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Jul 20 2016

FINRA Fines Prudential Annuities Nearly $1 Million for Account Theft by LPL Employee

The Financial Industry Regulatory Authority, the largest independent regulator for all securities firms doing business in the U.S., 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.

FINRA says that the firm repeatedly failed to adequately investigate “red flags” that Travis Wetzel, a former registered sales assistant at LPL Financial and since-convicted felon, was transferring money from the customer’s Prudential variable annuity account to a third-party bank account in his wife’s maiden name. FINRA previously barred Wetzel in May 2013, and Prudential Annuities and LPL have since reimbursed the customer.

“Firms must ensure that their supervisory systems and procedures are designed to recognize and follow up on red flags,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “There were numerous red flags raised over the course of this scheme, and Prudential Annuities Distributors’ failure to adequately respond to them allowed an unscrupulous actor to prey on an elderly customer.”

FINRA found that, from July 2010 until his misappropriation was discovered in September 2012, Wetzel submitted to Prudential Annuities 114 forged annuity withdrawal requests – four to five withdrawals per month for a total of nearly $50,000 – requesting that Prudential Annuities wire funds from the elderly customer’s account to a third-party account in the maiden name of Wetzel’s wife.

FINRA said that Prudential Annuities repeatedly followed Wetzel’s instructions without adequately investigating a variety of red flags that should have alerted the firm to Wetzel’s scheme. For example, every transfer request Wetzel submitted triggered an alert, which the firm reviewed but determined erroneously that the withdrawals appeared legitimate, and the firm did not further investigate these alerts.

Prudential Annuities personnel also reviewed certain of the withdrawals as part of six quarterly audits and noticed that the funds were being sent to a third party, but concluded that the activity appeared to be legitimate.

Also, when alerted that repeated payments were being made from the customer’s variable annuity account to the same third-party payee, Prudential Annuities concluded that the withdrawals appeared legitimate, without sufficiently investigating or determining the relationship between the customer and the person receiving funds from the customer’s account.

FINRA also found that Prudential Annuities’ inadequate supervisory procedures and controls contributed to its failure to detect and prevent Wetzel’s fraud. In particular, Prudential Annuities did not have sufficient supervisory procedures or controls to identify repeated transmittals of funds from a customer’s account to the same third-party payee.

In settling this matter, Prudential Annuities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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Article by: The DI Wire

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