Frederick David Holloway of Easton Maryland is the president and chief compliance officer of Holloway & Associates Inc. who has been charged by Financial Industry Regulatory Authority (FINRA) in a Complaint alleging that he made unsuitable investment recommendations to customers concerning variable annuities. Department of Enforcement v. Frederick David Holloway No. 2016050025401 (Apr. 2, 2018).
According to the Complaint, from January of 2013 to June of 2016, Holloway made recommendations for customers to switch from one tax-deferred variable annuity to another tax-deferred variable annuity despite lacking an adequate basis to conclude that his recommendations were suitable. One of the annuities Holloway routinely recommended was the X-Share offered by Transamerica which contained a premium enhancement that provided the policyholder with an increase of up to five and one-half percent of the initial value of the contract; however, the cost of investing in the X-Share was thirty percent greater than investing in Transamerica B-Share annuity.
Holloway reportedly effected purchases of one-hundred sixty-six of Transamerica’s variable annuities for customers, forty-three of which involved exchanges from customers’ existing annuities issued by John Hancock to those issued by Transamerica. Apparently; however, Holloway neglected to undertake a realistic analysis of the benefits, features and costs of the customers’ existing annuities and compare those figures with the annuities he recommended. Holloway allegedly failed to conduct any comparison of the future guaranteed income customers would be able to generate by their existing policies as compared to policies he recommended.
The Complaint alleged that thirty-one of the forty-three Transamerica annuities purchased by customers at Holloway’s recommendation were X-Share variable annuities containing a premium enhancement. Holloway purportedly viewed the premium enhancement as a mechanism for reimbursing customers for surrender penalties that customers sustained in switching their existing annuities into the annuities Holloway recommended. In so doing, Holloway allegedly failed to consider the increased fees pertaining to the X-Share variable annuity. Consequently, the Complaint stated that Holloway failed to ascertain the suitability of the premium enhancement feature for customers in making the recommendations for them to invest. FINRA Department of Enforcement alleged that Holloway’s conduct in that regard was violative of FINRA Rules 2010 and 2330.
The Complaint further stated that from January of 2010 to September of 2016, the customers’ variable annuity documentation had been improperly altered or forged by Holloway. Apparently, customers were instructed by Holloway to furnish him with signed, but otherwise blank documents which Holloway utilized to facilitate the transactions. Customers’ initials had also been reportedly forged on documentation by Holloway or an assistant working under his direction. The Complaint stated that Holloway caused inaccurate records and books to be maintained by Holloway & Associates in violation of Securities Act of 1934 Section 17(a) as well as Securities and Exchange Commission (SEC) Rules 17a-3, 17a-4 and FINRA Rule 4511. Consequently, FINRA Department of Enforcement alleged that Holloway’s conduct was violative of FINRA Rule 2010.
The Complaint further alleged that between June of 2016 to August of 2016, Holloway intentionally withheld the majority of the information and documentation which FINRA requested until which time FINRA personnel discovered that those documents existed and brought their discovery to Holloway’s attention. Holloway reportedly altered documentation before it was provided to FINRA personnel. As a result, FINRA Department of Enforcement alleged that Holloway’s conduct was violative of FINRA Rule 2010 and 8210.
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