(FINRA Case #2014040873501)
Cecil Ernest Nivens (CRD #2110613, Gastonia, North Carolina) was named a respondent in a FINRA complaint alleging that he circumvented his member firm’s WSPs (Written Supervisory Procedures) by failing to process as replacement trades variable universal life (VUL) purchase transactions, totaling approximately $439,805 in first-year premiums, even though Nivens recommended that each purchase be funded by withdrawals from an existing variable annuity.
The complaint alleges that from 2010 to Nivens’ departure from NYLife Securities LLC in February 2014, he was subject to heightened supervision that included a review of the number of replacement transactions processed by Nivens and the suitability of those transactions on a quarterly basis. Nivens was aware of the heightened supervision plan and avoidance of this additional supervision provided motivation for Nivens to conceal that the transactions for his customers were replacements.
The complaint also alleges that Nivens’ actions in circumventing firm procedures and concealing replacements allowed him to continue his pattern of frequently recommending exchanges to reap the benefit of a new commission without being subject to the firm’s heightened level of supervisory review associated with such transactions. Each of the VULs was reviewed by a firm supervisor who was unaware that the purchase transaction was part of a replacement. As a result of Nivens’ concealment, the firm supervisor reviewing the transaction did not know to perform the heightened review required for replacements. As a result of the transactions at issue, Nivens received $185,737 in commissions on the VULs. These commissions were in addition to commissions he had already received on the purchases of the variable annuities that he sold to the same customers.
The complaint further alleges that to avoid detection by the firm of the source of the annual premiums for the VULs, Nivens did not process the withdrawals from the variable annuities used to fund the VULs as 1035 exchanges. If Nivens had properly characterized the exchanges, the customers could have avoided significant tax consequences.
In addition, the complaint alleges that Nivens further concealed the variable annuity replacements from the firm’s supervisory review by directing the customers to write a personal check to fund the annual premium and to fund the check by withdrawing funds from the variable annuity either before or after issuance of the check. Nivens’ failure to characterize the transactions as replacements also made the warnings accompanying VUL applications appear irrelevant to the customers. Each variable annuity application contained a required two-page document that included warnings, explanations and important factors to consider in an exchange, including a situation in which the customer kept both policies. However, because Nivens certified on page one of the documents that the transactions did not involve replacements, he made it appear that the considerations on this two- page disclosure did not apply to the VUL purchases. Additionally, eight of the customers unnecessarily incurred surrender charges on the variable annuity withdrawals in the total amount of $4,258.19. Nivens’ former firm has paid $558,848 in settlement of customer complaints associated with Nivens sales of VULs.
Moreover, the complaint alleges that in connection with these transactions, Nivens submitted to the firm annuity documents containing misrepresentations and false information that further disguised the fact that these transactions were replacements and prevented the firm from performing its heightened supervisory review. Nivens prepared and signed the documents in question prior to submission to the firm. Nivens failed to disclose that an annuity was a source of the funds for purchase of the VULs. Although all of the customers funded their purchases of the VULs with withdrawals from a variable annuity, Nivens chose other sources of funding, rather than “annuity,” on certain documents. Furthermore, the complaint alleges that each VUL application was also accompanied by a replacement form required to be submitted with each VUL application. For each form at issue, Nivens completed the form himself, and presented the completed form to the customer for the customer to sign. In each instance, Nivens signed the form certifying that it was accurate, when it was not.
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