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AXA Advisors to Pay $772K for Negligent Misrepresentations
by Howard Haykin
AXA sells and services group annuity contracts for employer-sponsored 401(k) retirement plans that an affiliated life insurance company issues and administers. AXA registered reps worked with retirement plan sponsors (i.e., employers) to help determine what funds should be included within the group annuity contracts for 401(k) plans they offered to plan participants (i.e., employees). To that end, AXA distributed various documents created by its affiliated life insurance company to retirement plan sponsors. These documents contained a list of available investment options, including available bond funds, organized by the type of underlying investment. AXA's registered reps also provided general education and information about the funds available within the group annuity contracts for 401(k) plans to plan participants, typically during enrollment meetings.
WHAT WENT WRONG. From September 2010 through November 2015, AXA distributed documents that negligently misrepresented that 5 bond funds offered with some of its group annuity contracts were “investment-grade,” when, in fact, a substantial portion of the funds’ portfolios consisted of high-yield or junk bonds. For example, the fund that affected the largest number of plans and participants, which was represented as an investment-grade fund, in fact held ~65% of its bond portfolio in high-yield or junk bonds as of March 31, 2015.
As a result of the misclassifications, AXA distributed thousands of enrollment forms, investment options attachments, and other documents to plan sponsors that were inaccurate and misleading. The misrepresentations affected approximately 800 retirement plans and 6,200 plan participants during the relevant period.
Moreover, AXA failed to have supervisory systems or WSPs reasonably designed to achieve compliance with FINRA rules related to the accuracy of the descriptions of the credit quality of the bond funds. Instead, Axa relied on its affiliated life insurance company to classify the bond funds in the group annuity contracts.
"No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading."
For further details, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015047560601.
