Initiated By
FINRA
Allegations
WILLFULLY VIOLATED SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER, VIOLATED NASD RULES 2110, 2120, 2310, 3110, INTERPRETATIVE MATERIAL 2310-2: PIERCE CIRCUMVENTED THE PROCEDURES OF HIS MEMBER FIRM IN ORDER TO CONCEAL UNSUITABLE ANNUITY REPLACEMENT TRANSACTIONS. IN EACH OF THE REPLACEMENT TRANSACTIONS, THE CUSTOMER SOLD A FIXED OR VARIABLE ANNUITY AT PIERCE'S RECOMMENDATION AND/OR WITH HIS KNOWLEDGE TO PURCHASE ANOTHER VARIABLE ANNUITY THAT PIERCE RECOMMENDED. PIERCE EFFECTED ALL OF THE SALES AND PURCHASES SEPARATELY, ON DIFFERENT DATES WITHIN A WEEK OR TWO OF EACH OTHER, RATHER THAN AS REPLACEMENTS AS REQUIRED BY HIS FIRM'S PROCEDURES, THEREBY CONCEALING THE NATURE OF THE TRANSACTIONS FROM HIS FIRM. PIERCE FAILED TO DISCLOSE ON HIS FIRM'S TRANSACTION DOCUMENTS THAT ANOTHER ANNUITY WAS A SOURCE OF FUNDS FOR THE NEW ANNUITY PURCHASE. RATHER, HE FALSELY LISTED OTHER SOURCES SUCH AS "CHECKING" AND "PROPERTY SALE," AS THE SOLE FUNDING SOURCE FOR THE NEW VARIABLE ANNUITY. PIERCE'S ACTIONS ALLOWED HIM TO REAP THE BENEFIT OF A NEW COMMISSION WITHOUT THE SAME LEVEL OF SUPERVISORY SCRUTINY THAT WOULD HAVE BEEN ASSOCIATED WITH THE REVIEW OF REPLACEMENT/EXCHANGE TRANSACTIONS. EACH OF THE NEW VARIABLE ANNUITY INVESTMENTS WERE REVIEWED BY A FIRM SUPERVISOR WHO WAS UNAWARE THAT THE PURCHASE WAS PART OF THE REPLACEMENT. THE REPLACEMENT TRANSACTIONS WERE UNSUITABLE AND THE CUSTOMERS, EACH OF WHOM WAS IN HIS/HER SIXTIES AND SEVENTIES, WERE HARMED THROUGH SURRENDER CHARGES AND/OR AVOIDABLE TAX CONSEQUENCES. PIERCE SOLD NON-QUALIFIED ANNUITIES AND FAILED TO UTILIZE THE TAX-FREE EXCHANGE AVAILABLE UNDER SECTION 1035 OF THE INTERNAL REVENUE CODE (1035 EXCHANGE), AND THEREFORE CAUSED A TAX LIABILITY FOR THE CUSTOMERS. PIERCE'S FIRM'S PROCEDURES REQUIRED THAT FINANCIAL ADVISORS UTILIZE 1035 EXCHANGES FOR SUCH TRANSACTIONS. FURTHERMORE, PIERCE FRAUDULENTLY CONCEALED THE ADVERSE CONSEQUENCE OF THESE REPLACEMENT TRANSACTIONS FROM THE CUSTOMERS BY FAILING TO DISCLOSE TO THEM THAT THEY WOULD INCUR TAX LIABILITY AND/OR SURRENDER CHARGES THROUGH THE SALES OF THE ANNUITIES. PIERCE'S FIRM UNCOVERED THESE TRANSACTIONS THROUGH AN INTERNAL REVIEW OF PIERCE'S ANNUITY BUSINESS. PIERCE PROVIDED FALSE INFORMATION TO HIS FIRM DURING ITS INVESTIGATION, MISREPRESENTING THAT CERTAIN REPLACEMENT CUSTOMERS HAD NOT INCURRED ANY ADVERSE TAX CONSEQUENCES THROUGH THEIR ANNUITY SALES.
