Initiated By
FINRA
Allegations
BIRLI WAS NAMED A RESPONDENT IN A FINRA COMPLAINT ALLEGING THAT HE AND ANOTHER ASSOCIATE, (THE RESPONDENTS), OF HIS MEMBER FIRM CARRIED OUT A SCHEME TOGETHER OVER MORE THAN SEVEN YEARS TO EVADE, CIRCUMVENT, AND THWART THE FIRM'S POLICIES AND PROCEDURES. THE COMPLAINT ALLEGES THAT THE RESPONDENTS CONCEALED THEIR MISCONDUCT BY, AMONG OTHER THINGS, SUBMITTING FALSE, MISLEADING, AND INCOMPLETE PAPERWORK, USING PERSONAL EMAILS TO COMMUNICATE WITH CUSTOMERS AND A FINANCIAL SERVICES ORGANIZATION, AND BY MAKING FALSE AND MISLEADING STATEMENTS TO FIRM PERSONNEL. RATHER THAN COMPLY WITH THE FIRM'S POLICIES AND PROCEDURES, THE RESPONDENTS INTENTIONALLY CIRCUMVENTED THE PROHIBITION THROUGH A TWO-STEP TRANSACTION. THE RESPONDENTS RECOMMENDED THAT THEIR CUSTOMERS SURRENDER THEIR EXISTING VARIABLE ANNUITIES AND USE THE FUNDS TO PURCHASE A PRODUCT OFFERED BY A FINANCIAL SERVICES ORGANIZATION, CONTAINED WITHIN THE RETIREMENT PROGRAM; WAIT AT LEAST 90 DAYS, AND THEN SELL THE FINANCIAL SERVICES ORGANIZATION PRODUCT AND USE THE FUNDS TO PURCHASE A NEW VARIABLE ANNUITIES PRODUCT IN THE FIRM'S IRA. THE COMPLAINT ALSO ALLEGES THAT AS A RESULT OF THE MISCONDUCT, THE RESPONDENTS RECEIVED (AND THE FIRM PAID) COMMISSIONS TO WHICH THEY WERE NOT ENTITLED, THEIR CUSTOMERS WERE EXPOSED TO ADDITIONAL LIQUIDITY AND DEATH BENEFIT RISKS, SOME CUSTOMERS WERE ACTUALLY HARMED BY THEIR STRATEGY, AND THE FIRM WAS PREVENTED FROM PROPERLY REVIEWING THE TRANSACTIONS FOR SUITABILITY. THE RESPONDENTS WERE UNJUSTLY ENRICHED BY HAVING THEIR CUSTOMERS ENGAGE IN THIS TWO-STEP TRANSACTION. UNAWARE THAT THE MONEY HAD ORIGINATED WITHIN THE FIRM, THE FIRM TREATED THE NEW ANNUITIES PURCHASES AS NEW MONEY (RATHER THAN AN INTERNAL EXCHANGE) THEREBY CREDITING THE RESPONDENTS WITH FULL GROSS DEALER CONCESSIONS ON THE TRANSACTIONS. AS A RESULT, THE RESPONDENTS RECEIVED HUNDREDS OF THOUSANDS OF DOLLARS IN COMMISSIONS TO WHICH THEY WERE NOT ENTITLED. THE COMPLAINT FURTHER ALLEGES THAT THE RESPONDENTS FAILED TO HAVE A REASONABLE BASIS TO RECOMMEND TRANSFERS OF THEIR FIRM'S EXISTING VARIABLE ANNUITIES TO THE NEW VARIABLE ANNUITIES OF THE FIRM VIA A TWO-STEP TRANSACTION TO SOME OF THEIR RETIREMENT PROGRAM CUSTOMERS. WITH THE RESPONDENTS HAVING STRUCTURED THE TRANSACTION IN TWO STEPS, RATHER THAN PROCESSING THE TRANSACTIONS THROUGH THE FIRM'S INTERNAL EXCHANGE PROGRAM, ALL OF THE CUSTOMERS WERE UNNECESSARILY SUBJECTED TO A NEW SEVEN-YEAR SURRENDER SCHEDULE THAT REDUCED LIQUIDITY; DEPRIVED OF THE BENEFIT OF THE 110 PERCENT DEATH BENEFIT RULE DESIGNED TO ENSURE THAT CUSTOMERS NOT LOSE SIGNIFICANT DEATH BENEFITS ON INTERNAL EXCHANGES; AND EXPOSED TO THE TEMPORARY LOSS OF DEATH BENEFIT PROTECTION DURING THE PERIOD THAT FUNDS WERE HELD AWAY FROM THE FIRM. ACCORDINGLY, THE TWO-STEP TRANSACTION WAS UNSUITABLE FOR ANY CUSTOMER. IN ADDITION, SOME OF THESE CUSTOMERS EXPERIENCED AN ACTUAL LOSS OF DEATH BENEFIT PROTECTION AND SOME OF THE CUSTOMERS PAID SURRENDER CHARGES AS A RESULT OF THE NEW SURRENDER SCHEDULE. IN ADDITION, THE COMPLAINT ALLEGES THAT THE RESPONDENTS FAILED TO COOPERATE WITH FINRA'S INVESTIGATION, AND, TO DATE, HAVE NEITHER PROVIDED THE REQUESTED INFORMATION AND DOCUMENTS NOR APPEARED FOR THEIR ON-THE-RECORD INTERVIEWS.
