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Former Sterne Agee Baton Rouge, LA broker James K. Cox recently submitted a letter of Acceptance, Waiver and Consent (“AWC”) to settle a regulatory investigation with FINRA.

In the fall of 2014, Cox, then employed at Sterne Agee, convinced a client to switch from one variable annuity (“VA”) to another. He also had the client sell one VA to fund the purchase of two fixed annuities. Lastly, he recommended and the client agreed to sell three more VAs.

These transactions resulted in Cox receiving $25,406 in net commissions (his share of the gross commissions charged to the client). Meanwhile, the income generated by the new annuities the client purchased was actually less than the income thrown off by the annuities Cox had the client liquidate. Additionally, with the purchase of the new annuities, the client now faced a new seven-year surrender charge period (meaning that if the client had a sudden, unexpected need for funds and wanted to sell one of the newly acquired annuities, she would have to pay a surrender charge, which takes seven years to decline to zero).

Cox also charged the client $2,500 as a consulting fee for helping her with the design of a new medical office building. The problem here was that Cox never disclosed this transaction with the client to his firm, violating firm and industry rules regulating the outside business activities of registered representatives.

In the AWC, Cox agreed to disgorge his net commissions of $25,406, pay a $10,000 fine and accept a four-month suspension.

Cox’s BrokerCheck report indicates that prior to Cox’s FINRA regulatory settlement, his firm resolved a customer complaint for $480,000. The disclosure states that the customer complained regarding replacing old annuities with new annuities and that the customer wanted the old annuities back. This complaint presumably resulted in the FINRA investigation above.

Lastly, it also resulted in Cox’s discharge in April 2017. Stifel Nicolaus, which acquired Sterne Agee in 2015, fired Cox because of the settlement and his failure to disclose the outside business activity.

Cox is currently not employed in the securities industry.

Variable annuities are complex, multifaceted products. They are popular with brokers because they have high payouts to the salesman. But all the features that the salesmen tout to their clients – guaranteed minimum values, death benefits, etc., come at a price. Clients should make sure that they completely understand the risks and characteristics of a particular variable annuity before purchasing one.

Nicholas J. Guiliano has over twenty years experience representing investors before the Financial Industry Regulatory Authority, the New York Stock Exchange and before the National Association of Securities Dealers, Office of Dispute Resolution. Over the last twenty years, he has represented more than a thousand investors from all across the United States and from several foreign countries, in claims against stockbroker and broker-dealers for fraud, breach of fiduciary duty, churning or excessive trading, the sale of unsuitable investments, the sale of defective investments, the sale of unregistered securities, and the failure to supervise. He is frequently quoted in the national media on securities and investment related issues, most recently on National Public Radio. He offers his services on purely a contingent fee basis, and is also a member of Public Investors Arbitration Bar Association.

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