The Financial Industry Regulatory Authority has taken disciplinary action in connection with allegations of inappropriate sales of variable annuities.

FINRA, Washington, has imposed a $1.75 million fine on Fifth Third Securities Inc., a unit of Fifth Third Bancorp, Cincinnati.

Fifth Third Securities has neither admitted nor denied the charges, but it has agreed to accept FINRA’s findings.

“We are pleased to have this matter behind us,” Fifth Third says in a statement. “It generated from a broad industry-sweeping review of variable annuity sales practices.”

FINRA charges that 42 Fifth Third Securities brokers made 250 unsuitable sales and exchanges involving 197 customers.

Fifth Third Securities’ supervisory systems and procedures were inadequate for policing the firm’s VA sales and exchanges, FINRA says.

FINRA has ordered Fifth Third Securities to pay about $260,000 to 74 customers to compensate them for surrender charges they incurred in connection with the VA contracts involved in the disciplinary proceedings.

Fifth Third Securities also must offer the 197 customers involved the option of rescinding the challenged contracts and getting their money back, along with interest and any surrender charges incurred except for any withdrawals, FINRA says.

In addition, Fifth Third Securities must hire an independent consultant to review its system and procedures for overseeing VA transactions as well as its training for personnel engaged in VA sales, FINRA says.

FINRA found that between January 2004 and December 2006, Fifth Third Securities made 250 unsuitable VA exchanges or transactions through 42 brokers:

Many of the brokers worked in Fifth Third Bank branches, FINRA says.

FINRA says the bank gave the brokers lists of customers with maturing certificates of deposit and referrals from bank employees to identify potential new VA customers.

Some of the prospects were elderly or unsophisticated and had conservative investment objectives, FINRA says.

One broker had 74 customers enter into 118 unsuitable exchanges shortly after he joined Fifth Third Securities in early 2005, according to FINRA. The broker switched many of his customers into new VA contracts, with all of the contracts being issued by the same insurer and having the same riders, FINRA says.

Other brokers had bank customers use cash from CDs or bank accounts to buy the same VA and had the customers put their entire investments into the fixed-rate VA sub-account, according to FINRA.