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Fines against FSC Securities

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FSC Securities Corp. was fined $15,000 for not thoroughly following-up on its review of customer accounts to see if all proper discounts on variable annuities, called breakpoints, had been provided. The various classes of variable annuities, and with various volume discounts on purchases, provide different advantages to customers who buy variable annuities. FSC Securities lacked supervision of its brokers, to be certain that the stockbrokers provided the best pricing for the customers.

FSC Securities was fined $2,400,000 for providing revenue sharing programs with certain mutual funds, which paid a fee for preferential marketing and distribution to the firm, and reaching its customers. These fees were brokerage commissions which were not directly disclosed, and, similar to other firms that participated in this marketing, may have affected the recommendations provided to customers.

FSC Securities was fined $50,000 for failing to properly supervise stockbrokers, and have appropriate systems for supervision in place. The failures to supervise permitted stockbrokers to improperly recommend variable annuity switching, which was damaging to customers because of the lengthening of time before the variable annuities could be sold without contingent deferred sales charges, and other risks. The additional commissions were a benefit to the stockbroker making the recommendation. The recommendations for switching were found to have been based on fraud.


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