James Martin Higgs, formerly with Newark, New Jersey based Pruco Securities, LLC, submitted a letter of acceptance, waiver, and consent in which he consented to sanctions and to the entry of Financial Industry Regulatory Authority (FINRA) findings that after his member firm placed him on probation for selling equity-indexed annuities (EIAs) to customers outside of its sponsored programs, Mr. Higgs continued to sell EIAs to individuals outside the scope of his employment. FINRA stated that some of the individuals who purchased EIAs were the firm's customers, but Mr. Higgs did not provide his firm with prior written notice of the business activity. Mr. Higgs, of Parkersburg, West Virginia, was fined $10,000 and suspended from association with any FINRA member in any capacity for seven months. The fine must be paid either upon Higgs' re-association with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Selling away is the inappropriate practice of an investment professional who sells or solicits securities or investments not held or approved by the brokerage firm with which the professional is associated with. Under NASD and FINRA rules, brokerage firms must approve investments offered by their investment professionals and supervise its sales.
Equity-indexed annuities are complex products that are hybrid of both fixed and variable annuities. Their returns vary more than a fixed annuity, but not as much as a variable annuity. So, equity-indexed annuities are more risky than fixed annuities, but less risky than a variable annuity. Equity-indexed annuities offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, equity-indexed annuities have less market risk than variable annuities. Equity-indexed annuities also have the potential to earn returns better than traditional fixed annuities when the stock market is rising. Equity-indexed annuities come with fees that are higher than any investment, and sales commissions to brokers can go as high as 12%. Surrender charges can go as high as 18%.
Mr. Higgs' undisclosed EIA sales totaled approximately $674,804.61, and he received approximately $22,838.50 as compensation for the transactions. Investors who may have suffered damages caused by the EIAs they purchased should know that Pruco Securities can be held liable for Mr. Higgs' selling away activities because it either failed to establish a reasonable supervisory system, or because it failed to implement an existing reasonable supervisory system. Even if Pruco Securities did not know of Mr. Higgs' activities, it can still be liable to investors for damages.
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.