FINRA Fines Firm for Misrepresentions in Variable Annuity Replacement Applications

FINRA ordered a firm to pay a $20 million fine and an additional $5 million in compensation to customers for negligent material misrepresentations and omissions on variable annuity ("VA") replacement applications. The penalty represents the largest fine ever levied against a firm concerning variable annuities.

Reviewing a random sample of transactions, FINRA found that 72 percent of the 35,000 VA replacement applications had at least one material misrepresentation or ommission, and that the firm's principals approved 99.79 percent of the inaccurate VA replacement applications submitted to them for review. Certain misrepresentations and omissions in the documents made the replacement VA applications appear to be beneficial to prospective customers even though the replacements were more expensive than the originals or resulted in a reduction or elimination of existing benefits.