NASD fines broker-dealer for sales-practice violations in 2000 through 2004. The NASD, a private-sector regulator of the U.S. securities business, has fined Raymond James Financial Services (RJFS) $2.75 million for failing to maintain adequate supervision over sales activities of over 1,000 U.S. branch managers.

"RJFS's supervisory system was inadequate because it allowed producing branch managers to supervise themselves," says James Shorris, the NASD's head of enforcement. "This flawed supervisory system created a situation where the unsuitable sales of variable annuities and risky mutual funds to elderly and risk-averse customers went undetected."

One of these managers has come in for particular censure. Donna Vogt, who worked for the firm from her home office in Cambellsport, Wisc., has been permanently barred working in the securities business for recommending "unsuitable mutual-fund and variable-annuity purchases to elderly or retirement-age customers" and for making "misleading statements to customers in correspondence," according to an NASD press release.

Violations

From early 2000 through September 2004, RJFS, one of several brokerage units of St. Petersburg, Fla.-based Raymond James Financial employed over 1,100 "producing registered principals," or branch managers, mainly in small, geographically dispersed offices. These branch managers were allowed to act as the primary supervisors of their own business activities, approving their own transactions, opening and accepting new accounts, and reviewing their own correspondence.

RJFS assigned supervisory responsibility for these 1,100 branch managers to three sales managers. It also relied on an electronic transaction surveillance system maintained by its compliance department and a series of exception reports to flag transactions that required further review. Day-to-day supervision of branch managers was essentially non-existant, says the NASD. "By permitting these principals to engage in self-supervision, RJFS's supervisory system was not reasonably designed to achieve compliance with securities rules and regulations," according to the regulator.

Vogt's sales-practice violations went undetected for about four years. She was the branch manager and the only registered representative in her office. NASD found that, in determining which products to recommend, Vogt treated her customers as a homogeneous group, regardless of age, financial status, investment experience and objectives. Of her approximately 700 accounts, more than 90% listed their primary investment objective as "growth" and risk tolerance as "medium." RJFS never questioned the fact that Vogt listed these objectives and strategies for almost all of her customers. In fact, it was Vogt herself who reviewed and accepted the customer account documents.

NASD says that Vogt recommended "unsuitable" purchases -- so called because access to their funds was limited by the variable-annuity surrender charges -- and concentrations of aggressive mutual funds and variable annuities to at least five customers who were elderly, retired or nearing retirement.

RJFS failed to detect or prevent these transactions by Vogt, says NASD. The firm also failed to prevent Vogt from sending misleading communications to some of her customers, in part because the firm allowed all of its producing branch managers to review their own incoming and outgoing correspondence.

The NASD says that RJFS's poor supervision of its branch managers was exacerbated by deficiencies in its branch audit program -- including the failure to maintain certain books and records.

Neither RJFS nor Vogt admitted or denied the charges, but "consented to the entry of [the] NASD's findings." -FWR

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