the other lawsuit.
In May, Mr. Buchanan was charged with one count of fraud and 14 counts of theft, according to an indictment filed with the Maricopa County Superior Court.
Each of those is a felony charge.
Mr. Buchanan was freed on a $350,000 bond. His lawyer, James Belanger of Phoenix, did not return a call to comment.
E-mail Bruce Kelly at [email protected].
