FINRA Announces $950,000 Fine to Prudential Annuities Distributors, Inc. for Supervisory Failures

chessThe Financial Industry Regulatory Authority (FINRA) announced on July 19, 2016 in a News Release that it had fined Prudential Annuities Distributors, Inc. $950,000 for “failing to detect and prevent a scheme that resulted in the theft of approximately $1.3 million from an 89-year-old customer’s variable annuity account.  Prudential Annuities Distributors acts as a principal underwriter and distributing broker-dealer for life and annuity products issued by its affiliates.

According to the News Release, a former registered Sales Assistant named Travis Wetzel, who worked at LPL Financial, stole money from the elderly customer’s account by submitting to Prudential Annuities Distributors 14 forged annuity withdrawal requests.  The News Release detailed that each month, from July 2010 to September 2012, Mr. Wetzel submitted 4 to 5 withdrawal requests totaling approximately $50,000.  The News Alert detailed that all withdrawn funds were deposited into an account in Mr. Wetzel’s wife’s maiden name that was controlled by Mr. Wetzel.

Prudential Annuities Distributors consented to the fine by submitting a Letter of Acceptance, Waiver and Consent No. 2012034423502 (AWC).  According to the AWC, each transaction submitted by Mr. Wetzel triggered an alert, or a “red flag,” putting Prudential Annuities Distributors on notice that his requests may be fraudulent.  Each alert required that a person manually review and confirm each transaction, and for each transaction, personnel determined the activity appeared legitimate, according to the AWC.  The AWC also noted that for 44 transfers, Prudential Annuities Distributors also determined that the withdrawn funds were paid to the customer, when they were not actually sent to the customer.

The AWC set forth that Prudential Annuities Distributors violated NASD Rule 3010 (Supervision, superseded by FINRA Rules 3110 and 3170), NASD Rule 3012 (Supervisory Control System, superseded by FINRA Rule 3120), and FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).  These Rules require that Prudential Annuities Distributors prevent and detect fraudulent activity by implementing a reasonable supervisory system to monitor the transmittal of customer funds.  The AWC made clear that the firm failed to investigate the red flags.

The AWC also stated that Mr. Wetzel was barred from the securities industry in May 2013, and that in February 2015, he was sentenced to 42 months in prison after pleading guilty to wire fraud and money laundering.