Variable Annuities

FINRA Says Former MML Investors Services Broker Bilked Older Couple in Senior Fraud

Published on: November 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has issued a complaint against Stanley Clayton Niekras accusing the broker of elder financial abuse. According to the regulator, Niekras allegedly cheated a couple, who are in their nineties and in failing mental and physical health, out of over $70K in financial panning services fees.

Even though Niekras didn’t have an investment advisory or financial planning agreement with the elderly couple, he allegedly billed them for hundreds of hours of time that he purportedly spent working on their “financial future” –work that he claimed to have done over four years. The purported elder fraud would have taken place while he worked for MML Investors Services. FINRA said that Niekras charged the couple $250/hr in retroactive compensation. The couple received their bill for these supposed services in 2013.

FINRA contends that Niekras knew that he had no right to the “financial planning fees or the “estate planning” fees he was charging the couple. The self-regulatory organization said that the broker, who had been contending with tax liens, had told MML Investors Services that he could cover the liens because of commissions he was expecting. Niekras purportedly thought that he could sell variable annuities to the children of the older couple, who had gifted them with about $500K in securities and cash each.
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Voya Financial Advisors, Cetera Advisors, and Six Other Broker-Dealers to Pay $12.5M in Fines and Restitution For Allegedly Not Properly Supervising The Sale of L-Share Variable Annuities

Published on: November 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining eight brokerage firms $6.2M for not supervising the sale of L-share variable annuities to customers. Five of the firms must pay another $6.3M to customers because the variable annuities that they were purchased were potentially not compatible with the latter’s investment goals and accounts.

The firms, and their sanctions, include: Voya Financial Advisors Inc., for $2.75M fine, First Allied Securities, Inc., for $950K fine, VSR Financial Services, for $400K fine, Cetera Financial Specialists LLC, for $350K fine, Cetera Advisors Networks LLC, for $750K fine, Summit Brokerage Services, Inc., for $500K fine, Kestra Investments, for $475K fine, and FTB Advisors, for $250K fine. The firms that have to pay restitution are: Voya, for $1.8M, while first Allied, Cetera Advisors Networks, VSR, and Summit Brokerage Services will collectively pay $4.5M. All the firms are settling, but they are not denying or admitting to any of the alleged claims.

At issue was the sale of the L-share annuities, which are “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” L-share annuities are more likely to pay registered representatives and their firms higher compensation than more traditional instruments.

Texas Securities Cases: IMS Securities to Pay $100K Over Variable Annuity Exchanges, State Regulator Bans Broker from Making Nontraded REIT Recommendations, and Former Dallas Billionaire Sam Wyly to Pay $198M To Settle Fraud Case

Published on: October 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas-Based Brokerage Firm Accused of Inadequate Supervision Involving VA Exchanges

The Financial Industry Regulatory Authority is ordering IMS Securities Inc. to pay a $100K fine. The Texas-based brokerage firm is accused of failures related to its monitoring of variable annuity exchanges. By settling, however, it is not denying or admitting to the allegations.

According to the self-regulatory authority, the firm exhibited inadequate supervisory procedures for “problematic rates of exchange” in transactions involving variable annuities. FINRA claims that from 7/ 15/13 through 7/8/14, IMS Securities depended on its CFO to review annuity exchanges but did not provide tools or guidance to help look for “problematic rates of exchange.” The broker-dealer is accused of not probing possibly “problematic patterns” of VA exchanges and not enforcing written supervisory procedures related to consolidated reports.

Prudential Annuities Fined $950K for Not Stopping Broker From Stealing $1.3M from Elderly Customer’s Variable Annuity Account

Published on: July 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Prudential Annuities Distributors Inc. $950K for not identifying and stopping a senior fraud scam that allowed a broker to steal $1.3M from an older investor’s variable annuity account. The self-regulatory organization said that the firm failed on numerous occasions to properly investigate “red flags” indicating that Travis Weitzel was moving money from the 89-year-old’s VA account to a bank account listed under the maiden name of Wetzel’s wife.

According to FINRA, from 6/10 until 9/12, Wetzel turned in 114 forged annuity withdrawal requests to Prudential Annuities. He initiated up to five withdrawals a month, totaling close to $50K. He asked for the money to be wired from the elderly customer’s account to the third-party account of his wife.

The SRO said that Prudential Annuities did as Wetzel instructed without properly investigating the warning signs. When the firm looked at certain withdrawals during several quarterly audits, it saw that the money was going to a third party and determined that these were legitimate transactions. Prudential also purportedly failed to discern what the relationship was between the elderly customer and the third-party account holder.

Ex-Prudential Financial and MetLife Broker is Barred over Deceptive MetLife Variable Anuuity Sales

Published on: July 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has banned Winston Wade Turner from the securities industry. The former Prudential (PRU) and MetLife (MET) broker is accused of engaging in deceptive variable annuities sales. Turner was fired from Pruco Securities, a Prudential subsidiary, in 2015. The cause of his firing was deceptive sales practices.

Now, FINRA has barred him for a number of causes, including giving false information to clients about variable annuity sales, the fraudulent misrepresentation and omission of key facts to customers about the sales, providing false information in VA-related documents, and not giving testimony to the self-regulatory organization during its probe into this matter.

According to the SRO, Turner fraudulently misrepresented and omitted material facts about VA sales and concealed that he had persuaded a lot of customers to give up existing variable annuities or other investments so that they would buy the newer VAs that he was selling. He is accused of persuading at least 12 clients to trade their existing investments for this purpose, costing them over $150K in surrender charges.

