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FINRA Fines Fifth Third Securities $1.75 Million

The Financial Industry Regulatory Authority (FINRA) announced in April that it has fined Fifth Third Securities, Inc., (FTS) of Cincinnati, OH, $1.75 million for a series of violations related to variable annuity sales and exchanges. FINRA found that Fifth Third Securities made 250 unsuitable sales and exchanges to 197 customers through 42 individual brokers. FINRA also found that Fifth Third Securities’ supervisory systems and procedures were inadequate for policing the firm’s variable annuity sales and exchanges.

In addition to the fine, FINRA ordered Fifth Third Securities to pay more than $260,000 in restitution to 74 customers/investors to compensate them for surrender charges incurred in the unsuitable transactions. The firm must also offer all 197 customers the opportunity to rescind their unsuitable transactions and receive the initial value of their purchase plus interest and any surrender charges required, adjusted for any withdrawals made.

FINRA found that between January 2004 and December 2006, Fifth Third Securities effected 250 unsuitable VA exchanges or transactions through 42 brokers, who, in many cases, worked in Fifth Third Bank branches. They used lists provided by the bank of customers with maturing CDs and referrals from bank employees to identify new customers — some of them elderly and/or unsophisticated and with conservative investment objectives — to purchase variable annuities.

One broker had 74 customers enter into 118 unsuitable exchanges shortly after he joined Fifth Third Securities in early 2005. To avoid leaving substantial customer assets at his prior firm, he switched his customers into variable annuities issued by the same insurance company with the same riders. In recommending these cookie cutter transactions, the broker ignored substantial differences in his customers’ ages, incomes, investment objectives and investment sophistication. The customers paid, in aggregate, at least $260,000 in charges to surrender their old annuities and were locked into essentially identical variable annuities that were more expensive and had new surrender periods. Obviously, the implication is that these annuity exchanges were purely motivated by the commission generated for the broker.

The commissions earned on these transactions enabled the broker to win a firm sales contest and he and his supervisors were each awarded a 42″ flat screen TV. The settlement announced today requires Fifth Third Securities to reimburse the broker’s customers for these surrender charges.

FINRA found that Fifth Third Securities knew the broker was engaging in a mass switch and approved each of the broker’s transactions, failing to adequately respond to red flags indicating that the exchanges were unsuitable.

FINRA also found that 41 other Fifth Third Securities brokers recommended and effected 132 unsuitable variable annuity purchases for 123 customers. These customers used cash from CDs or bank accounts to purchase the same variable annuity and they put their entire investments into the fixed rate sub-account of the variable annuity. Many of these customers were elderly and/or possessed limited financial sophistication, and had conservative investment objectives. FINRA found these identical transactions, in which customers traded liquid assets for a variable annuity with a seven-year surrender period and annual fees, to be unsuitable given the customers’ financial situations, needs, and investment objectives.

As part of the settlement, FINRA is requiring the firm to retain an independent consultant to review the adequacy of and recommend modifications to the firm’s supervisory system and procedures and training relating to variable annuity transactions.

If you have questions about investments you made with Fifth Third Securities or in a variable annuity, or if you believe that you have been the victim of a securities fraud, the securities attorneys of The White Law Group may be able to help.  For a free consultation, please call the firm at 561-807-6804.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit https://whitesecuritieslaw.com.

Tags: , , , , , , , , , , , , , , Last modified: February 27, 2023