COVID-19 UPDATE: We're Open and Ready to Serve Our ClientsLearn More Here

FINRA Goes After Two Brokers for Variable Annuity Replacement Fraud

The Financial Industry Regulatory Authority has suspended broker Cecil Ernest Nivens for two years for allegedly causing harm variable annuity (VA) investors who were his customers. According to the self-regulatory organization’s filing, Nivens failed to abide by his firm’s written supervisory procedures when he didn’t properly process certain variable universal life purchase transactions as replacement trades even though he was the one who recommended that each purchase be paid for from an existing variable annuity fund.

Nivens earned over $185K in commissions for the variable annuity life purchase transactions, in addition to commissions he was already paid for the variable annuities when they were sold to the same customers. Now, Nivens must disgorge those commissions.

FINRA accused Nivens of causing “considerable” harm to customers. In addition to the excessive commissions, eight of his customers paid over $4K in unnecessary surrender charges. His former firm has paid over $55K to settle VUL fraud customer complaints involving him.

Variable Annuities
When brokers recommend that clients replace annuities under the US tax code Section 1035, the client is given a tax-free transfer and the financial representative is paid a commission. However, variable annuity exchange fraud can happen when the broker purposely fails to note that an annuity replacement is a 1035 exchange. The Client not only ends up paying a higher annuity fee and surrender charge to the exchange, but also usually incurs substantial tax liabilities. FINRA contends that this is what Nivens did with his customers.

FINRA’s complaint claims that from 2010 until Nivens left NYLife Securities in 2014, he was under heightened supervision related to replacement transactions he was involved in. The regulator believes that this stricter scrutiny compelled him to hide the replacement transactions to avoid detection. A firm supervisor that examined Nivens’ VUL transactions reportedly did not know that a number of them were replacement sales.

Former Legend Equities Broker Walter Marino Accused of Inappropriate VA Recommendations
In an unrelated but similar variable annuity fraud case, FINRA has filed a complaint against ex-broker Walter Marino who was previously with Legend Equities Corporation. He is accused of recommending exchanges of non-qualified variable annuities to two clients even though he had no reasonable grounds.

Marino was paid about $60K from the transactions. Meantime, his clients did not profit. Instead, contends the SRO, they paid more than $82K in surrender charges. Marino also is accused of not applying Section 1035’s tax-free exchange provision, which left clients with tax liabilities.

Now, he must disgorge ill-gotten pains and pay restitution to the clients that were harmed.

This is not Marino’s first offense. His Finra BrokerCheck record shows 16 disclosures, most of them customer disputes. He has worked with 13 firms in addition to Legend Equities, including Benjamin Securities and Lincoln Investments.

Variable Annuities
As InvestmentNews reports, last year FINRA issued $30.3M in 30 variable annuity cases—a 191% increase in fines from 2015. This was the year that the regulator sanctioned MetLife Securities $25M over misrepresentations and omissions involving variable annuity replacements. That included $5M to customers and a $20M fine.

The regulator said that every misrepresentation and omission made by the firm gave the impression that the variable annuity replacement was a benefit to customers even though they were usually more expensive than the VAs that they already owned. Tens of thousands of customers were purportedly impacted.

FINA noted that firm’s VA replacement business made Metlife Securities at least $152M in commissions over 6 years.

If you suspect that your losses are due to variable annuity fraud, contact Shepherd Smith Edwards and Kantas, LTD LLP today.


More Blog Posts:
MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities, Stockbroker Fraud Blog, May 5, 2016

FINRA Files Complaint Against Ex-Broker Over Variable Annuity Sales to Elderly Customers, Stockbroker Fraud Blog, April 26, 2017

HSBC Ordered to Pay $175M Fine Over Forex Trading Oversight, Institutional Investor Securities Blog, September 30, 2017

Contact Information