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Banc One Securities Fined By FINRA

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The Financial Industry Regulatory Authority says it has fined the securities unit of a bank in connection with allegations of unsuitable sales of deferred variable annuities.

Reps at Banc One Securities Corp., Chicago, a division of JPMorgan Chase & Company, New York, made unsuitable VA sales to 23 customers, and most of those customers were over age 70, according to FINRA, Washington.

FINRA also alleges that Banc One Securities had insufficient methods for controlling annuity exchanges.

FINRA has imposed a $225,000 fine on the Banc One Securities, and it is requiring Banc One Securities to allow each of the 23 customers who bought the unsuitable annuities to sell their annuities without penalty. Ordinarily, the sales would have been subject to a 6-year surrender period, and the sellers would have had to pay surrender charges as high as 7% of the amount invested if they sold their annuities in the first 2 years, FINRA says.

Banc One Securities, which merged with J.P. Morgan Securities Inc. in 2006, will also pay restitution of about $6,500 to 2 customers who incurred surrender charges when exchanging annuities, FINRA says.

JPMorgan Chase declined to comment on the case.

In settling the matter, JPMorgan Chase “neither admitted nor denied the charges, but consented to the entry of FINRA’s findings,” FINRA says.

Companies that recommend annuities to elderly customers must take into account the customers’ age and other relevant factors in determining whether the product is suitable for that customer, commented Susan Merrill, executive vice president and chief of enforcement for FINRA, Washington.

“The exchanges at issue in this case appeared to have no real benefits to the customers, while subjecting them to new sales charges and locking up their money for a new, 6-year surrender period,” Merrill said.

FINRA found that in the 23 transactions involved in the case, which were completed between Jan. 1, 2004, and June 30, 2005, Banc One Securities advisors recommended that the customers exchange their fixed annuities, then paying a minimum rate of 3%, for variable annuities.

After the exchanges, the customers followed their advisors recommendations to place 100% of their assets into the fixed rate feature of the variable annuity, which paid a maximum rate of 3%, FINRA says.


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