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Prudential Annuities Distributors, Inc., headquartered in Shelton, Connecticut, was censured and fined $950,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm had not identified and prevented misappropriation from a firm customer, and failed to properly implement its supervisory procedures to detect theft by former LPLFinancial broke, Travis A. Wetzel. Letter of Acceptance, Waiver and Consent, No. 2012034423502 (July 19, 2016).
According to the AWC, in July of 2010, an elderly investor, LW, purchased a Prudential Annuity Corporation variable annuity via a LPL Financial representative, Wetzel. Prudential was reportedly responsible for the servicing LW’s account through Prudential Annuities Distributors. The AWC stated that the Prudential Annuities Distributors was tasked with accommodating the customer’s requests for withdrawals and other administrative functions.
Apparently, $1,282,224 belonging to LW was misappropriated by Wetzel in the course of Wetzel’s submission to Prudential Annuity Distributors of wire transfer requests. Such wire transfer requests were seemingly forged and directed to third party accounts in the name of Wetzel’s spouse. Wetzel purportedly controlled the account in which LW’s funds were sent.
The AWC stated that Wetzel’s numerous forgeries occurred through his actions of copying and pasting LW’s signature, where he subsequently provided the documents to Prudential Annuity Distributors through fax and e-mail transmissions. The AWC stated that Wetzel submitted a total of one hundred and fourteen wire transfer requests, where he apparently sent Prudential Annuity Distributors approximately five withdrawal requests per month.
According to FINRA, Prudential Annuity Distributors did not properly investigate the red flags regarding Wetzel’s misappropriation. Apparently, in every one of the one hundred and fourteen wire transfer requests, an internal alert was triggered which notified Prudential Annuities Distributors that such requests may in fact be fraudulent. The firm, based on FINRA’s view, seemingly acted without justification in assuming that the withdrawals were legitimate.
Further, the AWC stated that the firm documented in forty-four of the circumstances that the funds requested to be sent to the third party were paid to LW, when such payments to LW had not occurred. FINRA mentioned in the AWC that the firm failed to act in any way to investigate the red flags associated with such wire transfer requests.
The AWC also stated that Prudential Annuities Distributors’ processes included auditing transactions which created alerts in the firm’s systems to ensure that the reviews of such transactions were adequate. In a reported five cases between 2011 and 2012, a firm supervisor had noted that wire transfer request alerts were disregarded in an erroneous fashion. However, after the firm further investigated, it concluded that the transfers were legitimate by relying on Wetzel’s confirmation that funds from LW associated with such transfers were being sent to LW’s daughter.
The AWC also reported that in another case, in March of 2011, a staff member raised an issue regarding the authenticity of the wire transfers. The firm’s fraud department again concluded that the wire transfers were legitimate. FINRA claimed that the firm’s fraud department did not act reasonably in investigating the matter to determine the recipient of such funds. As such, FINRA found that Prudential Annuities Distributors violated FINRA Rule 2010 and NASD Rules 3010(a).
FINRA claimed that the firm ultimately failed to ensure that supervisory procedures adequately detected and prevented fraudulent transfers from annuity accounts. FINRA noted that the firm’s existing protocols were not sufficient, and the lack of such controls to identify the repeated transfers was a pattern which Prudential Annuities Distributors should have detected.
FINRA further found that the firm’s supervisory procedures for verifying signatures associated with third party distributions was inadequate. Apparently, the firm’s written supervisory procedures called for a comparison of signatures when patterns of wire transfer requests occurred and where wire requests were submitted for transfers of funds in excess of $25,000.00.
Apparently, the firm did not account for situations when numerous transactions would trigger the verification process, even though some transactions may fall short of the $25,000.00 mark. The AWC stated that the firm merely compared signatures on wire transfers with signatures that the firm had on file, and nothing more. Consequently, the firm was found by FINRA to have violated FINRA Rules 2010 and NASD Rules 3010 and 3012(a)(2)(B)(i).
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