Advisor Group Firms Fined For Failure To Supervise Annuity Sales

The Advisor Group Firms (FSC Securities Corporation, SagePoint Financial, Inc., Royal Alliance Associates, Inc. and Woodbury Financial Services, Inc.) consented to being fined and censured by Financial Industry Regulatory Authority (FINRA) according to their submission of a Letter of Acceptance, Waiver and Consent #: 2016047636601, accepted by FINRA on July 24, 2018. FINRA found that the Advisory Group Firms failed to reasonably supervise sales of multi-share class variable annuities.

The AWC stated that SagePoint, FSC and Woodbury (from January 2013 to December 2014) and Royal Alliance (from February 2014 to December 2015) sold variable annuity contracts with the choice of different share classes, which included B-share contracts and L-share contracts.

B-share contracts – the most common share class sold to customers – contain lower fees than L-share contracts but longer surrender periods. Customers typically pay up to 50 basis points more for L-shares in return for increased liquidity. FINRA Department of Enforcement indicated that suitability concerns could arise when L-share contracts are sold to customers who have indicated their plans to hold their investment on a long-term basis. Those concerns, according to FINRA, become more obvious when an L-share contract is purchased with a long-term rider (e.g. Guaranteed Minimum Withdrawal Benefit or Guaranteed Minimum Income Benefit) since those riders require the annuity to be held by the customer for at least five years, if not longer, to provide the customer with the complete benefit.

FINRA stated in the AWC that the Advisor Group Firms had to comply with Rule 2330’s standards, which preclude a registered representative from recommending that a variable annuity be purchased or exchanged unless the representative has a reasonable basis to believe that: the customer has been provided information about the variable annuities’ features, surrender periods, fees, expenses and tax implications; the customer would derive a benefit from some of the variable annuities’ features (e.g. tax-deferral, a guaranteed income stream, or a death benefit); and that the selected variable annuity and rider(s) are suitable for that customer.

The AWC detailed the Advisor Group Firms’ failure to establish and enforce a supervisory systems and written supervisory procedures constructed to ensure registered representatives conformed to Rule 2330. According to the AWC, the procedures failed to identify suitability issues concerning the various surrender periods, costs and fees of the share classes. There was apparently no mention of the suitability issues within the Advisor Group Firms’ procedures concerning L-share contracts being sold with long-term income riders or sold to customers with long-term investment horizons. FINRA cited the Advisor Group Firms for failing to address within their written supervisory procedures any instances in which further scrutiny was justified in the mandated principal review and approval stage due to the suitability issues stemming from the selected variable annuity share class.

The AWC stated that registered representatives and principals were also not provided sufficient training by The Advisor Group Firms to ensure that the variable annuity features were understood. The Advisor Group Firms, according to the AWC, used training modules that were not constructed to confirm that registered representatives and principals understood suitability concerns stemming from L-share contracts being sold with long-term income riders or sold to customers with long-term investment horizons.

FINRA Department of Enforcement found that the Advisor Group Firms violated FINRA Rules 2330(d), 2330(e), 3110, 2010 and NASD Rule 3010 based on their foregoing supervisory failures.

Royal Alliance also consented to findings that it failed to appropriately supervise the rates that variable annuities were exchanged. Specifically, the AWC mentioned that from February 2014 to March 2016, Royal Alliance had not established and maintained a supervisory system and written supervisory procedures appropriately constructed to supervise exchanges of variable annuities. The AWC stated that only a limited number of representatives had been reviewed, and the determination of which representatives were reviewed did not depend on the rates in which annuity recommendations were made. Evidently, there were no surveillance procedures included within the firm’s supervisory procedures that had been constructed to identify alarming rates of exchanges. The AWC stated that Royal Alliance violated FINRA Rules 2330(d), 3110, 2010 and NASD Rule 2010 as a result of its failure to supervise in this regard.

The AWC stated that from January 2013 to December 2014, FSC generated more than $51,500,000.00 in variable annuity sales. $12,200,000.00 of those sales (more than 23% of total variable annuity transactions) consisted of L-share contract sales. FSC was fined $200,000.00 and censured.

