The National Association of Securities Dealers has imposed a $325,000 fine in connection with allegations about variable product sales.[@@]
The NASD has accused the firm, Hornor, Townsend & Kent Inc., Horsham, Pa., of conducting several sales contests to promote variable life and variable annuity products in violation of securities regulations barring incentives for sale of particular instruments within a product line.
The firm also was cited for e-mail and supervision violations.
Hornor, Townsend has neither admitted nor denied the charges, but it has consented to the entry of the NASD’s findings, the NASD says.
Hornor, Townsend is a unit of Penn Mutual Life Insurance Company, Philadelphia.
“The matters the NASD is referring to occurred prior to 2003, specifically between 2001 and 2003,” Pat Beauchamp, a company spokeswoman, says in a statement. “HTK has already reviewed our processes to improve and strengthen certain of our internal controls and procedures so that we can continue to focus on needs-based selling and what is in the best interests of the client.”
The enforcement action was the first since the NASD announced in April that it is reexamining its policies regarding sales contests used to sell variable annuities. That decision followed the filing of several private lawsuits against large brokers alleging that improper incentives were offered the brokerages by the underwriters of the products.
In resolving the enforcement action, Hornor, Townsend has agreed to prohibit any sales contests promoting the sale of variable life or annuity products for the next 3 years.
The NASD found that several of the national sales contests were based only on the sale of variable products offered by Penn Mutual. In determining the winners for some of the national contests, sales of Penn Mutual variable life products were given exclusive or greater weight than sales of Penn Mutual variable annuity products, the NASD contends.
The NASD says Hornor, Townsend offered or awarded substantial rewards for national contest winners, including: weekend trips to New York, New Orleans and Las Vegas; vouchers worth $400 or $800 that could be used for personal entertainment or education, and gift cards that could be used to purchase items from a number of name-brand merchants. The total value of the national sales contest awards exceeded $200,000.
The NASD found that the non-cash compensation that Hornor, Townsend provided to its sales force was substantial enough to provide the improper incentives that the non-cash compensation rules were designed to prevent.
The NASD also found that Hornor, Townsend did not have an adequate supervisory system and procedures with respect to the non-cash compensation rules.
When a firm stages a sales contest for a particular product line, the NASD rules require that it cover all products the firm offers within that line, and that equal weight be given to the sales of all products within that line, NASD officials say.