finra

FINRA

 

 

FOR RELEASE:
CONTACTS:
Monday, January 12, 2004
Nancy A. Condon 202-728-8379
Michael Shokouhi 202-728-8304

 



NASD Bars Louisiana Broker and Orders Restitution for Unsuitable Sales of Variable Annuities and Mutual Funds

Washington, DC — NASD announced today that John Steven Blount of Lake Charles, LA, has been barred from association with any NASD-regulated securities firm and ordered to pay more than $1.5 million in restitution plus interest to 10 customers for unsuitable sales of variable annuities and mutual funds totaling over $6 million.

 

The unsuitable sales by Blount generated almost $220,000 in commissions. NASD found that Blount schemed to defraud investors and to frustrate attempts by his employer to supervise his activities. The transactions took place between 1998 and 2001 while Blount was a registered representative of NYLife Securities, Inc. This settlement follows an NASD complaint filed last July that charged Blount with these violations.

 

"This case was brought in connection with an ongoing series of NASD special examinations and investigations that have focused on the sale of variable annuity products, and have resulted in over 75 annuity-related disciplinary actions taken by NASD since the beginning of 2001" said NASD Vice Chairman Mary Schapiro "Given the popularity of this product, we will continue to focus examination and investigative resources on a wide range of variable annuity related sales practices."

Blount's customers were older, conservative investors who were generally seeking current income from their investments. NASD found that Blount's investment recommendations exposed his customers to excessive market risk, lacked sufficient liquidity, and failed to address the customers' needs for current income.

 

In one instance, the customer was a 62-year-old retiree who wished to keep his principal investment safe, and had told Blount that he anticipated the need within a few months for $50,000 to buy a car and to make home repairs. Despite the customer's near-term need for liquidity, Blount recommended that the customer invest almost all of his liquid assets in a variable annuity contract that imposed surrender charges for early withdrawals during the first six years of the contract. Furthermore, Blount recommended allocating the investment to high-risk sub-accounts that were not consistent with the customer's desire to keep his principal safe. In order to buy a car and make home repairs, the customer was forced to draw on his home equity and subsequently had to take early withdrawals from his variable annuity to make the resulting loan payments.

 

NASD also found that Blount misrepresented material features of the variable annuities in order to induce customers to purchase the products. Additionally, in an effort to circumvent his firm's review of annuity and mutual fund transactions, Blount directed his sales assistant to falsify firm records regarding customers' financial situations and investment objectives.

 

As part of its overall focus on the sales of variable annuity contracts, NASD has issued educational alerts to both investors and firms to help ensure that these products are properly sold which can be found at:

Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.