New York Securities Lawyer Blog
Lax & Neville is currently investigating the activities of Michael D. Mathias, a broker associated with Summit Brokerage Services, Inc. (“Summit”). Mr. Mathias, who has been in the industry for three decades, has a long history of sales practice abuses, including making unsuitable recommendations to his clients. He has over twenty customer complaints or arbitrations listed on his record (CRD No. 1349406). The vast majority of these complaints or arbitrations were resolved in the customer’s favor and roughly half required a personal contribution from Mr. Mathias. Almost all involve the recommendation of high commission products, including limited partnerships and variable annuities.
In particular, Lax & Neville is focusing its investigation on the unsuitable recommendation and sale of variable annuities. The recommendation and sale of variable annuities has long been a concern within the securities industry. NASD and FINRA have released a number of investor alerts and notices to members on the subject, emphasizing that certain suitability requirements must be met to recommend variable annuities (NASD Notice 96-86), highlighting the importance of supervisory procedures to ensure that the suitability requirements are met (NASD Notice 07-06), and warning potential investors of the liquidity issues, high fees, and market risks associated with variable annuities (FINRA Investor Alert 12-00045).
In June 2004, the SEC and NASD released the joint report “On Examination Findings Regarding Broker-Dealer Sales of Variable Insurance Products.” The report recognized that high commissions helped drive the sale of variable annuities but that the high fees and surrender charges associated with the product made them inappropriate for a wide variety of investors. The report then identified a number of factors that could assist in “identifying abusive sales practices and violations,” including
- Client’s age over firm’s internal maximum;
- Clients with low net worth;
- Clients with low annual income;
- Clients in the lowest tax bracket;
- Clients with limited investment experience;
- Clients whose variable annuity purchases exceed a specified percentage of their net worth;
- Clients whose assets are heavily concentrated in VIPs;
- Representatives with a large number of elderly clients of modest means, or with limited investment experience;
- Comparison of investment choices to customer’s investment objectives;
- Variable annuities in an IRA, 401(k), or other tax-qualified accounts;
- Variable annuities in wrap accounts;
- Surrenders;
- Charge backs;
- Replacements with large surrender charges;
- Surrender charge and other costs of exchange exceed bonus and other benefits received;
- Transactions where surrender took place shortly before a lower surrender charge would have taken effect;
- Underlying fund transactions for market timing activity and late trading activities;
- Short holding period (one to five years);
- Registered representatives with a high percentage of replacements and 1035 exchanges;
- Representatives who repeatedly switched clients after comparatively short holding periods; [and]
- Variable life insurance sales with premium payments exceeding a certain percentage of annual income
Based on Lax & Neville’s investigation thus far, the customers to whom Mr. Mathias made the unsuitable variable annuity recommendations embody many of the characteristics identified in the SEC and NASD joint report. Nonetheless, it appears that Mr. Mathias persisted in recommending unsuitable, high commission products to vulnerable customers.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of unsuitable investments. If you were a customer of Mr. Mathias or have invested in variable annuities, please contact Lax & Neville at (212) 696-1999 to schedule a consultation.