Securities Headlines: FINRA Enforcement Officials Say They Are Keeping Their Eyes on Variable Annuities, Massachusetts Goes Looking for Rogue Brokers, and Man is Accused of Scamming Women He Met Online

Published on: June 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Takes a Closer Look at Variable Annuities
At a recent Insured Retirement Institute Conference, Financial Industry Regulatory Authority Inc. enforcement officials said that even though variable annuities are not on the regulator’s list of examination priorities for 2016 this doesn’t mean it isn’t scrutinizing them. FINRA Sr. VP/deputy enforcement chief Russ Ryan said that variable annuities often are involved in its cases.

It was just recently that FINRA charged MetLife (MET) $25M for making misrepresentations and omissions related to variable annuity sales. New products were marketed as less costly and better than the variable annuities that clients already owned when, in truth, said the regulator, the clients should have stayed with these older investments. The alleged misrepresentations and omissions were found in 72% of 35,500 applications for variable annuity replacements that were approved by MetLife.

FINRA said that training and supervision were a key factor in the case, which is what they are also seeing in other variable annuity cases. The regulator is also looking at L-share variable annuities, which offer greater liquidity and a shorter surrender-penalty period.

With a variable annuity contract, an insurer consents to pay the investor periodic payments either right away or in the future. The investor buys the contract with a single payment or a series of payments. The VA’s value will depend on performance and the investment options selected by the investor.

Massachusetts Targets Rogue Brokers
The Massachusetts Securities Division is going after rogue brokers. The regulator sent a letter to more than 240 firms that have a higher than average number of reps who have been reported for misconduct. The state says it wants the firms’ hiring information and is interested in learning about brokerage firms’ hiring procedures and policies. The letter was issued to financial firms where over 15% of their current representatives have at least one current disclosure incident documented.

MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities

Published on: May 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said that MetLife Securities Inc. (MSI) would pay a $20M fine as well as $5M to customers for negligent and material misrepresentations that it purportedly made related to variable annuity replacement applications. According to the self-regulatory organization, these alleged omissions and misrepresentations were on tens of thousands of applications, and they made each replacement variable annuity seem of greater benefit to the customer despite the fact that the variable annuities that were recommended were usually more costly than the ones that the customers already owned. MetLife Securities made at least $152M in gross dealer commissions over six years through its variable annuity replacement business.

Based on a sample of transactions that were randomly examined, FINRA said that from ’09 through ’14, MetLife Securities omitted or misrepresented at least one material fact connected to the guarantees and costs of existing variable annuity contracts in 72% of the 35,500 replacement applications that it approved. Among the alleged misrepresentations:

· Existing variable were costing customers more than the variable annuities they were recommending, when the opposite was true.

· Customers were not told that the variable annuity replacements promised to them would lessen or get rid of key features that their current variable annuity possessed.

· In disclosures, the value of customers’ existing death benefits was understated.

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

Published on: April 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.

Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

Ex-MetLife, Prudential Broker Accused of Deceptive Conduct Involving Variable Annuity Sales

Published on: March 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is accusing Winston Wade Turner, a former registered representative with Pruco Securities Inc. and MetLife Securities Inc., of misconduct related to the exchanges and sales of variable annuities. Turner allegedly persuaded clients to exchange certain investments, including variable annuities, which compelled them to surrender existing contracts to pay for the purchase of new variable annuities. In certain situations, this led to surrender charges for the client and additional commissions for Turner.

The regulator contends that Turner concealed the transactions’ unsuitable nature from brokerage firms and his clients. He allegedly did this by falsifying documents and misrepresenting how certain income features on the annuity contracts functioned. FINRA claims that Turner hid the nature of the VA transactions from his firm by managing to get around the additional documentation and supervisory examination mandated for the exchanges. He also sometimes would recommend clients put proceeds from the contract surrenders into their bank accounts first-as opposed to a direct annuity to annuity transfer-and then use those funds to purchase new variable annuities.

Turner is also accused of falsifying VA applications, documents related to VA exchanges, and customer information forms. He purportedly forged customer signatures and used his own e-mail address, misrepresenting it as customers’ addresses so that he received the account notifications instead of them.
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Fidelity Suspends MetLife Annuity Sales and Commonwealth Stops Selling L Share Variable Annuities

Published on: February 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has decided to suspend sales of annuities from MetLife while the life insurance company considers a possible spinoff, sale, or public offering of a retail unit that offers retirement products. According to InvestmentNews, MetLife, which is the biggest life insurer in the US, has said that the move is under consideration because of expected, more stringent capital rules now that it has been designated a “non-bank systematically important financial institution.” Some in the industry have said that this could cause the insurer to lose distributors.

The possible sale or break up would likely include General American Life Insurance Co, MetLife Insurance Co., Metropolitan Tower Life Insurance Co., and a number of subsidiaries with reinsured risks that MetLife Insurance Co. underwrites. A retail unit break off would result in businesses that are still regulated, but not as regulated as retail products.

MetLife also is reportedly in discussion with MassMutual over the possible sale of its U.S. adviser unit, the MetLife Premier Client Group.

The U.S. Department of Labor’s proposed fiduciary rule is pushing for tighter rules for retirement product sales. This is compelling some insurance company to reassess whether to continue running their own brokerage firm operations. In February, American International Group Inc. announced that it was selling its AIG Adviser Group to Canadian pension manager PSB Investments and private equity firm Light Year Capital. Under the proposed rule, investment advisor standards for giving advice related to retirement accounts would be raised.
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