Waddell & Reed Financial Inc. says it will spend about $32.5 million to settle litigation triggered by past efforts to cut ties with another financial services company.[@@]
Waddell & Reed, Overland Park, Kan., a money manager and broker-dealer, has been facing a number of lawsuits and regulatory investigations as a result of efforts in 2001 and 2002 to exchange about 6,700 variable annuities written by United Investors Life Insurance Company, a unit of Torchmark Corp., Birmingham, Ala., for annuities written by another insurer.
Torchmark acquired Waddell & Reed and United Investors, which once was a Waddell & Reed subsidiary, in the 1980s. Torchmark turned Waddell & Reed into a separate company in 1998, but Torchmark kept United Investors.
In 2001 and 2002, Waddell & Reed exchanged 6,700 variable annuities written by United Investors for annuities written by another company.
NASD officials and state officials have argued that the exchanges forced Waddell & Reed customers to pay about $11 million in surrender charges and may have been unsuitable for many of the customers involved.
Waddell & Reed emphasizes that it is neither admitting nor denying the officials’ allegations about the VA exchanges, but the company now says it has agreed to resolve some litigation and regulatory actions related to the exchanges by paying a $5 million fine to the National Association of Securities Dealers, Washington, establishing an $11 million restitution fund for some variable annuity clients; and paying $2 million to a consortium of states that investigated it.
Waddell & Reed also has reached a preliminary agreement to pay $14.5 million to Torchmark to settle all outstanding litigation between the companies, including actions in Alabama, California and Kansas. One Torchmark case involving Kansas income tax refunds is not covered by the agreement, Waddell & Reed says.
The preliminary agreement between Waddell & Reed and Torchmark calls for both companies to “execute a full general mutual release to resolve any and all claims or causes of action arising or occurring at any time in the past,” Waddell & Reed says.
Once the proceedings are settled, the Alabama courts will release a $56 million cash bond to Waddell & Reed, Waddell & Reed says.
Agreeing to the settlement “is a positive step for Waddell & Reed, our financial advisors, our employees and our clients,” Waddell & Reed Chairman Keith Tucker says in a statement about the agreement. “These matters date back several years and their removal as an issue is an important action. We worked long and hard to move toward what we felt was an appropriate solution in each case. We’re satisfied with the resolution of these matters and are eager to focus on our clients and the strength of our business.”