NASD Charges Louisiana Broker With Unsuitable Sales of Variable Annuities and Mutual Funds of More Than $6 Million
Washington, DC — NASD announced today that it charged John Steven Blount of Lake Charles, LA, with unsuitable sales of variable annuities and mutual funds to 11 customers totaling over $6 million. These unsuitable sales generated almost $220,000 in commissions. Blount's conduct involved a scheme 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 NY Life Securities, Inc.
Blount's customers were older, conservative investors who were generally seeking current income from their investments. NASD's complaint charges 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.
The complaint also charges 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.
"Our continuing examination focus on variable annuity sales and today's enforcement action, should leave no doubt about our continuing serious concerns over how these products are sold." said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "Brokers selling these complex products must be especially mindful of investors' risk tolerance and liquidity needs when recommending them as investments."
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. 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:
- Should You Exchange Your Life Insurance Policy?
- NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities and,
- NASD Reminds Members of Their Responsibilities Regarding the Sale of Variable Life Insurance
Under NASD rules, an individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, order to pay restitution, censure, suspension, or bar from the securities industry.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD's Web Site at www.nasd.com.
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.