The NASD has brought its first market-timing case involving variable universal life (VUL) policies. The organization has charged Jefferson Pilot Variable Corp. (JPVC) for "failing to have an adequate supervisory system in place to prevent market timing and excessive trading in the sub-accounts of its Ensemble series of VUL insurance policies."
JPVC is paying a fine of $325,000 to the NASD for this action and $238,697 in restitution to the affected funds. Furthermore, Jefferson Pilot Securities Corp. is paying a fine of $125,000 for failing to retain e-mail communications of all its registered persons; the NASD requires that broker/dealers retain such records for at least three years, but from 2001 through 2003, the company disposed of e-mail records of 217 registered persons after 60 days.
Jefferson Pilot has already paid $119,024 in restitution to the JPVF International Equity Portfolio and will pay $66,191 to the American Century Variable Products, Inc. VP International Fund and $53,482 to the Franklin Templeton Variable Insurance Products Trust Templeton Foreign Securities Fund.
The companies neither admit to nor deny the charges but have consented to the entry of the NASD's findings.
"Jefferson Pilot's failure to conduct a meaningful review of its supervisory systems resulted in the impermissible market timing and excessive trading, which in turn resulted in harm to other policy holders with assets in these sub-accounts," said Mary L. Schapiro, vice chairman of the NASD.
Although Jefferson Pilot had a system in place that was designed to detect block sub-account transfers that exceeded policy limits, the company failed to make sure that system was working. Because of this lapse, 292 Ensemble policyholders were able to execute trades exceeding contractual trading limits of 20 annual transactions.