NU Online News Service, June 6, 2003, 12:01 p.m. EDT – The enforcement arm of the National Association of Securities Dealers, New York, may “bring an action” against Waddell & Reed Inc., the broker-dealer subsidiary of Waddell & Reed Financial Inc., Overland Park, Kan., according to Waddell & Reed Financial.
NASD officials are questioning the suitability of some exchanges of variable annuities issued by a unit of Torchmark Corp., Birmingham, Ala., to Waddell & Reed clients for variable annuities issued by another company, Waddell & Reed Financial says in a report filed with the U.S. Securities and Exchange Commission.
The exchanges took place between January 2001 and August 2002, after the Torchmark unit terminated a distribution agreement with the broker-dealer unit, Waddell & Reed Financial says.
In addition to questioning the suitability of some of the annuity exchanges, NASD officials are questioning the adequacy of the supervisory systems that Waddell & Reed had in place at the time, Waddell & Reed Financial says.
The notification that the NASD may bring action stems from a sales practice exam that the NASD started in April 2001, Waddell & Reed Financial says.
Waddell & Reed Financial notes that United Investors Life Insurance Company, the Torchmark unit that originally issued the annuities, has sued it in Alabama and California over the annuity exchanges and related issues.
Although an Alabama jury turned in a verdict in favor of United Investors, an appeals court reversed part of the verdict and extinguished the claims regarding the annuity exchanges, Waddell & Reed Financial says.
The California case is now before the 9th U.S. Circuit Court of Appeals, Waddell & Reed Financial says.
Waddell & Reed Financial “intends to respond promptly and thoroughly and is fully cooperating with the NASD’s inquiries,” the company says.
But the company emphasizes that it will take advantage of its opportunity to explain why it believes the NASD should not bring an action against the Waddell & Reed Financial broker-dealer subsidiary.
The Waddell & Reed Financial SEC filing is posted at http://www.sec.gov/Archives/edgar/data/1052100/000104746903020672/a2112606z8-k.htm