MONTANA STATE AUDITOR HOLDS NATIONAL BROKERAGE FIRM ACCOUNTABLE
Morrison's Leadership In Enforcement Action Against Waddell & Reed Leads To Successful Settlement: Firm Will Pay Montana Investors And Fines To State
Helena, Mont., September 12, 2005 - Montana State Auditor John Morrison announced today that an estimated 155 Montana investors will benefit from an enforcement action taken and settled against national brokerage firm Waddell & Reed for allegedly unlawful sales practices. The actions arose from annuity exchanges in Montana made as part of large-scale national variable annuity contract switching.
"This settlement sends a clear message to any corporation dealing with everyday Montana families; we have a zero-tolerance policy for misconduct, and you will be held accountable. If you play games with our people, you will pay the price," said State Auditor Morrison. "I applaud Waddell & Reed for recognizing that its customers must be the first priority and agreeing to resolve this matter on terms favorable for Montana investors."
Montana was the first state in the country in which both the Securities Department and Insurance Department filed an enforcement action against Waddell & Reed regarding variable annuity exchanges. Shortly thereafter, Waddell & Reed agreed to pay up to $11 million to more than 5000 customers nationwide whose annuities were exchanged by the firm. The national restitution agreement was arranged through settlement of a pending NASD action. Montana's portion of the national settlement includes restitution to Montana customers and over $44,000 in fines. Waddell & Reed will repay Montana customers the surrender charges they incurred in the exchanges, and will compensate the purchasers of the more expensive annuity by repaying the cost difference between the two products.
Over the past years, the National Association of Securities Dealers (NASD), a competitor insurance company, and state securities and insurance regulators across the country launched inquiries or filed litigation against Waddell & Reed that alleged a variable annuity switching campaign.
The Departments alleged that between January 2001 and August 2002, Waddell & Reed engaged in an aggressive campaign to switch customers from variable annuity contracts issued by United Investors Life Insurance Co. (UILIC) to similar annuities provided by Nationwide Insurance Co. The Departments further alleged that such switches were not in the best interests of the Montana consumers and were designed to benefit the company. In addition, Montana Securities and Insurance Departments alleged that Waddell & Reed engaged in certain insurance licensure violations. The firm consented to pay a fine of $25,000 to the State of Montana to resolve these separate allegations.