Lincoln Financial Securities Corporation, a Concord, New Hampshire based brokerage firm, has submitted a letter of acceptance, waiver, and consent in which the firm consented to over 16 Financial Industry Regulatory Authority's (FINRA) findings that it enacted a policy requiring its brokers to complete a variable redemption cover sheet (VRCS) for any variable annuity (NASDAQ:VA) redemptions they sold, which included a section to document an economic analysis outlining the redemptions were beneficial to the customers and disclosing if the sale proceeds were intended to purchase a non-securities product. For over a year, the firm failed to ensure that brokers were completing the VRCS form when required to do so. Most of the forms were not completed, so the firm failed to review and supervise the VA redemptions that resulted in subsequent purchases of equity-indexed annuities (EIAs) and fixed annuities. FINRA's findings stated that the firm failed to enforce its supervisory system designed to ensure that recommendations to liquidate or surrender VAs to fund purchases of EIAs or fixed annuities were suitable, and thus failed to supervise these transactions. The firm was censured and fined a total of $525,000 for all violations committed.
FINRA also stated that the firm's written supervisory procedures (WSPs) prohibited its brokers from receiving commissions for securities transactions in customer accounts where the broker was not licensed in both the state of solicitation and the state in which the customer resided. The firm failed to detect around 2,500 transactions in customer accounts despite the fact that the brokers listed on the accounts were not licensed in the state in which the customer resided at the time of the commission payment. Nearly all of these transactions involved previously scheduled, recurring investments in established customer accounts. The findings included that the firm failed to enforce its policies and procedures designed to ensure that all of its brokers were properly licensed in the states where they conducted securities transactions for customers.
In addition, FINRA found that the firm failed to shape the transactional-monitoring aspect of its anti-money laundering (AML) procedures to its business. The firm failed to ensure adequate procedures were in place to watch for suspicious transactions that occurred in client accounts held directly with product manufacturers following the initial investment. The firm knew that subsequent transactions occurring in accounts held directly with product manufacturers were not undergoing AML monitoring by the firm because it was relying on the product manufacturers to review these transactions but did not confirm they were actually performing this review. FINRA also found that the firm's AML training program was inadequate in that it failed to adequately specify the time period for training employees and which employees required training. FINRA further determined that the firm required its brokers when communicating with customers to use a firm account or an outside email address linked to the firm account so all emails could be viewed and retained. However, the firm did not stop its brokers from using outside email addresses for non-securities related matters. Brokers who received securities-related emails through their outside email addresses were required to forward those emails to the firm's account. When an auditor reported that securities-related emails had not been forwarded, the firm failed to employ a system for confirming that its brokers were forwarding all securities-related emails for retention. The firm also failed to have an adequate system in place to confirm whether external email addresses were being used for securities-related correspondence and whether they were retained. FINRA concluded that the firm failed to reasonably enforce its supervisory procedures to ensure that all securities-related emails brokers sent or received were captured, reviewed, and stored.
Moreover, FINRA found that for over a year, the firm failed to reasonably supervise customer account activity and customer files for producing managers. The firm's WSPs permitted its OSJ managers to conduct reviews of their own securities transactions completed on behalf of customers. Firm branch office inspection reports did not ensure that a sufficient sample of the customer files reviewed during branch audits were accounts OSJ managers serviced.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.