It's all over the airwaves and Internet. Financial services professionals offering advice. You got yer on air pundits on radio. You got yer slick TV infomercials. You got those damn pop-up ads clogging up every new web page you visit. Of course, along with all that marketing and advertising, you got yer Wall Street rules and regulations, which some folks follow and some folks don't.
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, Michael Jeffery Wiseman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael Jeffery Wiseman, Respondent (AWC 2012031332001, July 30, 2013).
Wiseman first became registered in 1987 and from 2007 to June 14, 2012, he was registered with LPL Financial LLC, until his June 14, 2012 discharge. The AWC asserts that Wiseman had no prior relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
During the relevant period from about April 2008 through December 2011, Wiseman made a number of appearances on a talk radio show out of Youngstown, OH, for which he paid the station for a number of his guest appearances. The appearances, which lasted a few minutes and occurred two or three times weekly, generally involved Wiseman calling in to the show's host, who introduced him as a guest and proceeded to ask questions or set up a topic. The broadcasted conversations usually centered on a general discussion of economic and financial issues and the types of products offered by Wiseman. At the end of each appearance, the host would tell the audience how to contact Wiseman's branch office, which operated under the name Old Hickory Financial Services, L.L.C.
On Air But Not In Compliance
The AWC alleges that Wiseman made public statements that were not fair and balanced, or he otherwise failed to provide a sound basis for evaluating the facts in regard to the security or type of security discussed. Pointedly, FINRA took issue with several appearances in which Wiseman allegedly referenced an unspecified variable annuity ("VA") that he had been recommending to his clients.
The AWC asserts that in connection with these VA discussions, Wiseman's comments focused on the product's guarantees -- particularly the guarantee against loss of principal. Consequently, the AWC noted that Wiseman claimed that in light of a no-loss-of-principal guarantee, a VA investor "can't lose money." Listeners were encouraged to contact Wiseman to learn more about the VA and whether it was "an appropriate investment for you." The AWC concedes, however, that during some of his appearances, Wiseman noted that the VA was not "FDIC guaranteed" and that a ten-year holding period was required to activate the guarantee against loss of principal.
FINRA contends that Wiseman failed to explain that the VA guarantees he referenced were dependent on the annuity's issuer's ability to pay claims. FINRA raised additional concerns about Wiseman's alleged failure to disclose other material aspects of VAs, such as the negative tax and investment consequences attendant to early withdrawals and the fees, expenses and surrender charges investors could incur.
SIDE BAR: As demonstrated during the Great Recession, the solvency of VA issuers isn't always ironclad. Consequently, FINRA is to be applauded for focusing on the need to better inform potential investors not only of the expected fair-weather performance of such financial products but to also warn about the potential rainy-day problems that could prove catastrophic to those counting upon the cash flow from VAs or other retirement products.
The FINRA Rule Book
During the relevant period from about April 2008 through December 2011, NASD Conduct Rule 2210(d)(1)(A) provided that all member communications with the public be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry or service. No member may omit any material fact or qualification if the omission, in the light of the context of the material presented, would cause the communication to be misleading.
According to online FINRA disclosures as of August 2, 2013, on:
March 25, 2010, a customer filed a FINRA arbitration seeking $75,000 in damages for alleged unsuitable ETF transactions.
October 14, 2010, Wiseman received a Chapter 7 discharge in bankruptcy .
March 28, 2011, LPL settled the matter for $45,000 without admitting or denying liability and ascribing its payment as a means to "avoid further litigation costs."
May 18, 2012, LPL filed a Uniform Termination Notice for Securities Industry Registration (Form U5) stating that Wiseman had been discharged for:
VIOLATION OF THE FIRM'S COMMUNICATIONS WITH THE PUBLIC POLICIES RELATED TO RADIO AND TV SHOWS.
In accordance with the terms of the AWC, FINRA imposed upon Wiseman a $5,000 fine and a 10-business-day suspension from association with any FINRA member.