An elderly widow sold two annuities and deposited the cash-out into a bank. Thus began a chain of events in which the Financial Industry Regulatory Authority (FINRA) wound up charging two brokers with stealing $300,000 from the widow, who is described as having diminished mental capacity.
FINRA charged the brokers, Fernando L. Arevalo and Jimmy E. Caballero, for “wrongfully converting” the annuity cash-out money and for failing to cooperate fully with the FINRA investigation.
Each man has signed and submitted a settlement waiver agreement to FINRA, and the federal authority has barred the brokers from the securities business. FINRA retains jurisdiction over each man until sometime in 2015, according to the settlement agreement.
Annuities were not part of the FINRA investigation, a staffer in FINRA’s press office told InsuranceNewsNet. Therefore, the press release issued by the office does not identify the types of annuities the woman had cashed out, the issuers of the annuities or the nature of the cash-out.
However, it may be that variable annuities were the original source of funds. That is because FINRA has authority over securities sales, and variable annuities are securities. It may be that FINRA picked up on the brokers’ activities during a securities firm examination or broker review.
In addition, in their separate letters to FINRA, each broker that states that he had been Series 6 licensed as an “investment-company and variable contracts products representative.” Such a license is required for variable annuity sales but not for fixed annuity sales. Neither letter mentions whether the named broker also held an insurance license, however.
Each letter also says that the named broker became “dully associated” with JPMorgan Chase Securities and a retail bank that was (and continues to be) affiliated with JPMorgan. (Both men said they voluntarily resigned from those firms during the summer.)
According to FINRA, Arevalo and Caballero’s misconduct occurred while they were employed as brokers with JPMorgan Chase Securities.
Here is FINRA’s version of events: Between April and July, FINRA said in a press release, the widow deposited approximately $300,000 in proceeds from the sale of two annuities into a bank account that Arevalo had opened for her. The funds were then withdrawn from the account via two cashier’s checks. On the same day, Caballero deposited the money into a joint account that he had opened in his and the widow’s names at a different (un-named) bank. (In their letters to FINRA, Arevalo and Caballero describe the new bank as the third-party bank.)
This bank questioned the deposits and required further confirmation before clearing them, according to FINRA, so Arevalo drove the widow to the bank to confirm the source of funds. The account was then depleted through numerous checks payable to Arevalo and through account debit card withdrawals made by both men for personal expenses such as for real estate and car loans and various retail purchases.
The customer was unaware of any withdrawals or purchases against the joint account by Arevalo or Caballero, and did not authorize the transactions, FINRA said.
The letters that Arevalo and Caballero separately submitted to FINRA contain a similar account. But these “letters of acceptance, waiver and consent” also include a little bit of information about the woman, whom they term “the Customer.”
Each letter notes that the widow did have signs of “diminished mental capacity.” Caballero, for instance, wrote that the third-party bank required further confirmation before it would clear the retail bank check deposits. “Despite signs of the Customer’s diminished mental capacity,” he said, Arevalo drove the customer to that bank to confirm the source of funds.
The bank approved the deposits after the confirmation, Caballero wrote.
What did the widow know? Both men’s letters say the same thing: The customer was aware that Caballero had opened the third-party bank account on her behalf, and that it would be funded by “proceeds” from her retail bank account, they wrote. However, they said that she believed she was the sole holder of that account and that it was not a joint account, and that she was not aware of the withdrawals, did not authorize payment of funds from that account to the two men and did not authorize use of the funds for the men’s personal expenses.
JPMorgan was not a party to its action involving the two brokers, according to FINRA. However, the firm did reimburse the widow, FINRA said.
FINRA said Caballero and Arevalo neither admitted nor denied the charges, but consented to the entry of the findings.
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