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NASD also found that HTK failed to retain the email communications of approximately 83 employees. Those employees included HTK's president and two other senior managers, who approved at least some of the violative national sales contests. NASD rules require that email communications be retained for at least three years.
"By favoring the sale of some variable life and annuity products over others, these contests created conflicts of interest that could undermine the broker's obligation to recommend suitable investments based on the needs of the customer," said NASD Vice Chairman Mary L. Schapiro. "NASD rules are designed to prevent such conflicts between the broker's self-interest and the customer's."
Between 2001 and 2003, HTK conducted six national and numerous branch office sales contests to promote the sale of variable life and variable annuity products. When a firm stages a sales contest for a particular product line, NASD rules require that it cover all products the firm offers within that line, and that equal weight be given to the sales of all products within that line.
NASD found that several of the national sales contests were based only on the sale of variable products offered by Penn Mutual Life Insurance Company, HTK's parent company. In determining the winners for some of the national contests, sales of Penn Mutual variable life products were given exclusive or greater weight than sales of Penn Mutual variable annuity products.
HTK offered or awarded substantial rewards for the national contest winners, including: weekend trips to New York City, New Orleans and Las Vegas; vouchers worth $400 or $800 that could be used for personal entertainment or education, and gift cards that could be used to purchase items from a number of name-brand merchants. The total value of the national sales contest awards exceeded $200,000.
Between 2001 and 2003, HTK's branch offices conducted additional sales contests. Nine were based solely on the sale of proprietary Penn Mutual variable products. In another four, sales of the proprietary products were given greater weight than sales of non-proprietary products. Prizes for the branch contests included such items as golf trips, tickets to sporting events and other entertainment, dinners, high-definition television sets and other expensive electronic goods.
NASD found that the non-cash compensation that HTK provided to its sales force was substantial enough to provide the improper incentives that the non-cash compensation rules were designed to prevent.
NASD also found that HTK did not have an adequate supervisory system and procedures with respect to the non-cash compensation rules.
In settling this matter, the firm neither admitted nor denied the charges, but consented to the entry of NASD's findings.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches and request almost 190,000 reports for existing brokers or firms. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com . Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
