In a recent disciplinary action announcement, FINRA announced that Christopher Bradford Birli (CRD #4366441, Buffalo, New York) and Patrick Walter Chapin (CRD #2149171, East Amherst, New York) submitted an Offer of Settlement in which Birli and Chapin were barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Birli and Chapin consented to the sanctions and to the entry of findings that they carried out a scheme together for more than seven years to evade, circumvent, and thwart their member firm’s policies and procedures. The findings stated that Birli and Chapin concealed their misconduct by, among other things, submitting false, misleading and incomplete paperwork, using personal emails to communicate with customers and a plan provider, and by making false and misleading statements to firm personnel.
Birli and Chapin recommended that their customers engage in a two-step transaction that involved surrendering their existing variable annuities, placing the customer’s funds in the plan provider’s variable annuity within a retirement plan for at least 90 days, and then transferring those funds from the plan provider’s product to a new firm variable annuity held outside of the retirement plan. As a result of their misconduct, Birli and Chapin received (and the firm paid) commissions to which they were not entitled, their customers were exposed to additional liquidity and death benefit risks, some customers were actually harmed by their strategy, and the firm was prevented from properly reviewing the transactions for suitability. Birli and Chapin received hundreds of thousands of dollars in commissions to which they were not entitled.
The findings also stated that Birli and Chapin failed to have a reasonable basis to recommend the transfers via the two-step transaction. With Birli and Chapin having structured the transaction in two steps, rather than processing the transactions through the firm’s internal exchange program, all of the customers were unnecessarily subjected to a new seven-year surrender schedule that reduced liquidity, deprived them of the benefit of the 110 percent death benefit rule designed to ensure that customers not lose significant death benefits on internal exchanges, and exposed them to the temporary loss of death benefit protection during the period that funds were held away from the firm. The two-step transaction was unsuitable for any customer. Some of these customers experienced an actual loss of death benefit protection and some of the customers paid surrender charges as a result of the new surrender schedule. The findings also included that Birli and Chapin intentionally failed to appear for FINRA-requested testimony and intentionally failed to provide information and documents requested by FINRA regarding their use of personal emails to conduct business. Birli and Chapin, through their counsel, advised FINRA that they would not be complying with FINRA’s requests.
For the full FINRA findings, see FINRA case #2012032120001.
According to their FINRA Broker Reports, Birli and Chapin were employed by Metlife Securities, Inc. prior to FINRA’s enforcement action.
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