- within Intellectual Property, International Law, Litigation and Mediation & Arbitration topic(s)
A firm settled FINRA charges for failing to detect that its representative recommended an unsuitable investment strategy, which involved a tripartite plan to liquidate retirement savings, purchase variable annuities and withdraw from the annuities to purchase whole life insurance policies.
In a Letter of Acceptance, Waiver and Consent, FINRA found that the firm never holistically reviewed the representative's investment strategy and approved all of the representative's unsuitable variable annuity transactions. Further, the firm did not detect when the representative recommended withdrawals that resulted in significant surrender charges and tax penalties.
Additionally, FINRA found that the firm failed to (i) investigate red flags that were brought to its attention by variable annuity issuers, and (ii) conduct a holistic suitability analysis of the representative's recommended investment strategy. FINRA stated that, when the issuers inquired about customers' early withdrawals, the firm either accepted the representative's explanations or did not request explanations at all.
As a result, the firm violated NASD Rule 3010 and FINRA Rules 2330 ("Members' Responsibilities regarding Deferred Variable Annuities"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) a $275,000 fine and (iii) $1,001,141.86 in restitution.
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