FINRA Sanctions Fortune Financial for VA Sales

Fortune Financial Allegedly Unsuitably Recommended Variable Annuities  

According to a Letter of Acceptance Waiver and Consent on February 10, 2023, the Financial Industry Regulatory Authority (FINRA) has reportedly sanctioned Fortune Financial Services in connection with variable annuity recommendations.  

From July 2016 through July 2021, Fortune’s supervisory system allegedly failed to achieve compliance with FINRA suitability requirements regarding the recommendation of variable annuities. The firm also purportedly failed to reasonably respond to red flags indicating unsuitable variable annuity recommendations.   

Based on the FINRA’s findings, Fortune reportedly violated FINRA Rules 3110, 2330, and 2010. Further, from September 2017 through November 2020, Fortune allegedly failed to reasonably supervise the use of an unapproved email address to transmit securities-related documents to Fortune’s customers and failed to retain business-related email communications.  

Variable annuities are complex investments that are commonly marketed and sold to retirees or individuals saving for retirement. Due in part to the complexity of these products, FINRA Rule 2330 requires that firms provide more comprehensive and targeted protection to investors who purchase or exchange variable annuities.   

FINRA Rule 3110 Failure to Supervise  

According to the findings, Fortune’s system for monitoring patterns of inappropriate rates of variable annuity exchanges was allegedly unreasonable.   

Fortune purportedly failed to reasonably supervise a representative’s variable annuity exchange recommendations and failed to investigate and act upon red flags. Between July 2016 and July 2021, the rep allegedly engaged in a pattern of recommending that customers exchange variable annuities without considering whether such transactions were suitable based on the high surrender charges that resulted from his recommendations. In total, as part of these recommendations, 48 customers who purchased variable annuities and took short-term withdrawals, sometimes less than one year after purchasing the variable annuity, incurred $612,172.66 in surrender charges.   

FINRA Rule 3110 (Failure to Supervise) requires a firm to establish and maintain a system to supervise the activities of its associated persons that is reasonably designed to achieve compliance with securities laws and regulations and FINRA rules.  

Fortune Financial Services was censured and ordered to pay $612, 172.66 plus in restitution to investors, according the letter. The firm was also required to retain an independent consultant to address the alleged supervisory failures.  

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