Broker Fined And Suspended For Equity Indexed Annuities and Whole Life Outside Business Activities

April 13, 2012

gavel no background

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, Thomas R. Fortino submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Thomas R. Fortino, Respondent (AWC 20100240358, April 3, 2012).

Fortino was first registered in the securities industry in 1995, and through 2010, he worked at several FINRA member firms, including three separate stints at First Allied Securities, Inc., ("FAS"). On July 30,2010, Respondent was permitted to resign from First Allied for failing to disclose outside business activities and referrals related to insurance sales.

During the relevant period of January 1, 2007, through July 30 2010, FAS's policies prohibited outside equity indexed annuities ("EIA") sales and required registered representatives to obtain authorization prior to engaging in any outside insurance sales. Notwithstanding, of Fortino's $334,764.93 in transactional-based earnings during the relevant period, at least $68,843 was attributable to EIA sales. Further, Fortino made unapproved outside sales of insurance and EIAs to at least 16 individuals, half of whom purchased whole life insurance while the other half purchased EIAs: Two of those individuals were FAS customers who purchased whole life insurance;  and one FAS customer purchased an EIA.  At no time did Fortino notify FAS of certain of his whole life insurance sales activities, or of his EIA activities. In making these sales Fortino ignored FAS's explicit and repeated compliance pronouncements concerning outside insurance and EIA sales.

Letter of Caution

In April 2009, Fortino's supervisor became aware of Fortino's unapproved EIA sale to a non-customer individual, for which he was issued a Letter of Caution warning him to stop any future unapproved sales and reminding him that all sales of EIAs had to be submitted to the supervisor for review and approval. However, Fortino ignored this directive and made at least three subsequent unapproved EIA sales.

OBA Questionnaire

FAS required its representatives to use a form called the Outside Business Activities Questionnaire ("OBA Form")before engaging in any outside business.  In October 2006,  Fortino submitted an OBA Form identifying two outside activities unrelated to the outside insurance and EIA sales at issue in this AWC. Between 2007 and 2009, when he was actively involved in making insurance and EIA sales away from FAS, Fortino did not submit a requisite OBA Form.

In April 2010, Fortino submitted an OBA Form reporting that he was selling insurance through a company that was owned by his supervisor and not affiliated with FAS; however, none of the cited sales at issue occurred through that company. In documentation submitted with this OBA Form, Fortino misled his Firm by falsely reporting that he did not earn compensation from insurance-related products outside of FAS.


In accordance with the terms of the AWC, FINRA imposed upon Fortino a $15,000 fine and a 10 month suspension from associating with any FINRA member firm in any and all capacities.

Bill Singer's Comment

Outside business activities have become such a common violation that they are typically referred to by the short-hand of OBA. Anytime a regulatory violation is known by its acronym, that's a tipoff that this is a problem area.  Given the recent pressures of the Great Recession many registered persons found themselves in need of or enticed by the possibility of extra income from the sale of product away from their employer FINRA member firm.  This attraction was as likely to bedazzle those at indie firms such as LPL, at discount firms such as Charles Schwab, or at any major player the likes of JP Morgan, Morgan Stanley Smith Barney, Merrill Lynch, or Wells Fargo.  As this case demonstrates, OBA is a temptation to be resisted.  If you feel compelled to engage in OBA, make sure to follow industry rules/regulations and to abide by your employer's in-house requirements.  Otherwise, you could be paying dollars out of your own pocket while you're sitting on the sidelines.