SagePoint generated more than $52,700,000.00 in variable annuity sales from January 2013 to December 2014. L-share contracts comprised $11,500,000.00 of those sales (more than 21% of total variable annuity transactions). SagePoint consented to sanctions including a $200,000.00 fine and censure.

From February 2014 to December 2015, $61,900,000.00 in variable annuity sales had been generated by Royal Alliance. $15,600,000.00 in sales were due to sales of L-share contracts (more than 28% of total variable annuity transactions). Royal Alliance consented to sanctions including a $350,000.00 fine and censure.

Woodbury generated more than $107,100,000.00 in variable annuity sales between January 2013 and December 2014. L-share contract sales totaled $18,800,000.00 (19% of total variable annuity transactions). Woodbury consented to sanctions including a censure and $250,000.00 fine.

If you believe that you are a victim of an unsuitable annuity exchange executed by a representative of one of the Advisor Group Firms, call the Law Office of Peter M. Spett at (561) 463-2799 for a free consultation concerning your legal rights and claims. Peter M. Spett has extensive experience recovering investor losses.

Morgan Stanley Allegedly Fails To Follow Investment Guidelines

Jack Ezra Kolker (CRD #: 1220600) is a prior Morgan Stanley general securities representative who disclosed a consumer-initiated, investment-related complaint from January 20, 2017. The complaint contained allegations that from December 2015 to December of 2016, investment guidelines and other instructions were not followed in reference to the Morgan Stanley customer’s stock and municipal debt investments. The customer’s damages have not been specified. Morgan Stanley denied the complaint on June 2, 2017.

There are at least two other customers of Kolker who have sought redress for misconduct. According to FINRA BrokerCheck, on April 2, 2008, a UBS Financial Services, Inc. customer filed a complaint alleging to have sustained losses by investing in auction rate securities. Apparently, the customer was one of many investors who suffered from the illiquidity of the auction rate securities market. On December 23, 2008, the customer agreed to settle the matter for $500,000.00, which reportedly represents the gross initial par value of the ARS position(s) held by the customer.

The other dispute consisted of a February 22, 2010 consumer-initiated arbitration proceeding brought on by several customers, one of which included a 91 year-old investor. The customers’ collectively alleged that the equity trading in their accounts was not suitable for them, and transactions had been executed without permission being provided by the customers. UBS settled the customers’ allegations of unsuitability and unauthorized trading for $125,000.00 in damages on September 1, 2010.

FINRA BrokerCheck indicates that Kolker was registered with UBS Financial Services Inc. until January 27, 2009. Between January 9, 2009 and November 2, 2017, he was registered with Morgan Stanley. On November 1, 2017, Kolker commenced employment with J.P. Morgan Securities LLC.

If you believe you are a victim of sales practice violations committed by Jack Ezra Kolker or another representative of Morgan Stanley, call the Law Office of Peter M. Spett at (561) 463-2799 for a free consultation concerning your legal rights and claims. Peter M. Spett has extensive experience recovering investor losses.

Morgan Stanley’s Lloyd Layton Fined For Unsuitable UIT Trading

Lloyd Thomas Layton (CRD #: 1618414) is a prior Morgan Stanley registered representative (2009 – 2015) who consented to Financial Industry Regulatory Authority (FINRA) fining him $5,000.00 and suspending him from having any association with a FINRA member firm in all capacities for three months according to Layton’s submission of Letter of Acceptance, Waiver and Consent #: 2017055691701, accepted by FINRA on August 13, 2018. FINRA held that Layton engaged in unsuitable trading in 54 Morgan Stanley customer accounts.

Specifically, the AWC stated that from July 2012 to December 2014, Layton engaged in the short-term trading of unit investment trusts (UITs). Those investments, as discussed in the AWC, are comprised of investment companies offering shares of a fixed securities portfolio in a public offering, and terminate on a maturity date specified in advance for investors. UITs, FINRA specified, generally contain hefty charges that are assessed to investors on an upfront basis, so the trading of UITs, especially on a short-term basis, is typically inappropriate.

