.jpg)
The $550,000 includes a $175,000 fine and $375,000 to be used to compensate injured customers, with the fine to be available to supplement such funds for compensating customers, if necessary. The Firm also agreed to retain an outside consultant to review its policies and procedures concerning its sale and supervision of variable annuities.
“Variable annuities switches require close supervision and control by firms to ensure that investors are not disadvantaged. This firm clearly failed in its duties, as the majority of these switches were not in the best interests of its customers,” said Susan L. Merrill, chief of enforcement, NYSE Regulation. “Fortunately, we have been able to identify the injured customers, and are pleased that they will be receiving restitution.”
In violating NYSE Rules, Noyes engaged in conduct inconsistent with just and equitable principles of trade in that it recommended and sold variable annuities to customers who were unsuitable, failed to use due diligence to learn essential facts relative to customers in connection with the sale of variable annuities, and failed to diligently supervise accounts handled by registered representatives in connection with the sale of variable annuities.
The Firm also failed to reasonably supervise and control certain of its business activities concerning the sale of variable annuities, and failed to reasonably supervise and control the activities of a producing Branch Office Manager.
At a branch of the Firm located in Wausau, Wisconsin, approximately 125 annuity switches were executed during the relevant period. Many annuities, including those sold at the Branch, have substantial “surrender” fees that are assessed if the purchaser of the annuity decides to “cash in” the investment within a number of years after they are purchased. Annuities are generally viewed as long-term investments.
Previously, on September 22, 1999, the NYSE and Noyes settled a NYSE disciplinary action related to, among other things, supervision of annuities. The Firm created written procedures for variable annuity switches.
In the present matter, the former Branch Office Manager of the Branch failed to submit requests for the approval of annuity switches as required under the Procedures, and acted to intentionally evade the requirements of the Procedures. Contrary to representations made by certain registered representatives at the Branch to customers, the imposition of surrender fees, charges and increased expenses rendered the majority of the approximately 125 annuity switches executed at the Branch financially disadvantageous to the customers involved. Thus, the majority of such switches were unsuitable. The Firm 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 at the Branch.
Moreover, the Firm’s National Insurance Manager sent certain memoranda to the Firm’s senior management, including in certain instances its President and its Director of Compliance and General Counsel, complaining in substance that annuity switches were being executed that were not in the best interests of the customers involved. These communications, and findings by regulators, constituted notice to the Firm that unsuitable and improperly supervised annuity switches were occurring at the Branch, yet the Firm failed to take steps reasonably calculated to prevent such conduct from continuing.
In addition, the Firm failed to reasonably supervise and control the activities of the former Branch Office Manager in connection with both his activities as a registered representative and as the manager of the Branch. The Branch included four registered representatives who were members of his immediate family.
An Escrow Account shall be established and specified restitution procedures shall be followed to compensate injured customers. The Firm shall contact the relevant customers and/or issuers of the annuities that they purchased during the relevant period and provide certain documentation to the NYSE, and injured customers are to be compensated in accordance with damage calculations prepared by an Expert appointed by the NYSE.
Noyes also agreed to retain an outside consultant to review its policies, procedures and practices relating to the sale and supervision of variable annuities, including annuities switches, by the Firm.
In settling these charges brought by NYSE Regulation, David A. Noyes & Co., Inc. neither admitted nor denied the charges.
About NYSE Regulation
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.
NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 98 million customer accounts, or 84 percent of the total public customer accounts handled by broker-dealers, with total assets of over $4 trillion. They operate from 20,000 branch offices around the world and employ 144,000 registered personnel. Over 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation, Enforcement and Listed Company Compliance, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