Resolution
Decision
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$25,000.00
Sanctions
Suspension
Registration Capacities Affected
ANY CAPACITY
Duration
SIX MONTHS
Start Date
12/2/2013
End Date
5/30/2014
Regulator Statement
HEARING PANEL DECISION RENDERED JANUARY 30, 2012 WHEREIN PIERCE IS FINED $25,000 AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR ONE YEAR FOR: CONCEALING ANNUITY SWITCHES IN CUSTOMER ACCOUNTS, IN VIOLATION OF NASD RULE 2110; PROVIDING FALSE DOCUMENTATION TO HIS FIRM REGARDING ANNUITY TRANSACTIONS, IN VIOLATION OF NASD RULES 2110 AND 3110; WILLFULLY FAILING TO DISCLOSE MATERIAL FACTS TO CUSTOMERS, IN VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, NASD RULES 2110 AND 2120, AND INTERPRETATIVE MATERIAL 2310-2; AND INTENTIONALLY MAKING MATERIAL MISREPRESENTATIONS TO HIS FIRM, IN VIOLATION OF NASD RULE 2110. THE HEARING PANEL DETERMINED THAT IT WAS UNNECESSARY TO REACH THE ISSUE OF WHETHER PIERCE MADE UNSUITABLE RECOMMENDATIONS, IN VIOLATION OF NASD RULES 2110, 2310, AND INTERPRETATIVE MATERIAL 2310-2. PIERCE IS ALSO ORDERED TO PAY COSTS IN THE AMOUNT OF $10,696.35. THE FINE AND COSTS SHALL BE DUE AND PAYABLE IF AND WHEN PIERCE APPLIES TO ASSOCIATE WITH A MEMBER FIRM FOLLOWING THE END OF HIS SUSPENSION. ON FEBRUARY 17, 2012, PIERCE APPEALED THE HEARING PANEL DECISION TO THE NATIONAL ADJUDICATORY COUNCIL (NAC). ON FEBRUARY 21, 2012, FINRA'S DEPARTMENT OF ENFORCEMENT CROSS-APPEALED THE HEARING PANEL DECISION TO THE NAC.
NAC DECISION RENDERED OCTOBER 1, 2013 WHEREIN THE FINDINGS MADE ARE MODIFIED AND THE SANCTIONS IMPOSED ARE MODIFIED. THE NAC DISMISSED THE FINDING THAT PIERCE WILLFULLY OMITTED MATERIAL INFORMATION FROM HIS SALES DISCUSSION WITH HIS CLIENTS IN VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER. THEREFORE, RESPONDENT IS FINED $25,000, ORDERED TO PAY HEARING COSTS OF $10,696 AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR SIX MONTHS.
DECISION BECAME FINAL NOVEMBER 4, 2013.
THE SUSPENSION WILL BEGIN WITH THE OPENING OF BUSINESS ON DECEMBER 2, 2013 AND END AT THE CLOSE OF BUSINESS ON MAY 30, 2014.
Broker Comment
HEARING PANEL DECISION RENDERED JANUARY 30, 2012 WHEREIN PIERCE IS FINED $25,000 AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR ONE YEAR FOR: CONCEALING ANNUITY SWITCHES IN CUSTOMER ACCOUNTS, IN VIOLATION OF NASD RULE 2110; PROVIDING FALSE DOCUMENTATION TO HIS FIRM REGARDING ANNUITY TRANSACTIONS, IN VIOLATION OF NASD RULES 2110 AND 3110; WILLFULLY FAILING TO DISCLOSE MATERIAL FACTS TO CUSTOMERS, IN VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, NASD RULES 2110 AND 2120, AND INTERPRETATIVE MATERIAL 2310-2; AND INTENTIONALLY MAKING MATERIAL MISREPRESENTATIONS TO HIS FIRM, IN VIOLATION OF NASD RULE 2110. THE HEARING PANEL DETERMINED THAT IT WAS UNNECESSARY TO REACH THE ISSUE OF WHETHER PIERCE MADE UNSUITABLE RECOMMENDATIONS, IN VIOLATION OF NASD RULES 2110, 2310, AND INTERPRETATIVE MATERIAL 2310-2. PIERCE IS ALSO ORDERED TO PAY COSTS IN THE AMOUNT OF $10,696.35. THE FINE AND COSTS SHALL BE DUE AND PAYABLE IF AND WHEN PIERCE APPLIES TO ASSOCIATE WITH A MEMBER FIRM FOLLOWING THE END OF HIS SUSPENSION. ON FEBRUARY 17, 2012, PIERCE APPEALED THE HEARING PANEL DECISION TO THE NATIONAL ADJUDICATORY COUNCIL (NAC). ON FEBRUARY 21, 2012, FINRA'S DEPARTMENT OF ENFORCEMENT CROSS-APPEALED THE HEARING PANEL DECISION TO THE NAC. NAC DECISION RENDERED OCTOBER 1, 2013 WHEREIN THE FINDINGS MADE ARE MODIFIED AND THE SANCTIONS IMPOSED ARE MODIFIED. THE NAC DISMISSED THE FINDING THAT PIERCE WILLFULLY OMITTED MATERIAL INFORMATION FROM HIS SALES DISCUSSION WITH HIS CLIENTS IN VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER. THEREFORE, RESPONDENT IS FINED $25,000, ORDERED TO PAY HEARING COSTS OF $10,696 AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR SIX MONTHS. THE SUSPENSION WILL BEGIN WITH THE OPENING OF BUSINESS ON DECEMBER 2, 2013 AND END AT THE CLOSE OF BUSINESS ON MAY 30, 2014. IF NO FURTHER ACTION IS TAKEN DECISION WILL BECOME FINAL NOVEMBER 4, 2013.
