FINRA Rejects A New York State Of Mind When It Comes To New Jersey Annuity Signatures

May 9, 2012

Ballpoint pen writing. Streaks of ink are visi...

In response to the filing of a Complaint on January 12, 2012, by the Department of Enforcement of the Financial Industry Regulatory Authority ("FINRA"), Respondent Robert Joseph Kennedy III submitted an Offer of Settlement dated April 24, 2012, which the regulator accepted.  Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Kennedy consented to the entry of findings and violations and to the imposition of the sanctions.FINRA Department of Enforcement, Complainant, vs Robert Joseph Kennedy, Respondent (Offer of  Settlement, 2009019069101, May 7, 2012).

According to the Offer of Settlement, Kennedy first became registered with FINRA as an Investment Company Products/Variable Contracts Representative ("IR") in 1984 and during the relevant time of August 1, 2003 through February 26, 2009, was registered as a General Securities Representative ("GSR") and IR through FINRA member firm Walnut Street Securities, Inc.

The Offer of Settlement found that between August 2004 and December 2004, Kennedy sold to six Walnut Street customers annuities that were not authorized for sale by the state of New York - although a sale could be consummated with a New York resident provided that the transaction was executed outside of the state and so evidenced by the customer's signature. FINRA alleged that Kennedy falsified six deferred equity indexed and fixed annuity sales applications by recording or causing to be recorded New Jersey as the state where the customers executed the signatures on the sales applications, although the signatures actually were executed in New York.

FINRA alleged that Kennedy's conduct violated NASD Conduct Rule 2110. In accordance with theOffer of Settlement, FINRA imposed the sanctions of :

  • $5,000 fine;
  • two (2) month suspension from association with any member of FINRA in any and all capacities; and
  • requalification by examination as a General Securities Representative (GSR) within sixty (60) days of re-entry following the suspension.

Bill Singer's Comment

Neither a profound nor particularly complicated case; however, the landscape of annuities transactions is one upon which Wall Street's regulators are heavily treading. In this FINRA case, Kennedy could have finalized the subject transactions if he had gotten the clients to physically sign the documents in New Jersey - rather than pretending that they were signed in that state when, in fact, the executions took place in New York.  Of course, that's a bit of a simplification because Kennedy would still have needed to fully disclose the purpose of the circumvention to his clients and also needed his firm's approval, but such compliance "winks" are common and often suggested by the employer firm.

I report about this case in order to issue a warning to all registered persons:  Your firm may tell you that it's okay to fudge the technicalities of the how, when, and where of getting your client's signature or your pals around the office water cooler may tell you that everyone does it. All well and fine.  In fact, Kennedy now has the luxury of a two-month suspension to contemplate all the wonderful advice he may (or may not) have gotten; plus, he also has the lovely privilege of forking over $5,000 to FINRA and studying for another round of Series 7.

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: