December 6, 2013
Another day, another FINRA regulatory settlement involving equity indexed annuities -- the old EIAs just keep giving and giving. In today's case, we have a registered person involved with over $8 million in EIA sales, and his transactions exposed him to both outside business activity and improper email usage charges.
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, Timothy William Stephens submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Timothy William Stephens, Respondent (AWC 2013036091101, November 27, 2013).
Stephens entered the industry in 1987 with FINRA member firm Princor Financial Services Corporation, where he remained until February 2013. The AWC asserts that he had no prior disciplinary history.
The AWC asserts that between July 2006 and November 2012, Stephens sold to the public about $8.2 million worth of Equity Indexed Annuities ("EIAs") and that approximately 1/3 of the individuals who purchased the EIAs were Pincor customers. Such conduct was apparently deemed to constitute outside business activity ("OBA"). Although Princor's written procedures required its representatives to disclose OBA and obtain the firm's prior permission, Stephens allegedly failed to comply with those requirements.
In addition to requiring OBA approval for marketing EIAs, Princor required that all non-proprietary products, including the subject EIAs, be submitted to the firm for its prior review and approval - with the sole exception for EIAs on the "Approved Product List," The subject EIAs were not on the list and he also failed to submit the products for review and approval.
In exacerbation of the non-compliant notices, the AWC alleges that Stephens communicated with the EIAs' sponsors via his personal email address and not through his firm address, which implies some intent to circumvent his firm's compliance policies. Moreover, the AWC noted that from 2006 and 2011. Stephens signed six separate Annual Compliance Questionnaires in which he explicitly affirmed his understanding of Princor's policy that mandated disclosure of OBA on the forms and the need to obtain prior written approval. Further, during 2008 and 2011 office audits by Princor, Stephens made material misstatements in response to these questions:
- Do you sell Equity Indexed Products?
- Are you aware of [the firm's] procedures related to selling EIA products?
- Do you understand all business must be submitted through [the firm]?
- Are you aware of [the firm's] approved product list of EIAs that you may sell?
- Have you sold any products not on the approved product list?
Pointedly, the AWC asserts that Stephens answered "YES" to Questions 2, 3, and 4, but "NO" to Questions 1 and 5.
In accordance with the terms of the AWC, FINRA imposed upon Stephens a Bar from association with any FINRA firm in any capacity.