For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Adam Spencer Deane submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Adam Spencer Deane, Respondent (AWC 20100257086, August 22, 2012).
Deane entered the securities industry in December 1997 and first became registered in 1998. After stints with two member firms, in 2004, Deane became registered with Banc of America Investment Services, Inc. ("BOA"), which in 2010 merged with Merrill Lynch, Pierce, Fenner & Smith Inc., where Deane's registration was transferred.
In June 1998, Deane was licensed to sell insurance products in the state of Florida.
In October 2010, Deane applied for a license to sell insurance in the state of New York, and he received that license on November 1, 2010.
On December 6, 2010, Deane was terminated by Merrill Lynch for transacting insurance business without proper state registration and attempting to alter transaction records.
The AWC asserts that Dane had no prior disciplinary history in the securities industry.
In September 2010, a 73-year-old retiree who resided in Buffalo, NY (the "Retiree"), contacted Deane and arranged a meeting at Merrill Lynch's Naples, FL office to discuss her finances. Dean had been the Retiree and her husband's investment advisor since 2006. During the meeting, Deane recommended that the Retiree exchange a $75,000 fixed annuity for a deferred variable annuity, to which the customer agreed and requested Deane process the transaction. The Retiree returned to her NY residence.
On September 9, 2010, Deane logged into Merrill Lynch's web-based Annuity eXpress system, which allowed the firm's sales staff to complete transaction paperwork for annuity contract purchases. TheAnnuity eXpress system was designed to reject annuity transactions that were
- submitted by registered representatives who did not hold the required state insurance licenses; or
- offered in the customer's state of residence.
If At First . . .
Following Deane's first attempt to enter the transaction, Annuity eXpress rejected it because the deferred variable annuity product was not offered to New York residents and because Deane did hold the requisite state insurance license.
Following a second unsuccessful entry into Annuity eXpress, Deane improperly input the Retiree's state of residence as Florida, thus overriding the system protections and obtaining approval.
- NASD Rule 3110 requires broker-dealers to properly make and preserve books, accounts, re cords, memoranda, and correspondence in conformity with all applicable laws, rules, regulations. FINRA deemend the Annuity eXpresssystem to be part of Merrill Lynch's electronic books and records.
- Exchange Act Rule 17a-3 requires that a broker-dealer make and keep current certain records, including a correct record of the account holder's address.
- FINRA Rule 2010 requires all associated persons to observe high standards of commercial honor and just and equitable principles of trade.
The AWC alleged that by entering false information into Merrill Lynch's electronic books and records, Deane caused the member firm to violate SEC Rule 17a-3 by maintaining inaccurate books and records and therefore violated NASD Rule 3110 and FINRA 2010. Further, in violation of FINRA Rule 2010, Deane allegedly misused the Annuity eXpress system to falsely indicate in the deferred variable annuity application that the Retiree had signed the annuity contract in Florida, when, in fact, Deane prepared the application in Florida and sent it to the client for her signature at her residence in Buffalo, NY.
In accordance with the terms of the AWC, FINRA imposed upon Deane a $25,000 fine and a three month suspension from associating with any FINRA registered broker dealer in any capacity.
I've been in the biz for some 30 years now and these unregistered state miscues persist in snaring registered persons despite decades of regulatory cases that promise fines and suspensions. Time and time again, stockbrokers learn that landing that one iffy transaction just isn't worth it, but, still, there seems to be a gambler's taste for risk that prompts many to throw the dice and see if they can beat the house. Clearly, the odds are in FINRA's favor.
Annuities, in all their various iterations and glory, have become big business and are among the mainstay offerings from such major financial services firms as Allianz, Aviva, AXA, ING, John Hancock, Lincoln Financial, MetLife, Prudential, New York Life, and Pacific Life. Of course, along with this status as a popular product being pushed by financial services professionals (in large part related to the fees earned by such promoters) comes increasing numbers of customer lawsuits alleging fraud, forgery, and the panoply of such litigation.
For some excellent guidance on the pluses and minuses of variable annuities, see this recent posting: SEC Publishes Superb Consumer Guide: Variable Annuities: What You Should Know ("BrokeAndBroker" May 7, 2012).
Also, read these recent "Street Sweeper" columns: