O.N. Equity Sales Company, Inc. (“ONESCO”), a broker-dealer affiliate of Ohio National Life Insurance, headquartered in Cincinnati, was recently sanctioned by securities regulators for failing to supervise variable annuity sales by one of its registered agents who was also one of the firm’s top producers. The sanctions included a fine of $275,000 and restitution payments of $1,001,141.86 to the customers who were harmed.
According to the Financial Industry Regulatory Authority (“FINRA”), ONESCO’s now-former registered representative, Richard M. Wesselt (CRD No. 2195569), “recommended an unsuitable investment strategy to 76 customers involving variable annuities and whole life insurance policies that he characterized as ‘building your own bank’ or ‘infinite banking.’”
In announcing the sanctions, FINRA stated that Wesselt’s “strategy was predicated on persuading customers to liquidate their retirement accounts, which typically held a portfolio of mutual funds, to use the proceeds of that liquidation to purchase variable annuities, and then to liquidate the variable annuities in order to build cash value in whole life insurance policies.”
FINRA claims that by liquidating their retirement accounts, Wesselt’s customers lost benefits associated with those accounts, including protections from creditors, legal judgments, and penalty-free withdrawals.
Moreover, according to FINRA, the specific annuities that Wesselt sold typically had very long surrender periods, and were thus “uniquely unsuited for customers who intended to make short-term withdrawals from the annuities.”
Finally, FINRA states that Wesselt recommended that “his customers take early withdrawals, causing them to lose benefits associated with the variable annuity and incur surrender charges.”
Under securities industry rules, brokerage firms must supervise the suitability of securities recommendations, including the purchase and liquidation of variable annuities.
According to FINRA, ONESCO failed to reasonably supervise Wesselt’s recommendations by, among other things, failing to provide any guidance to supervisors about what they should do if they identified a potentially unsuitable transaction as part of their supervisory review.
FINRA also states that ONESCO failed to reasonably investigate and act upon red flags, including customers who were incurring surrender charges sometimes only days after purchasing an annuity.
Wesselt agreed to separate FINRA sanctions, including a permanent bar from the securities industry, in November 2020.
If you have questions or concerns about a variable annuity transaction that was recommended to you by your financial advisor, contact the experienced investment fraud lawyers at the law firm of Meyer Wilson.
For over 20 years, the law firm of Meyer Wilson has focused its practice on representing investors who have claims against their brokers, investment advisers, and insurance companies. Contact them today for a no-cost, confidential consultation.