August 2, 2013
Equity Indexed Annuities sales continue to attract regulatory scrutiny. Although many brokers complain that the enforcement actions are not about sincere regulation but merely a phony-baloney witch hunt whose only purpose is to generate money in the form of fines, consumer advocates and regulators argue, quite to the contrary, that there is far too much fraud attendant to the sale of these products. On top of that back and forth, we also find that EIAs generates a lot of compliance headaches in terms of unapproved outside sales -- as this recent settlement demonstrates.
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, Carlos C. Garcia submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Carlos C. Garcia, Respondent (AWC 2012032914901, July 22, 2013).
Garcia was first registered in 2000 and during the period of 2004 through August 21, 2012, he was registered with FINRA member firm MetLife Securities Inc. The AWC asserts that Garcia had no prior relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
The AWC alleges that from approximately March 2008 to May 2012, Garcia sold at least 39 EIAs for a total of $4.3 million to 24 individuals (of which 15 were MetLife customers). Garcia received about $338,445 as compensation for the transactions. The EIAs were not securities products.
The AWC characterizes these sales as undertaken by Garcia without providing MetLife with any notice of the outside business activity ("OBA"). Moreover, in annual MetLife attestations in 2008, 2009, 2010, 2011 and 2012, Garcia falsely certified that he had not been engaged in any undisclosed OBA.
On August 21, 2012, MetLife filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") stating that Garcia had been discharged on July 26, 2012 for the EIA sales.
FINRA charged Garcia with engaging in OBA in violation of NASD Conduct Rules 3030 (for conduct before December 15, 2010) and 2110 (for conduct before December 15, 2008) and FINRA Rules 3270 (for conduct after December 14, 2010) and 2010 (for conduct after December 14, 2008). In accordance with the terms of the AWC, FINRA imposed upon Garcia a $5,000 fine and a five-month suspension from association with any FINRA member in any and all capacities.