Tag Archives: Annuity Fraud

Investor Losses with Cadaret Grant

Investors suffering losses with Cadaret Grant may have recourse.  Please call 1-866-817-0201 for a free and confidential consultation.

Cadaret entered into a regulatory settlement with the Financial Industry Regulatory Authority on September 11, 2018.   Cadaret agreed to pay an $800,000 fine.  It also agreed to a censure and to review and change its policies to detect inappropriate sales practices by its brokers.  One focus was on the sale and exchanges of variable annuities.

Invest photo 2Cadaret failed to employ sufficient compliance personnel to adequately supervise its brokers.  Brokers have many incentives to recommend investments that are too aggressive or otherwise unsuitable for an investor.  Sufficient compliance personnel are needed and required by regulators to protect investors from this known risk.

All licensed securities brokers have a legal obligation to recommend only suitable investments.  Investments are all known to have a certain range of risk when recommended.  Certain investments are known to have higher risks than others.  Investments that can increase sharply in value can sometimes decrease equally as fast.  Investments can only be recommended when the risk the investment poses is consistent with the risk consistent with the investor.  For example, a retired individual should only be recommended investments with little to no risk.  So when such an individual loses 20% or more of portfolio value in a year, the portfolio was likely unsuitable when first recommended.

As a result of its insufficient compliance, Cadaret had only three compliance people overlooking weekly trades, or “blotter reviews.”  Such reviews are needed to detect over-concentration of portfolios, such as portfolios being invested too heavily in either one investment, a single industry, or being too heavily weighted in a single investment vehicle, such as stocks or annuities.  Such concentration is unsuitable because it greatly increases the level of risk in the portfolio.

The blotter review also protected investors from broker churning.  This is an action where a broker puts his/her own interest ahead of the investor.   Excessive trades are made that work more to generate commissions for the broker than to protect the interests of the investor.

Churning depends on the cost of the exchange.  With products such as variable annuities, churning can happen with a single exchange.  One of the issues faced by Cadaret is from the replacement of one variable annuity with another.  There are very few circumstances where variable annuity exchanges are justified.

Cadaret’s supervisory procedures also required examiners in the compliance department to conduct periodic inspections of branch offices to detect and prevent violations by registered representatives in those locations. However, Cadaret employed an insufficient number of compliance examiners for this purpose. For instance, in 2014, the Firm tasked three compliance examiners with inspecting over 400 geographically-disperse branches. As a result, these inspections were conducted in a manner not reasonably designed to identify violative activity.

Jeffrey Pederson has represented investors across the United States in suitability suits.  These suits are largely handled through FINRA arbitration.  Please call for consultation.

Walter Marino Annuity Complaints

Walter Marino has come to our attention for issues concerning his variable annuity sales and large number of customer complaints.  Marino most recently worked for Benjamin Securities, Lincoln Investments, Planmember and Legend Equities.  If you wish to discuss your rights with an attorney call 1-866-817-0201 for a free consultation.

The most recent issue with Marino is a regulatory complaint filed against him by the securities regulator FINRA.  This complaint constitutes the 16th “event” in the CRD record of Marino.  An event on a CRD is an occurrence which reflects poorly on a broker’s ability to handle the funds of others.  Events include terminations of employment, being sued by a customer/investor, being the focus of a regulatory action, and other similar black marks.

This most recent regulatory complaint involves the sale of variable annuities.  In May and June 2014, Respondent Walter Marino recommended unsuitable replacements (also known as exchanges) of variable annuities to two customers without having a reasonable basis for recommending the transactions.  An investment is unsuitable when the investment puts the interests of the broker ahead of that broker’s investor.

Marino received substantial commissions, approximately $60,000, from the unsuitable transactions. Marino’s investors, however, received no benefit from the exchanges Marino recommended. Indeed, both customers suffered financial harm due to the costs incurred as a result of the annuity replacements since the liquidation of annuities causes the investor to not only lose the substantial commissions and fees that the investor paid to get into the annuity, but the investor commonly incurs significant charges in liquidating the annuities.

Marino’s recommendation to one such investor resulted in that investor incurring an $82,523.23 surrender charge, a charge commonly assessed upon the liquidation of a variable annuity. In addition, switching annuities can have substantial tax ramifications.   When Marino recommended replacing non-qualified annuities, Marino failed to utilize the tax-free exchange available under Section 1035 of the Internal Revenue Code (“1035 exchange”).

The new annuities that Marino recommended to replace those being surrendered also resulted in an increase costs to the investors.  The increases included increases in annual mortality and expense charges, a new, advisory fees of 1.5%, and new surrender periods which decreased the ability to liquidate the annuities.

By recommending annuity replacements that benefit him but caused substantial financial harm to his customers, Marino violated regulatory rules that require him to sell suitable investments to his investors.

These issues should not be a surprise to those familiar with Marino’s history.  The CRD of Marino indicates that he is an alumni of the Stratton Oakmont brokerage firm, the brokerage firm that was the focus of the film The Wolf of Wall Street.