MetLife, Inc., the largest U.S. life insurer, has disclosed that FINRA has indicated it will seek a “significant fine” from MetLife as part of FINRA’s investigation of MetLife’s possible violations in the sale of variable annuities. According to MetLife, it is cooperating in the investigation.
The investigation focuses on potential violations “regarding alleged misrepresentations, suitability, and supervision in connection with sales and replacements, [known as “flipping”], of existing variable annuities and certain riders on such annuities”.
While MetLife’s spokesman said, in the same filing, that “we strongly disagree with the conclusions reached by FINRA, and we will defend ourselves vigorously”, the insurer estimated that its reasonable possible legal costs in excess of reserves was as much as $425 million. Mmmmhhhh. “Strongly disagree” but spending almost a half billion dollars to defend the allegations?
Sales of annuities is one of the most potentially abusive sales practices amongst insurance and brokerage firms. Commissions on the sale of annuities can be as much as 10%, giving unscrupulous brokers and insurance salepeople a very high incentive to sell as many annuities as possible.
Shustak Reynolds & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law and handles many cases for brokers, brokerage firms, investment advisers and investors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected]
Former Ameriprise broker, Susan Elizabeth Walker of Minnesota, has been sentenced to seven years in in prison for stealing $1 million from her clients to pay for personal expenses including vacations and her children’s private school tuition. Walker plead guilty in October, 2014 and was sentenced last week. According to the U.S. Attorney in Minnesota, and Walker’s admission, Ms. Walker opened investment accounts in her own name and in the names of several clients without their permission. She then withdrew money from clients’ brokerage and retirement accounts, deposited it into those accounts she controlled, and ultimately withdrew the money for personal use.
The fraud first came to light in October 2012 while the Minnesota Attorney General’s Office was contacting various customers regarding their participation in an unrelated settlement over annuity sales. In the course of that outreach, the attorney general’s office uncovered withdrawals from several senior citizens’ annuities products that were made without their owners’ knowledge, according to the order from the Minnesota Department of Commerce. She had been working at Ameriprise’s branch office in Wayzata, Minn., alongside her mother, Barbara J. Stark, from October 2008 until March 2013, when they were terminated by the firm, according to an April order from the Office of Administrative Hearings for the Minnesota Department of Commerce, which sought civil penalties.
The Financial Industry Regulatory Authority Inc. barred Ms. Walker and her mother from the brokerage industry in July 2013 for failing to provide documents in connection with allegations of misappropriating client funds. The order from the Department of Commerce also accused Ms. Walker of making unsuitable investment recommendations, including advising an 89-year-old client to invest over $75,000 into annuities in 2003, prior to her employment with Ameriprise. She later withdrew funds from those accounts for personal use, according to the order.
According to Ameriprise, the firm had reimbursed clients for losses.
Shustak Reynolds & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law and handles many cases for brokers, brokerage firms, investment advisers and investors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected]
We have written about the decision by Credit Suisse to allow its brokers to transition to Wells Fargo as part of an agreement between the two firms to move Credit Suisse brokers to Wells Fargo where they can sell Credit Suisse products. Most of the Credit Suisse brokers, however, who do not transition to Wells Fargo will lose valuable deferred compensation earned, but not vested at Credit Suisse.
Credit Suisse, like most brokerage firms, takes a portion of broker compensation and agrees to pay that compensation as “deferred compensation” years down the road. It is a way of enticing brokers to stay, and not leave, the firm. In the case of the transition of brokers from Credit Suisse to Wells Fargo, however, those brokers who choose not to transition to Wells and leave for another firm will be considered by Credit Suisse to have voluntarily left Credit Suisse and to have forfeited their deferred compensation, earned but not yet vested.
Estimates of the potential loss of these valuable deferred compensation benefits are in excess of $400 million, a great savings for Credit Suisse and an incredible loss of valuable benefits to departing Credit Suisse brokers who do not transition to Wells Fargo.
Shustak Reynolds & Partners, P.C. has handled many similar cases for brokers who face the loss of substantial deferred benefits. We are happy to speak with any affected Credit Suisse brokers. Shustak Reynolds & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law. For more information contact Erwin J. Shustak, Esq., or Jeffrey Petersen, Esq., t 619.696.9500 or via email at [email protected] or [email protected].
An increasing number of FINRA registered brokers, and smaller broker-dealers, have given up their FINRA licenses and moved to the Registered Investment Advisory model, primarily to avoid FINRA regulations, scrutiny and compliance costs. And the evidence supports that, historically, the SEC conducts much fewer examinations, and has much less scrutiny, than FINRA. The SEC, for years, has justified its lax examination policy by complaining a lack of funding by Congress. But, statistically, the average SEC examiner conducts only 3-4 RIA examinations per year, and Congress has authorized hundreds of millions of dollars in annual funding for the SEC so those complaints ring hollow.
The simple fact is that, at least for now and the forseeable future, there are many benefits and cost savings to switching from the FINRA to the SEC registered RIA platform, ranging from substantial savings in review and compliance to annual registration fees.
Shustak & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law. The firm routinely counsels brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected]