From July 2012 to December 2014, Layton evidently made recommendations for customers to buy the UITS and subsequently sell the securities long before they matured. In fact, the findings revealed that most of the time, Layton recommended UITS containing 24-month maturities, and a customer would be assessed a sales charge of 1.95% up to 3.95% each time a UIT was purchased.

Despite the 24-month maturities, Layton supposedly made recommendations for customers to dispose of the UITs when those securities had only been held by customers for less than 12 months. The findings stated that customers held UITS for an average of 265 days before they were sold. Moreover, Layton evidently recommended in more than 60 occasions that customers take the proceeds from UIT sales and buy other UITS that were similar, if not identical, to those that customers sold before their maturities.

FINRA found that it was in no way suitable for customers to invest pursuant to Layton’s recommendations given the frequency and costs of the UIT transactions. Layton consented to FINRA’s findings of him violating NASD Rule 2310 and FINRA Rules 2111 and 2010 based on his unsuitable short-term UIT trading in Morgan Stanley customer accounts.

Morgan Stanley terminated Layton’s registration on March 26, 2015. He is currently employed with Wells Fargo Clearing Services, LLC in Washington, DC.

The Law Office of Peter M. Spett is experienced in representing investors in cases of unsuitable investment recommendations, fraud, negligence, and the failure of brokerage firms to supervise their financial advisors. If representatives such as Layton have traded in your account in an inappropriate manner, contact Peter M. Spett at (888) 217-4919 for a free consultation concerning the possible recovery of your investment losses.

UBS Sued For Unsuitable Investment Recommendations

David Richard Watkins (CRD #: 1043375) is a UBS Financial Services Inc. financial advisor (2004 – present) who disclosed a consumer-initiated, investment-related complaint from August 14, 2017 containing allegations that Watkins made unsuitable investment recommendations. The customer specifically alleged to have been poorly advised between May 2013 and October 2016 about the purchasing and holding of investments including exchange-traded funds (ETFs), equities and fixed-income municipal bonds. The customer is seeking $5,000,000.00 in damages.

There are at least two other UBS customers who have alleged Watkins to have committed sales practice violations. According to FINRA BrokerCheck, on September 24, 2015, a UBS customer filed a complaint alleging that from January 3, 2011 to August 12, 2015, the customer’s assets were allocated in bonds that were not appropriate for the customer. The customer alleged Watkins failed to follow the customer’s investment instructions of buying municipal bonds with a credit rating of AA or higher. Watkins was accused by the customer of knowing the bonds were classified as subordinated debt. Watkins’ investment recommendation, the customer contended, was driven by the fact that UBS had underwritten the bonds. UBS and the customer settled the complaint for $60,000.00 in damages.

On June 15, 2018, another customer of UBS filed a complaint alleging he was not provided important information about the reduction of a coupon rate on a municipal-debt investment and corresponding increase in the price of the security. The customer contended that he never authorized a bond to be purchased at the lower coupon rate. UBS estimated that the customer’s alleged damages exceed $5,000.00.

If you believe you are a victim of sales practice violations such as those alleged to have been committed by David Richard Watkins, contact the Law Office of Peter M. Spett for a complimentary consultation to evaluate your legal rights and claims.
 

Investors Sue Janney Montgomery Scott For Unsuitability

Charles James Euler Jr. (CRD #: 202696) is a financial advisor who disclosed a consumer-initiated, investment-related complaint from June 4, 2018 containing allegations against Euler of recommending unsuitable over-the-counter equities to the investor while registered with Janney Montgomery Scott LLC (Radnor, Pennsylvania), resulting in the investor’s account having been over-concentrated in speculative securities and causing losses. The complaint was settled for $45,000.00.

According to FINRA BrokerCheck, this is the seventh disclosure making reference to allegations of Euler’s sales practice violations affecting Janney Montgomery Scott LLC investors. The first disclosure, dated September 28, 2004, was a complaint involving allegations of misrepresentation of unit investment trust investments, where the investor alleged $50,000.00 in damages.

