Summit Equities Censured & Fined
According to FINRA, Summit Equities Inc. (CRD #11039, Parsippany, New Jersey) on May 1, 2017 an AWC was issued in which the firm was censured and fined $325,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to reasonably supervise its registered representatives’ recommendations of multi-share class variable annuities to customers, and failed to establish, maintain, and enforce a reasonable supervisory system and written supervisory procedures (WSPs) related to the sale of multi-share-class variable annuities.
The findings stated that despite the significant role that variable annuity sales played in the firm’s overall business, it failed to implement a supervisory system and procedures designed to reasonably ensure the suitability of its multi-share-class variable annuity sales, including its sales of L-share contracts. The firm sold variable annuity contracts with the option of various different share classes. The firm’s WSPs and training materials failed to provide registered representatives and principals guidance or suitability considerations for sales of different variable annuity share classes.
The firm also failed to provide training to its registered representatives and principals on the sale and supervision of multi-share-class variable annuities. The firm did not provide training or guidance to registered representatives on the features of various share classes and the associated fees and surrender charges, and did not provide them with adequate information to compare share classes to make suitability determinations.
In addition, the firm failed to establish, maintain, and enforce WSPs or provide sufficient guidance or training to registered representatives and principals regarding the sale of long-term income riders with multi-share-class variable annuities. The findings also stated that the firm failed to reasonably supervise a registered representative’s private securities transactions. The firm allowed the registered representative to form a separate broker-dealer to sell the securities of a hedge fund he controlled.
Failure to Supervise
The firm failed to adequately supervise the registered representative’s activities through the broker-dealer, despite placing restrictions on his association with the broker-dealer, and failed to ensure that he complied with the firm’s restrictions. After a number of years, the firm stopped examining the broker-dealer’s books and records, and the firm never reviewed the registered representative’s broker-dealer emails or conducted an onsite visit of the broker-dealer’s office.
In addition, the firm failed to detect several “red flags” that should have alerted it to the registered representative’s activity with the hedge fund. For example, in May and July 2011, five of the registered representative’s customers requested $2.5 million in wire transfers from their accounts to fund their investments in the hedge fund. The firm approved two of the wire transfers, but never questioned the registered representative about these transactions.
For FINRA’s full findings see FINRA Case #2015043159201.
This information, which is publicly available on FINRA’s website has been provided by The White Law Group.
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