Broker-Dealer Fined for Suitability Violations on the Sale of Variable Annuities
A formerly registered broker-dealer settled FINRA charges for failing to supervise the suitability of sales of variable annuities to customers.
In a Letter of Acceptance, Waiver and Consent, FINRA stated that the broker-dealer failed to detect that its representatives' recommended annuities to customers even though "nearly identical" shares were available with a lower cost to the customers. FINRA found that after the shares were purchased in an advisory account held at the broker-dealer's investment advisory affiliate, the shares were then transferred to an advisory account to which the customers paid advisory fees. FINRA determined that this arrangement caused the customers to "unnecessarily pay[] both higher product costs and advisory fees." FINRA concluded that the broker-dealer violated FINRA Rules 3110 ("Supervision"), 2330 ("Members' Responsibilities Regarding Deferred Variable Annuities") and 2010 ("Standards of Commercial Honor and Principles of Trade").
FINRA also found that the broker-dealer conducted a securities business without maintaining the minimum required net capital, thereby violating Exchange Act Section 15(c) ("Registration and regulation of brokers and dealers"), Exchange Act Rule 15c3-1 ("Net capital requirements for brokers or dealers"), and FINRA Rules 4110 ("Capital Compliance") and 2010. FINRA said that the broker-dealer violated Exchange Act Rules 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), 17a-5 ("Reports to be made by certain brokers and dealers"), 17a-11 ("Notification provisions for brokers and dealers") and FINRA Rules 4511 ("General Requirements") and 2010 by (i) failing to timely file a notice with the SEC and FINRA regarding the firm's net capital deficiency, (ii) submitting inaccurate FOCUS reports to FINRA and (iii) maintaining inaccurate books and records regarding its aggregate indebtedness and net capital.
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) payment of $500,000 in restitution to customers.