Chicago-based Stoltmann Law Offices is investigating allegations against Eric Hollifield that came to light as a result of a regulatory filing by the Financial Industry Regulatory Authority (FINRA). According to FINRA, the regulator launched an investigation into Eric Hollifield who was a registered representative of LPL Financial and Hamilton Investment Counsel. The investigation was in connection with a customer complaint filed in arbitration against Dacula, Georgia-based Hollifield that alleges he stole or misappropriated $1,240,000 from the account of an elderly client. This complaint was filed on August 25, 2021 and came on the heels of LPL terminating Hollifield for cause for “failing to disclose an outside business activity.” On September 1, 2021 Hamilton Investment Counsel followed LPL’s lead and terminated Hollifield for cause or failing to disclose an outside business activity.
Since Hollifield failed to respond to FINRA’s request for information, pursuant to FINRA Rule 8210, Hollifield accepted a lifetime ban from the securities industry. Brokers agree to these lifetime bans, instead of cooperating with an investigation, for any number of reasons. Obviously, given the allegations made by the pending customer complaint and the terminations from LPL and Hamilton, a reasonable conclusion to draw is, Hollifield chose to accept a lifetime bad from FINRA as opposed to disclosing or admitting information to FINRA that could be used against him by criminal authorities. It is important to realize, the facts in the customer complaint and the information contained in the FINRA AWC are mere allegations and nothing has been proven.
LPL has a long history of failing to supervise its financial advisors, like Hollifield. We have blogged on these issues numerous times. Pursuant to FINRA Rule 3110, brokerage firms like LPL have an iron-clad responsibility to supervise the conduct of their brokers, like Hollifield. Similarly, brokers have an obligation to disclose “outside business activities” to their member-firm pursuant to FINRA Rule 3270. LPL cannot get off the hook, however, just because Hollifield failed to disclose an outside business. There are a few reasons for this and they are important. First, brokers do it all the time and LPL knows it. Therefore, as required by both FINRA regulations and LPL’s open internal policies the procedures, LPL’s compliance and supervision apparatus is geared towards detecting undisclosed outside business activities because it is commonly through these outside businesses, that financial advisors execute their worst schemes and frauds on their clients. Further, to the extent red flags existed that Hollifield was running an undisclosed outside business or doing something else that violated securities regulations, then LPL can be held liable for negligent supervision, at a minimum. Case law supports the imposition of liability on LPL under these circumstances. See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010).