MidAmerica Financial Services, located in Joplin, Missouri, was censured and fined $150,000 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm had failed to establish and maintain supervisory systems associated with placements and deferred variable annuities. Letter of Acceptance, Waiver and Consent, No. 2014039194101 (Jan. 30, 2016). FINRA canceled the firm’s license in December 2015.
According to the AWC, between May 2010 and June 2014, stockbrokers of MFP recommended to the firm’s clients numerous unregistered securities pertaining to Regulation D private placement offerings. The AWC stated that in the case of five of the private offerings, MFS failed in exercising due diligence in investigating the offering(s) prior to recommendations being made to the firm’s clients. The AWC indicated that the firm had a duty to investigate the offerings for potential fraud and/or misleading or false statements, and ascertain if such securities would be suitable for the firm’s customers. The offending broker is beleived to be Jeffrey B. Pierce, of Quincy, Massachusetts, who FINRA barred in July 2015 following at least eleven reported customer initiated investment related complaints and other incidents.
There was reportedly no process for approving or investigating private offerings set forth in the company’s written supervisory procedures. Further, the firm reportedly failed to complete their own due diligence checklist with respect to the five offerings. FINRA found that MFS failed to make any effort to double check the risks claimed and presented to them by the issuers.
The AWC further indicated that MFS revised its supervisory protocols in reference to private placement offerings after being informed by FINRA in October 2013 of its supervisory failures. Yet, between January 2014 and May 2014, the firm failed to adhere to its own revised procedures, which included an internal review to be conducted by the firm, as well as obtaining a subscriber list on the offerings, due-diligence reports, and distribution lists. MFS was found by FINRA to have violated NASD Conduct Rule 3010 and FINRA Rule 2010 in this regard.
The AWC further indicated the inadequacy of MFS’s supervisory procedures pertaining to variable annuities. The AWC stated that from May 2010 through June 2013, the firm failed to create and implement an adequate supervisory system that could ensure that the firm’s representatives, prior to making recommendations for customers to purchase deferred variable annuities, obtained the appropriate suitability information. The AWC reported that the firm failed to enforce requirements which called for registered representatives to transmit completed suitability checklists to the firm?s compliance division, so that the firm?s compliance personnel could review such information along with the annuity applications and client account information forms for potential issues. The majority of checklists, according to the AWC, were not complete, nor did such documents indicate the required information necessary to provide in a clear manner.
Further, FINRA found the firm’s practices to be faulty concerning deferred variable annuity exchanges, where in the majority of such exchanges during the relevant period, the firm failed to demonstrate that customers had been informed about fees, surrender periods, tax implications, insurance riders, among other risk factors. Not only were the firm’s procedures deemed inadequate for purposes of ensuring customers would receive the aforementioned information, but the firm additionally had no procedure which would recognize, let alone address, when deferred variable annuity exchanges appeared to be inappropriate. As a result, FINRA found that the firm was in violation of NASD Conduct Rule 3010, FINRA Rules 2010, and 2330.
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