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NASD found that CCO Investment Services also failed to maintain, among other things, business-related email and records of compensation given to its brokers by issuers of variable contracts or mutual funds.
In addition to the fine, NASD ordered CCO Investment Services to review its supervisory system and procedures concerning the preservation of electronic communications, customer suitability reviews, telemarketing, internal inspections, pre-registration Central Registration Depository (Web CRD) searches, review of written correspondence, registration of offices, and review of customer fund-direct 529 Plan business for compliance with NASD rules and federal securities laws and regulations. The firm was also ordered to undertake a review of the resources it devotes to compliance, assess the adequacy of such resource allocations, and make written recommendations concerning its resource needs in order to comply with the laws, regulations and rules concerning those areas.
"Like any securities firm, bank-affiliated broker-dealers must have adequate supervisory systems and controls for ensuring compliance with regulatory requirements," said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "This bank-affiliated firm missed the mark with regard to several important requirements, including some that impacted retirees - an especially vulnerable group for whom NASD rules, the federal securities laws, and the telemarketing laws provide valuable protections."
NASD found that from October 2003 through March 2005, CCO Investment Services' suitability reviews of variable annuity contract sales were not reasonably designed to prevent and detect sales practice violations. For example, although the firm utilized surveillance reports and its operations personnel reviewed variable annuity applications before the transactions were completed, it inconsistently provided for reasonable follow-up and review to ensure that noted exceptions were adequately addressed. Moreover, although the firm had some policies related to variable annuity sales to elderly clients, the firm failed to provide for reasonable follow-up and review to ensure that those policies were implemented for these clients. To the extent that the firm had customer suitability review procedures, such as mandating the use of customer financial profile forms, it did not consistently enforce those procedures. As a result, customer information that could have assisted registered persons and the firm in assessing suitability was not always available.
NASD also found several violations relating to the firm's telemarketing efforts. Throughout the relevant period, both CCO Investment Services registered representatives and affiliated bank employees made telephone calls to prospective customers during "call nights." The firm required affiliated bank employees, who were not registered representatives, to use pre-approved scripts and not to discuss specific financial products with customers. But the firm had no supervisory system or written procedures for monitoring compliance with its supervisory procedures in this area. The firm had no reasonable way of even tracking the occurrence of call nights or otherwise monitoring compliance with its procedures. Moreover, during the relevant period, the firm failed to ensure that bank customers called had not registered on the Federal Trade Commission's national Do-Not-Call registry.
In addition, NASD found that the firm's supervisory system and written procedures were not reasonably designed to ensure that searches of the registration records of prospective new hires on Web CRD were performed with the permission of those individuals. During the relevant period, CCO certified to Web CRD that it had obtained the required written consents for its pre-registration searches, but for 239 of those searches the firm had failed to obtain the required consent or lacked the necessary documentation.
In concluding this settlement, CCO 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 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (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 registered firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2006 National Association of Securities Dealers, Inc.")
