WASHINGTON — A variable annuities distribution unit of Prudential Financial has been fined $950,000 for alleging failing to detect and prevent a scheme by a former registered sales assistant at a brokerage that resulted in the theft of approximately $1.3 million from an 89-year-old customer’s variable annuity account.
The enforcement action was undertaken by the U.S. Financial Industry Regulatory Authority (FINRA).
The case, from 2013, stems from actions by Travis A. Wetzel of LPL Financial in Frederick, Maryland.
Wetzel was indicted in 2014 in Federal District Court in Greenbelt, Maryland on wire fraud and money laundering charges, and pleaded guilty to money laundering in 2015. He was sentenced to 42 months in prison.
FINRA alleged in the enforcement action that Prudential Annuities “repeatedly failed” to adequately investigate “red flags” showing that Wetzel was transferring money from the customer’s Prudential variable annuity account to a third-party bank account in his wife’s maiden name. FINRA previously barred Wetzel in May 2013. Prudential Annuities and LPL reimbursed the customer in 2013, FINRA said.
In settling this matter, Prudential Annuities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Firms must ensure that their supervisory systems and procedures are designed to recognize and follow up on red flags.”
Bennett said there were numerous red flags raised over the course of this scheme, and “Prudential Annuities Distributors’ failure to adequately respond to them allowed an unscrupulous actor to prey on an elderly customer.”
FINRA said it acted after finding that from July 2010 until his misappropriation was discovered in September 2012, Wetzel submitted to Prudential Annuities 114 forged annuity withdrawal requests — four to five withdrawals per month for a total of nearly $50,000 — and directed Prudential Annuities to wire the funds from the elderly customer’s account to Wetzel’s fraudulent third-party account.
“Prudential Annuities repeatedly followed Wetzel’s instructions without adequately investigating a variety of red flags that should have alerted the firm to Wetzel’s scheme,” FINRA charged.
For example, FINRA said, every transfer request Wetzel submitted triggered an alert, which the firm reviewed and then determined erroneously that the withdrawals appeared legitimate. The firm failed to further investigate these alerts, according to FINRA.
Scot Hofman, a spokesman for Prudential in Newark, said the company “is pleased to have resolved this matter.”
Hofman added that once Prudential learned about the fraud committed by the unaffiliated third-party broker, “we immediately initiated our own investigation and subsequently restored all missing funds to the annuity contract owner.”
Hofman concluded: “We believe that the settlement is in the best interests of all concerned.”