Resolution
Decision & Order of Offer of Settlement
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Start Date
7/1/2014
Regulator Statement
WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, BIRLI CONSENTED TO THE SANCTION AND TO THE ENTRY OF FINDINGS THAT HE AND ANOTHER REGISTERED REPRESENTATIVE CARRIED OUT A SCHEME TOGETHER OVER MORE THAN SEVEN YEARS TO EVADE, CIRCUMVENT, AND THWART THEIR MEMBER FIRM'S POLICIES AND PROCEDURES. THE FINDINGS STATED THAT BIRLI AND THE OTHER REPRESENTATIVE CONCEALED THEIR MISCONDUCT BY, AMONG OTHER THINGS, SUBMITTING FALSE, MISLEADING, AND INCOMPLETE PAPERWORK; USING PERSONAL EMAILS TO COMMUNICATE WITH CUSTOMERS AND AN ENTITY; AND BY MAKING FALSE AND MISLEADING STATEMENTS TO FIRM PERSONNEL. THE RESPONDENTS RECOMMENDED THAT THEIR CUSTOMERS SURRENDER THEIR EXISTING VARIABLE ANNUITIES AND USE THE FUNDS TO PURCHASE A PRODUCT THE ENTITY OFFERED THAT WAS CONTAINED WITHIN A RETIREMENT PROGRAM. FURTHER, WAIT AT LEAST 90 DAYS, AND THEN SELL THE ENTITY'S PRODUCT AND USE THE FUNDS TO PURCHASE A NEW VARIABLE ANNUITIES PRODUCT IN THE FIRM'S INDIVIDUAL RETIREMENT ACCOUNT (IRA) OUTSIDE THE RETIREMENT PLAN. AS A RESULT OF THE MISCONDUCT, THEY RECEIVED (AND THE FIRM PAID) COMMISSIONS TO WHICH THEY WERE NOT ENTITLED, THEIR CUSTOMERS WERE EXPOSED TO ADDITIONAL LIQUIDITY AND DEATH BENEFIT RISKS, SOME CUSTOMERS WERE ACTUALLY HARMED BY THEIR STRATEGY, AND THE FIRM WAS PREVENTED FROM PROPERLY REVIEWING THE TRANSACTIONS FOR SUITABILITY. THEY RECEIVED HUNDREDS OF THOUSANDS OF DOLLARS IN COMMISSIONS TO WHICH THEY WERE NOT ENTITLED. THE FINDINGS ALSO STATED THAT BIRLI AND THE OTHER RESPONDENT FAILED TO HAVE A REASONABLE BASIS TO RECOMMEND TRANSFERS OF THEIR FIRM'S EXISTING VARIABLE ANNUITIES TO THE NEW VARIABLE ANNUITIES VIA THE TWO-STEP TRANSACTION DESCRIBED. WITH THE RESPONDENTS HAVING STRUCTURED THE TRANSACTION IN TWO STEPS, RATHER THAN PROCESSING THE TRANSACTIONS THROUGH THE FIRM'S INTERNAL EXCHANGE PROGRAM, ALL OF THE CUSTOMERS WERE UNNECESSARILY SUBJECTED TO A NEW SEVEN-YEAR SURRENDER SCHEDULE THAT REDUCED LIQUIDITY, DEPRIVED OF THE BENEFIT OF THE 110 PERCENT DEATH BENEFIT RULE DESIGNED TO ENSURE THAT CUSTOMERS NOT LOSE SIGNIFICANT DEATH BENEFITS ON INTERNAL EXCHANGES, AND EXPOSED TO THE TEMPORARY LOSS OF DEATH BENEFIT PROTECTION DURING THE PERIOD THAT FUNDS WERE HELD AWAY FROM THE FIRM. ACCORDINGLY, THE TWO-STEP TRANSACTION WAS UNSUITABLE FOR ANY CUSTOMER. SOME OF THESE CUSTOMERS EXPERIENCED AN ACTUAL LOSS OF DEATH BENEFIT PROTECTION AND SOME OF THE CUSTOMERS PAID SURRENDER CHARGES AS A RESULT OF THE NEW SURRENDER SCHEDULE. THE FINDINGS ALSO INCLUDED THAT BIRLI AND THE OTHER RESPONDENT FAILED TO COOPERATE WITH FINRA'S INVESTIGATION. THEY FAILED TO APPEAR FOR TESTIMONY AND FAILED TO SEEK ANY ADJOURNMENT OF SUCH TESTIMONY. RATHER, IN COMMUNICATIONS, THEY, THROUGH THEIR COUNSEL, ADVISED FINRA THAT THEY WOULD NOT BE COMPLYING FURTHER UNDER RULE 8210 BASED ON THEIR BELIEF THAT FINRA'S JURISDICTION OVER THEM HAD EXPIRED. THIS POSITION WAS UNREASONABLE, NOT TAKEN IN GOOD FAITH, AND WAS A TRANSPARENT EFFORT TO OBSTRUCT THE FINRA INVESTIGATION. ALSO, AS PART OF ITS INVESTIGATION, FINRA SOUGHT TO OBTAIN INFORMATION AND DOCUMENTS FROM THEM REGARDING THEIR USE OF PERSONAL EMAILS TO CONDUCT BUSINESS. THE RESPONDENTS FAILED TO PROVIDE SUCH INFORMATION AND DOCUMENTS. RATHER, AS ALLEGED ABOVE, IN COMMUNICATIONS, THEY, THROUGH THEIR COUNSEL, ADVISED FINRA THAT THEY WOULD NOT BE COMPLYING FURTHER UNDER RULE 8210 BASED ON THEIR BELIEF THAT FINRA'S JURISDICTION HAD EXPIRED. BIRLI AND THE OTHER RESPONDENT NEITHER PROVIDED THE REQUESTED INFORMATION AND DOCUMENTS NOR APPEARED FOR THEIR ON-THE-RECORD INTERVIEWS.
