NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

Michael Ray Howard (Principal)
OS/2008012282901

Howard recommended that a customer have her trust purchase a $500,000 variable annuity that would make payments to her heirs. 

Purportedly, the purchase of the $500,000 annuity, issued by an insurance company, would provide the customer’s heirs with a monthly income until a certain age. The customer advised Howard that she owned rural real estate, which was held in the trust, and she believed that the property could be sold following her death realizing sale proceeds of approximately $600,000.

Howard arranged for the trust to borrow $500,000 from a bank using the real estate as collateral for the loan and using the proceeds to purchase the variable annuity. The trust had to encumber virtually all of its major assets to secure the loan, including the underlying variable annuity, because the market value of the property was only $375,000. Howard received $38,526.86 in commission for his sale of the variable annuity to the customer.

FINRA found that Howard knew, or should have known, that the cost of the annuity far exceeded the appraised market value of the real estate and the customer’s liquid assets, and that the customer could not pay for the variable annuity he recommended without borrowed funds secured in part by the annuity itself. Howard did not have a reasonable basis for believing that his recommendation was suitable for the customer in light of her financial circumstances and needs; Howard’s recommendation exceeded the customer’s financial capability and exposed her to material risk. In addition, Howard completed the account documents and paperwork for the customer’s purchase of the variable annuity, including the variable annuity questionnaire, with false information about the trust’s net worth and source of funds.  Further, he provided the completed questionnaire containing the false information about the trust’s financial situation to his member firm, and the firm retained the document in its records. Moreover, in reviewing and approving the annuity sale, Howard’s supervisor reviewed the variable annuity questionnaire; Howard thus caused the firm’s books and records to be inaccurate and impeded supervision of the annuity sale.

Michael Ray Howard (Principal): Fined $40,000; suspended 6 months

Tags: Variable Annuity