By Kip Betz
NEW YORK--New York Stock Exchange Regulation said Dec. 12 that member firm David A. Noyes & Co. Inc. of Chicago has agreed to pay $550,000 to resolve charges related to unsuitable sales of variable annuities, and supervisory failures. In a release, NYSER said that amount includes a $175,000 fine, and that $375,000 that will be used to compensate injured customers. The firm also agreed to retain an outside consultant to review its related policies and procedures. In settling the charges, Noyes, which also agreed to NYSER's imposition of a censure, neither admitted nor denied the charges, according to the release.
Switches
According to the NYSE hearing panel decision, from October 1999 through December 2001, the firm violated NYSE rules by executing some 125 unsuitable variable annuity switches on behalf of customers at a Wisconsin branch office, and by failing properly to supervise these transactions. Unsuitable variable annuities switches cost investors, and provide a premium for salespeople and/or their firms. The switches at issue carried surrender fees of up to 8 percent of the original investment amount, according to the NYSE. Registered representatives at the firm, not the investors, were the drivers of the switches, according to the panel. The hearing panel also found that Noyes & Co. failed reasonably to supervise and control activities with respect to variable annuities sales, and failed reasonably to supervise and control the activities of a producing branch office manager. the branch manager's staff included four registered representatives who were members of his immediate family, according to the decision.
Close Supervision
"Variable annuities switches require close supervision and control by firms to ensure that investors are not disadvantaged," Susan L. Merrill, chief of enforcement, NYSE Regulation, said in the release. "This firm clearly failed in its duties, as the majority of these switches were not in the best interests of its customers," Merrill added. "Fortunately, we have been able to identify the injured customers, and are pleased that they will be receiving restitution." Previously, in September 1999, Noyes paid $60,000 to settle an NYSE disciplinary action related to supervision of annuities . Under that settlement, the firm was required to create written procedures for variable annuity switches. In this case, the former branch office manager failed to submit requests for the approval of annuity switches as required under the procedures, and acted intentionally to evade their requirements, the NYSE hearing panel found. The panel also found that Noyes and Co. failed to establish an adequate system of follow-up and review to ensure that the procedures were being followed, and that only suitable annuities switches were executed, according to the NYSE.