Walter Joseph Marino, of Dix Hills, New York, a stockbroker formerly registered with Legend Equities, has been suspended for one year from associating with a Financial Industry Regulatory Authority (FINRA) member in any capacity according to an Order Accepting Offer of Settlement containing findings that Marino made unsuitable variable annuity recommendations and misrepresentations to customers. Department of Enforcement v. Walter Marino, No. 2015046537501 (Oct. 6, 2017).
According to the Order, in 2014, two customers received unsuitable investment recommendations from Marino about their replacements of variable annuity policies, obtaining no benefit from switching into the annuities that were recommended by Marino and instead sustaining financial losses from the replacement of their existing annuities with annuities offered through Marino. Marino reportedly made $60,000.00 in commissions as a result of his unsuitable investment recommendations.
In particular, the Order revealed that Marino arranged for customer AA’s August 2012 purchase of the Perspective II annuity issued by Jackson National Life Insurance, where the customer invested $1,093,623.17 among two of the annuity subaccounts. Apparently, Marino paid 1.25 percent in total fees, which consisted of an administrative fee and mortality and expense charge. Moreover, annuity distributions were subject to a surrender penalty period of five years, in which customer AA would have to pay surrender penalties as high as eight percent if surrendering the policy in the first year.
Marino reportedly recommended in May of 2014 that customer AA switch her existing annuity into the Equity Director – a non-qualified variable annuity that was issued by Variable Annuity Life Insurance Company (VALIC). Apparently, Marino knew that the customer would have to pay a seven percent surrender penalty in order to make the switch, but failed to inform customer AA. Moreover, Marino recommended that AA’s assets within the new annuity be managed through Legend Advisory Corporation, where the customer would have to pay Legend Advisory Corporation an annual advisory fee of 1.5 percent.
Customer AA consequently incurred a surrender penalty of $82,523.23. The transfer of the customer’s assets; however, was not done through a tax-free 1035 exchange, but rather involved the surrender of the customer’s assets, resulting in customer AA’s tax liability of $124,164.11. Marino evidently received an estimated $50,000.00 commission in reference to customer AA’s annuity replacement, and accumulated a part of the advisory fee charged to the customer by Legend Advisory Corporation.
Based on the annuity-sub accounts that AA held within the annuity issued by Variable Annuity Life Insurance Company product, customer AA reportedly had to pay a total of 1.6 to 2.1 percent in annual fees, consisting of mortality and expense charges and administrative fees. Further, a five percent surrender penalty was assessed for making certain withdrawals.
FINRA found that Marino made unsuitable investment recommendations to the customer based on the policy not having provided customer AA with a benefit for switching; benefits were outweighed by the imposition of a new surrender penalty period and the customer was required to pay additional fees. FINRA also noted that Marino failed to make a suitable recommendation to the customer because of the customer having to incur a tax liability when the transaction could have been completed through a tax free 1035 exchange.
The Order additionally referenced that customers TM and MM were exposed to Marino’s unsuitable recommendations in June of 2014. The Order stated that the customers initially invested a total of $146,980.00 in an annuity issued through Jackson National Life Insurance, where the customers paid 1.35 percent in annual fees and were required to invest for at least five years to avoid paying surrender penalties.
Marino reportedly recommended that TM and MM replace the existing annuity with VALIC’s Equity Director. The customers evidently surrendered their policy to make the investment as Marino recommended, incurring a $100,990.00 tax liability in the process. Marino purportedly raked in $10,000.00 from the customers for a commission on the transaction and a share of Legend Advisory Corporation 1.5 percent annual advisory fee.
Similar to the case with customer AA, FINRA found that Marino’s recommendations to customers TM and MM were not appropriate based on the tax consequences involved in the replacement as well as the additional expenses and surrender penalty periods that the customers were exposed to by investing in the VALIC annuity. Consequently, FINRA found Marino’s conduct to be violative of FINRA Rules 2010, 2111 and 2330(b).
Moroever, FINRA found that Marino made misrepresentations regarding the customers’ annuity replacements within the customers’ account documentation in order to effect the transactions. Specifically, Marino had completed VALIC’s suitability questionnaire, a variable annuity disclosure form and annuity application, where he referenced that the VALIC annuities were not replaced but instead purchased by customers with funds outside of an existing annuity.
Marino apparently made the omissions and misrepresentations to prevent Legend Equities from discovering that the customers’ annuities were being replaced. The Order noted that Marino falsely represented that customers were not replacing or discontinuing existing annuities or life insurance, and falsely represented that he had no reason to conclude that the annuities were being replaced.
Moreover, the Order stated that Marino omitted all information in reference to the customers’ existing annuities or the source of funds used to purchase the new annuities, claiming that there was no applicable annuity being replaced. FINRA found Marino’s misrepresentations to be violative of FINRA Rule 2010. The Order additionally stated that Marino’s false statements resulted in his firm having contained inaccurate records and books; conduct violative of FINRA Rule 2010 and 4511.
The Order further stated that while Marino was associated with Lincoln Investment, he made unsuitable investment recommendations to customer MD. Apparently, MD was sold an annuity by Marino in 2007 that was issued by Jackson National life. Marino reportedly earned commissions on two purchases made by the customer into the policy before Marino recommended in October of 2016 that the customer replace the annuity with a Lincoln fee-based investment account. Marino reportedly failed to determine that in liquidating the annuity, the customer would incur surrender penalties totaling $6,980.52; forego a death benefit that was worth $28,000.00 more than the annuity’s actual contract value; and lose out on a guaranteed income stream of $24,305.73 a year. FINRA found that Marino’s recommendation was not suitable to MD; his conduct was found by FINRA to be violative of FINRA Rules 2010 and 2111.
FINRA Public Disclosure reveals that Marino has been identified in fifteen customer initiated investment related disputes containing allegations of Marino’s misconduct while he was employed with Legend Equities, Brill Securities, and Berry-Shino Securities, Inc. Between January 12, 2017, and August 24, 2017, two customer initiated investment related complaints pertaining to Marino’s conduct were settled for a total of $60,000.00 in damages based upon allegations of excessive trading.
Marino was fired by Legend Equities Corporation on July 30, 2015, based upon accusations of the firm’s annuity replacement policy. He was later fired by Lincoln Investment on October 20, 2016, based upon allegations that he made unsuitable investment recommendations to customers.
Marino has been employed with thirteen different broker dealers, four of whom are expelled by securities regulators for violation of federal securities laws or are otherwise defunct.
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