Prudential Annuities Distributors Inc., agreed Tuesday to pay $950,000 to the Financial Industry Regulatory Authority for failing to detect and prevent a scheme perpetrated by a former LPL rep — and now convicted felon — who stole $1.3 million from an 89-year-old customer’s variable annuity account.
FINRA found that Prudential Annuities “repeatedly failed” to adequately investigate “red flags” that Travis A. Wetzel, a former registered sales assistant at LPL Financial and since-convicted felon, 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.
“Firms must ensure that their supervisory systems and procedures are designed to recognize and follow up on red flags,” Brad Bennett, FINRA executive vice president and chief of enforcement, said in a statement. “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.”
Prudential Annuities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA found 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 – requesting that Prudential Annuities wire funds from the elderly customer’s account to a third-party account in the maiden name of Wetzel’s wife.
“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 states.
For example, every transfer request Wetzel submitted triggered an alert, which the firm reviewed but determined erroneously that the withdrawals appeared legitimate, and the firm did not further investigate these alerts.
Prudential Annuities personnel also reviewed certain of the withdrawals as part of six quarterly audits and noticed that the funds were being sent to a third party, but concluded that the activity appeared to be legitimate, FINRA states.
Further, “when alerted that repeated payments were being made from the customer’s variable annuity account to the same third-party payee, Prudential Annuities concluded that the withdrawals appeared legitimate, without sufficiently investigating or determining the relationship between the customer and the person receiving funds from the customer’s account.”
FINRA also found that Prudential Annuities’ inadequate supervisory procedures and controls contributed to its failure to detect and prevent Wetzel’s fraud. “Prudential Annuities did not have sufficient supervisory procedures or controls to identify repeated transmittals of funds from a customer’s account to the same third-party payee,” FINRA said.
— Check out Enforcement: Citigroup Fined $7M Over Incomplete Blue Sheets on ThinkAdvisor.