For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA") and without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Lloyd Thomas Mincy, Jr., submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Lloyd Thomas Mincy, Jr.,Respondent (AWC 20080158563, February 10, 2012).
According to the AWC, Mincy entered the securities industry in 1992, has Series 7, 63 and 24 licenses, and since September 1997, has been registered with Centaurus Financial Inc. ("Centaurus" ).
The AWC alleges that in October 2004, Mincy solicited prospective customer JK to purchase a variable annuity with a a 5% guaranteed death benefit option, which provided that upon the death of the annuitant, the payout to the beneficiaries would be no less than a 5% rate of return (the "VA"); however, in soliciting JK's purchase of the VA, Mincy falsely represented that the VA had a 5% guaranteed rate of return.
Based on that misrepresentation, in March 2005, JK invested approximately $210,000 in the VA. In 2008, JK contacted Mincy and requested a letter describing the 5% guaranteed rate of return - Mincy confirmed that on Centaurus letterhead. Although Centaurus' policies and procedures required a supervisor's review and approval of all outgoing correspondence prior to their transmission, Mincy did not submit the letter for such approval.
Customers RG and SG
The AWC alleges that in April 2007, Mincy solicited prospective customers RG and SG to purchase the VA through misrepresenting the existence of a 5% guaranteed rate of return. Based on the rate misrepresentation, between March and April 2007, the G's invested approximately $720,000 in three VAs. In response to the customers' request for confirmation of the guaranteed rate, around late 2007/early 2008, Mincy sent an undated letter on Centaurus letterhead reiterating his prior rate statements. Once again, Mincy circumvented his firm's policies and procedures by transmitting the letter to his clients without prior supervisory approval.
In February 2005, Mincy allegedly solicited prospective customer KN to purchase the VA. In this solicitation, Mincy falsely represented a 6% guaranteed rate of return. Similarly, by letter dated March 21, 2005 (which was not approved by Centaurus supervisors), Mincy reiterated his rate misrepresentation. In April 2005, KN invested approximately $360,000 in the VA based upon the 6% guaranteed rate of return.
In May 2005, KN received her VA policy from the annuity company, but she believed the paperwork was inconsistent with Mincy's representation about a guaranteed 6% rate of return. During a meeting with Mincy, KN asked why the VA policy she received indicated a 5% rate of return, as opposed to the 6% he had represented to her. In response, Mincy offered to personally pay KN the 1 % difference if she would tell the annuity company that she accepted the policy as written. This proposed resolution only compounded the alleged falsehoods because Mincy's offer to pay an "additional 1%" falsely suggested the existence of a guaranteed 6% rate of return.
Finally, the AWC alleges that in July 2005, Mincy solicited prospective customer EP to purchase the VA - once again representing a 5% guaranteed rate of return. That same month, EP invested about $220,000 in the VA based upon the wrongly represented rate of return.
In June 2008, Mincy assisted customer LH, in surrendering her VA and, thereafter in purchasing a different product. Although the surrender charges amounted to $28,323, Mincy had misinformed LH that the surrender charges would be only $17,426. That same month, without informing Centaurus of LH's complaint about the over-charge, Mincy paid the customer $10,900 via his personal as compensation for the difference in the surrender charges. Mincy failed to disclose this payment to Centaurus.
The AWC alleges that Mincy made verbal and written material misrepresentations concerning the features of the VA both during the solicitation of those investments and afterwards, in violation of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and NASD Rules 2120 and 2110.
Also, Mincy's settlement of LH's customer complaint and the payment of $10,900 as compensation for the surrender charges without the knowledge or permission of his firm constitutes a violation of NASD Conduct Rule 2110.
Exchange Act Rule 10b-5 states that it is unlawful for any person, in connection with the purchase or sale of any security, to employ any device, scheme, or artifice to defraud, or to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
NASD Conduct Rule 2120 states that "No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance."
NASD Rule 2110 states, in relevant part, that "[a] member, in the conduct of his business, shall observe high standards of commercial honor and equitable principles of trade."
In accordance with the terms of the AWC, FINRA imposed the sanctions of:
- a 9 month suspension from association with any FINRA member firm in any capacity; and
- A fine of $20,000.
For an excellent discussion of Variable Annuities, read the Securities and Exchange Commission's "Investor Tips: Variable Annuities - What You Should Know."