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.
Massachusetts is not the only one cracking down on rogue brokers. FINRA is also working harder to identify brokers who have a history of compliance issues and continue to be a problem. The state is cautioning firms not to hire them. The self-regulatory organization recently launched a probe that would examine firm culture and brokerage firms.
Man Accused of Fraud Allegedly Targeted Women He Met Online
The U.S. Securities and Exchange Commission has filed fraud charges against a Connecticut man who allegedly bilked a number of people, including several women he met through online dating. Thomas J. Connerton is accused of soliciting investments for Safety Technologies LLC, which he said was developing a material to construct surgical gloves that would be resistant to punctures and cuts. He purportedly told prospective investors that a number of major glove makers wanted the technology and that pending deals would lead to big payouts.
The SEC says that there were no such deals close to fruition and that Connerton used investor funds to cover his own spending, including $20K for an engagement ring that he bought for one of the women he met online who had become an investor. He also has not developed this cut-resistant technology to the degree that it has been ready for sale.
Of the over 50 investors who placed more than $2.3M in Connerton’s company, six of them were women he met online. 14 are friends or relatives of the women.
The SEC said that Safety Tech never registered its securities with the regulator. Federal securities laws mandate that securities that are sold to the public should be registered with the agency, especially when they are being marketed to investors who are not very experienced and cannot withstand a lot of risk.
The regulator said Connerton and Safety Technologies raised over $1M, did not make sure prospective investors had the experience or qualifications to take part in unregistered offerings, and sold the securities to investors who failed to meet the required criteria.
Finra targets variable annuities as ‘sweet spot’ of scrutiny, InvestmentNews, June 7, 2016
MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities, Stockbroker Fraud Blog, May 5, 2016
Massachusetts securities regulator hunts for ‘rogue’ brokers, Reuters, June 6, 2016