FINRA

Nivens was named a respondent in a FINRA complaint alleging that he circumvented his member firm's written supervisory procedures (WSPs) by failing to process as replacement trades 15 variable universal life (VUL) purchase transactions, totaling approximately $439,805 in first year premiums, even though Nivens recommended that each purchase be funded by withdrawals from an existing variable annuity. The complaint alleges that from 2010 to Nivens' departure from the firm he was subject to heightened supervision by the firm which included a review of the number of replacement transactions processed by Nivens and the suitability of those transactions on a quarterly basis. Nivens was aware of the heightened supervision plan and avoidance of this additional supervision provided motivation for Nivens to conceal that the transactions for his customers were replacements. The complaint also alleges that Nivens actions in circumventing firm procedures and concealing replacements allowed him to continue his pattern of frequently recommending exchanges to reap the benefit of a new commission without being subject to the firm's heightened level of supervisory review associated with such transactions. Each of the VULs was reviewed by a firm supervisor who was unaware that the purchase transaction was part of a replacement. As a result of Nivens' concealment, the firm supervisor reviewing the transaction did not know to perform the heightened review required for replacements. As a result of the transactions at issue, Nivens received $185,737.00 in commissions on the VULs. These commissions were in addition to commissions he had already received on the purchases of the variable annuities that he sold to the same customers. The complaint further alleges that to avoid detection by the firm of the source of the annual premiums for the VULs, Nivens did not process the withdrawals from the variable annuities used to fund the VULs as 1035 exchanges. If Nivens had properly characterized the exchanges, the customers could have avoided significant tax consequences. In addition, the complaint alleges that Nivens further concealed the variable annuity replacements from the firm's supervisory review by directing the customers to write a personal check to fund the annual premium and to fund the check by withdrawing funds from the variable annuity either before or after issuance of the check. Nivens' failure to characterize the transactions as replacements also made the warnings accompanying VUL applications appear irrelevant to the customers. However, because Nivens certified on page one of the documents that the transactions did not involve replacements, he made it appear that the considerations on this two-page disclosure did not apply to the VUL purchases. Additionally, eight of the customers unnecessarily incurred surrender charges on the variable annuity withdrawals in the total amount of $4,258.19. Moreover, the complaint alleges that in connection with these transactions, Nivens submitted to the firm annuity documents containing misrepresentations and false information that further disguised the fact that these transactions were replacements and prevented the firm from performing its heightened supervisory review. The documents in question were prepared by Nivens and signed by him prior to submission to the firm. Nivens failed to disclose that an annuity was a source of the funds for the purchase of the VULs. Although all of the customers funded their purchases of the VULs with withdrawals from a variable annuity, Nivens chose other sources of funding. Furthermore, the complaint alleges each VUL application was also accompanied by a Replacement Form required to be submitted with each VUL application. For each of the forms at issue, Nivens completed the form himself and presented the completed form to the customer for the customer to sign. In each instance, Nivens signed the form certifying that it was accurate when it was not.

Decision & Order of Offer of Settlement

Disgorgement

$185,737.00

Suspension

all capacities

two years

11/6/2017

11/5/2019

Nivens' member firm paid $558,848 to the affected customers to resolve complaints related to his VUL sales. Because the firm has already resolved the customers' claims against Nivens, no restitution is ordered.

Default decision rendered September 18, 2017. The sanctions were based on findings that Nivens circumvented his member firm supervisory and compliance procedures, by failing to identify and process 15 variable universal life (VUL) purchases as replacements, even though each purchase was funded by a withdrawal from an existing variable annuity, and therefore was a replacement transaction. The findings stated that by doing so, Nivens caused eight customers to incur surrender charges unnecessarily and 15 customers to pay federal taxes on their variable annuity withdrawals. Nivens represented to his customers that, once their funds were invested in VULs, the VULs would provide tax-free supplemental income. Each of the 15 VUL applications was accompanied by a client profile requesting suitability information. It also required the registered representative to provide details regarding the annuity from which funds were withdrawn. In the 15 VUL purchases, Nivens failed to disclose that an annuity was a source of the funds, although all 15 customers funded their VUL purchases with withdrawals from other annuities. For each purchase, Nivens marked "checking/savings, "inheritance/gift," or some other source of funding, but never "annuity." In six instances, the firm contacted Nivens regarding the customers' ability to pay the annual premiums because of concern about the customers' annual income levels. Rather than disclose that the customers intended to pay annual premiums through withdrawals from existing annuities, Nivens falsely stated that the customers had an adequate liquid net worth to cover the premiums. Nivens' 15 VUL applications were accompanied by replacement forms. The replacement forms required the signature of both the customer and Nivens. The form explained that certain methods of funding a VUL purchase would be considered a replacement. The forms clearly indicated that a "financed purchase," which is a VUL purchase funded from a withdrawal from an existing annuity, would be considered a replacement. A question on the forms directly asked if the customer own any existing life insurance policies or annuity contract. In eight of the 15 VUL sales, Nivens falsely answered "no," even though the customers owned existing variable annuities. In the remaining seven instances, Nivens correctly answered "yes," but falsified a related question regarding premium payments. Nivens signed the bottom of the replacement forms, which contained the statement, "I certify that the responses herein are, to the best of my knowledge, accurate" next to the space where Nivens signed. They also contained a producer acknowledgment in boldface type that stated, "By reason of this transaction, is a replacement involved?" In each instance, Nivens checked "no," representing falsely that the transaction was not a replacement. In the 15 VUL transactions at issue, Nivens' customers paid approximately $439,805 in first-year premiums for their VUL purchases. For these purchases, Nivens received $185,737 in commissions in addition to commissions he already had received on the purchases of the variable annuities he initially sold to the same customers. The findings also stated that Nivens submitted to his firm variable annuity-related documents containing misrepresentations and false information disguising the fact that these transactions were in reality replacements and prevented the firm from performing an appropriate supervisory review. By doing so, Nivens violated FINRA Rules 4511 and 2010 relating to the firm preserving its books and records, in addition to, his concealing of facts from the firm and inserting inaccurate information in firm's record. The decision became final October 16, 2017.