Chicago-based Stoltmann Law Offices is investigating allegations made by the United States Securities and Exchange Commission (SEC) regarding former LPL Financial Advisor Eric Hollifield and stealing over $1 million from a client. This is not the first time an LPL financial advisor has been caught red-handed stealing from LPL firm clients. Given the independent contractor model employed by LPL Financial over its financial advisors, these sorts of scams are all too easy to pull off and continue to happen.
According to the SEC’s complaint, Hollifield, who worked out of Dacula, Georgia, executed several fraudulent ruses designed to hide his true intent. First, he solicited investors to put money into a company called Century Warehouse, Inc., which was allegedly involved in the warehousing and shipping industry. From October 2019 through October 2020, Hollifield is alleged to have raised $5.35 million from advisory clients for Century Warehouse. Hollifield’s alleged fraud were his representations to investors that Century intended to use investors funds to buy PPE and other COVID-related supplies for the benefit of veterans. According to the SEC, at least $1 million of the money raised from investors went back to Hollifield’s bank account where he spent the money on personal expenses. The SEC also alleges that Hollifield used $1.7 million in misappropriated investor money to purchase a home sitting on 37 acres in Winder, Georgia. The SEC alleges further that Hollifield lied to a client about setting up a “high yield” account at Goldman Sachs and instead stole the money.
There are two primary compliance and supervisory models that have existed in the brokerage industry for decades. The first is the one most people think of when they hear the term “brokerage firm”. They envision a huge office with fifty cubicles and telephones ringing. This office model is still common in the large “wire house” brokerages like Merrill Lynch and Morgan Stanley. In that structure, a branch manager is stationed at his post on-sight, reviews all incoming and outgoing correspondence, reviews a daily trade blotter, and reviews a daily transaction ledger that shows all checks sent and received for accounts in his branch. This branch manager wanders the office, peaks over shoulders, and should ensure his brokers are living up to the standards of a licensed securities broker.
The other model, uses independent contractor brokers, who the brokerage firms will argue are not employees, puts them in small one or two person offices, and supervises them remotely via periodical office reviews or audits. It should come as no surprise, that brokers prefer this compliance model over the wire-house model. Both models can work fine if executed properly, but the remote office being supervised indirectly from hundreds of miles and time zones away, tends to breed more Ponzi schemes and fraudulent misconduct.
LPL uses the independent contract model. Its history of compliance issues and rogue brokers under its watch is a testament to how poorly this model works in supervising financial advisors. LPL has an iron-clad responsibility under FINRA Rule 311o to supervise their financial advisors with a view towards detecting and preventing securities fraud. Truly, supervision is the cornerstone of the Securities and Exchange Act. Furthermore, the securities law imposes upon LPL the status of a “controlling person” over its registered representatives like Hollifield.
If you were victimized by Eric Hollifield’s investment schemes, you have legal rights to enforce. Please call Stoltmann Law Offices at 312-332-4200 for a no obligation initial consultation with a securities lawyer.