Initiated By
FINRA
Allegations
Padilla was named a respondent in a FINRA complaint alleging that he effected unauthorized purchases of a variable annuity for a customer of his member firm and concealed this information from the customer for over nine months through repeated misrepresentations that he had not invested the customer's funds into a variable annuity. The complaint alleges that Padilla knowingly, willfully or recklessly made misrepresentations of material fact in connection with the sale of the variable annuity to the customer. At the time Padilla presented the variable annuity application to the customer, Padilla assured the customer that the application was not for a variable annuity. Padilla convinced the customer to keep the variable annuity beyond the Right to Examine period by reassuring him orally and in writing that the investment the customer had purchased was not a variable annuity. Padilla caused the customer to invest an additional $558,889 into the variable annuity by falsely claiming that the investment purchased was not a variable annuity. In reliance upon Padilla's material misrepresentations, the customer initially invested $220,787 in the variable annuity and, in further reliance on the material misrepresentations, made an additional investment in the variable annuity of $558,889. The customer consistently and unequivocally told Padilla that he did not wish to purchase a variable annuity. As a result, Padilla willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and violated FINRA Rule 2020.
Resolution
Decision & Order of Offer of Settlement
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Sanctions
Suspension
Registration Capacities Affected
All Capacities
Duration
15 months
Start Date
3/6/2017
End Date
6/5/2018
Regulator Statement
Without admitting or denying the allegations, Padilla consented to the sanctions and to the entry of findings that he effected an unauthorized purchase of a variable annuity for a customer at his member firm and, in connection with the variable annuity purchase, misrepresented that the investment was not a variable annuity. The findings stated that the customer and his wife met with Padilla to discuss the transfer of their accounts to Padilla. The customer stressed to Padilla that they did not want any of their funds invested in a variable annuity due to the high fees associated with variable annuities and because of their desire for liquidity. Padilla presented a variable annuity application to the customer and Padilla assured the customer that the application was not for a variable annuity. Padilla convinced the customer to keep the variable annuity beyond the Right to Examine period by reassuring him orally and in writing that the investment the customer had purchased was not a variable annuity. Padilla caused the customer to invest an additional $558,889 into the variable annuity by falsely claiming that the investment purchased was not a variable annuity. Padilla's aforementioned misrepresentations were all false and misleading. The findings also stated that in reliance upon Padilla's material misrepresentations, the customer initially invested $220,787 in the variable annuity and, in further reliance on the material misrepresentations, made an additional investment in the variable annuity of $558,889. The findings also included that the customer signed an application for the purchase of the Variable Annuity; however, the application did not provide Padilla purchase authorization due to misrepresentations that Padilla made about the investment at the time the document was signed and due to misrepresentations that Padilla made about the nature of the investment during the Right to Examine period. Furthermore, the customer repeatedly told Padilla that he did not wish to purchase a variable annuity. By making unauthorized purchases of the variable annuity in the customer's account, Padilla engaged in conduct inconsistent with just and equitable principles of trade and high standards of commercial honor. There were no willful findings. Fines paid in full on July 6, 2018.
Broker Comment
Mr. Padilla adamantly denies that any unauthorized transaction occurred, or that he deliberately concealed or otherwise intentionally misrepresented any facts, including the nature of the annuity investment product, to the customer at any point during the application or investment process. The customer received numerous disclosure documents, including a variable annuity prospectuses, variable annuity applications, variable annuity disclosure forms and monthly statements directly from the carrier showing that he was invested in variable annuity products. The customer did not express that he did not want to be invested in any variable annuity products until over nine (9) months had passed since the time of the initial investment. The customer not only had knowledge that the investments were made in variable annuity products, but on several occasions expressed his desire to be in this product-type.