The second disclosure, which was dated March 7, 2016, involved an arbitration containing allegations that unsuitable stocks were held in the accounts of multiple investors. (Case#: 16-00248). The arbitration was settled for damages totaling $75,000.00. A third disclosure concerned an arbitration dated April 19, 2016 in which Euler was alleged to have allocated the investors’ accounts in stocks that were not suitable for them. (Case #: 16-01026). The investor agreed to settle the matter for $40,000.00 in damages.

In the fourth disclosure, a May 9, 2016 arbitration, the investor contended that Euler misrepresented and omitted facts pertaining to securities purchases, and further alleged that Euler executed trades for the investor’s account which neither reflected the investor’s investment objectives nor was authorized by the investor. (Case #: 16-01980). That arbitration was settled for damages totaling $250,000.00. The fifth disclosure also concerned a May 9, 2016 arbitration containing identical allocations of Euler’s sales practice violations. (Case #: 16-02087). The investor agreed to resolve the dispute for $350,000.00 in damages.

The sixth disclosure consisted of an arbitration dated January 26, 2017 involving allegations of unsuitable, speculative equities being held in the investor's account, resulting in an unbalanced investment portfolio. (Case #: 17-00209). A settlement was reached for the investor to be paid $150,000.00 in damages.

On April 30, 2018, following the sixth consumer-initiated investment-related dispute, Janney Montgomery Scott LLC terminated Euler’s registration.

If you believe that you are a victim of sales practice violations such as those alleged to have been committed by Charles James Euler, Jr., contact the Law Office of Peter M. Spett at (561) 463-2799 for a complimentary consultation to evaluate your legal rights and claims. Peter M. Spett has extensive experience recovering losses for investors.

Customer Lodges Dispute Against Dakota Securities For Investment Losses

Thomas Patrick Beattie (CRD#: 1321866) is a general securities representative who disclosed a pending consumer-initiated, investment-related complaint from April 16, 2018 containing allegations against Beattie of committing sales practice violations while registered with CP Capital Securities (Miami, Florida) and Dakota Securities International, Inc. (Miami, Florida), which caused the customer to experience losses on mutual funds, over-the-counter equities and other investments. The customer has alleged $250,000.00 in damages.

According to FINRA BrokerCheck, this is the fourth consumer-initiated, investment-related dispute in which Beattie’s sales practices have been called into question. The first complaint, dated May 12, 2011, involved allegations of nine unauthorized equity trades having been executed in a customer’s account when Beattie was registered with Great American Advisors, Inc. (Homestead, Florida). The customer alleged damages of $19,038.00.

A second complaint, dated February 11, 2013, alleged that Beattie misrepresented the customer’s information, and recommended unsuitable penny stock and corporate debt investments for the customer’s account while registered with Lincoln Investment (Homestead, Florida). That customer’s complaint was settled for $5,609.82. The third complaint, which is currently pending, concerned Beattie’s activities when registered with CP Capital Securities (Miami, Florida) and Dakota Securities International, Inc., where the customer alleged poor investment performance and excessive trading in the customer’s account between March 1, 2016 and January 1, 2018.  The customer alleged $251,000.00 in damages.

Beattie has additionally disclosed three regulatory actions regarding allegations of his misconduct. In particular, the Florida Department of Banking and Finance, Division of Securities and Investor Protection, authorized Beattie’s application for registration in the state subject to a Heightened Supervision Agreement containing restrictions on him from serving in a principal capacity in the securities industry or exercising discretion in customer accounts. (Case#: 88.206.DOS). The sanctions were based upon allegations that Beattie effected unauthorized trades in customer accounts and accrued customer complaints.

Subsequently, to resolve allegations of Beattie’s excessive and unsuitable trading in customer accounts, Beattie entered into a Stipulation and Consent Agreement with the Florida Division of Securities and Investor Protection, where he was ordered to pay a $5,000.00 fine and his registration was suspended. (Case#: 2824-S-6/99).

Beattie is no longer registered with Dakota Securities International, Inc. He has been registered with SW Financial (Melville, New York) since July 31, 2018.

If you believe you are a victim of sales practice violations such as those alleged to have been committed by Thomas Patrick Beattie, contact the Law Office of Peter M. Spett for a complimentary consultation to evaluate your legal rights and claims.