Hello, my name is Thomas and I would like to thank Chris, Jason, and Frank for the honor of becoming a new contributing writer. I have hosted my own blog at http://personalfinancefun.wordpress.com/ since February. My frequency of postings had fallen off a little bit as my wife and I prepared to leave Alabama and head to New Mexico. My wife is an Air Force officer and I am a military dependent although I hate that terminology. In Alabama, I was working as a personal finance program manager educating and counseling Air Force members on the joys of investing and money management. Prior to Alabama, I worked in marketing for a not-for-profit association. Currently, I am working the in financial planning arena. Just like many of us InvestorGeeks, it constitutes a varied background.

Arguably, no investing product receives more bad press than variable annuities. Many individuals have horror stories to share about unscrupulous brokers who pushed them into complex annuity plans without adequately explaining fee structures and provisions. Some individuals may have thought they were getting an IRA and instead ended up in an annuity. In this article, I will explain the facts related variable annuities and give you some information to help you decide if variable annuities are right for you.

What is a Variable Annuity?
An annuity is a contract between you and a life insurance company. In return for payments, or one lump sum payment, the life insurance company agrees to provide a steady stream of income or a lump sum distribution at some future date. Many annuity plans drafted these days offer both a death benefit as well as yearly income withdrawal options. The income withdrawal options have been very popular with aging baby boomers looking to provide themselves extra income in retirement. It should be noted that your income withdrawals will be taxed at your ordinary income tax rate. If you are less that 59.5 in age, the IRS also assesses a 10% penalty.

The word variable in variable annuity refers to your original investment being invested in the stock market through sub accounts. Sub accounts are mutual funds chosen within a variable annuity contract. The annuity purchaser chooses the subaccounts they wish to invest in. The beauty of variable annuities is that if the stock market does well, your plan will “step up” to a higher death benefit or higher yearly income withdrawals. Depending on the insurance company issuing the variable annuity, you may step up yearly, or every five years.

A big advantage of variable annuities is how they let you invest tax deferred with no yearly limits like those placed on 401ks or IRAs. Unfortunately, more than half of the variable annuities sold every year are sold within tax deferred accounts like IRAs. Those individuals who bought a variable annuity through their IRA just destroyed one of the biggest advantages of choosing a variable annuity.

Another advantage is that you are also guaranteed withdrawal of no less than the principle you invested. Let us look at a scenario. Imagine you place $200K into a variable annuity with a 5% income withdrawal option. You are guaranteed to receive at least $10K per year no matter what happens to the stock market. If the market tanks, you would have the comfort knowing that the yearly income from your variable annuity would never be less than $10K although it would never step up to a higher level.

Compare this scenario to investing in an individual investing account. Imagine that you wish to take out the same $10K per year that you would have received from a variable annuity. If your investments decline by 25% for six years, your principal investment will be completely exhausted in six years. Probably not a likely scenario, but an example that shows why variable annuities are so popular amongst the risk averse.

Variable annuities also have many glaring disadvantages. You should be aware that variable annuities are a brokers best friend. Variable annuities generate broker sales commissions two to upwards of twenty times higher than sales commissions gained through the sales of mutual funds.

Variable annuities also have high fee structures compared to mutual funds. In order to provide the income guarantees and death benefits, the variable annuity provider will assess income withdrawal, mortality, expense, and administration fees. This will eat up 2-4% of your yearly investment return. These fees are in addition to the sub account fees that would have similar fee structures to that of mutual funds.

Surrender charges are another evil of variable annuities. Surrender charges are the fees you will pay to close your variable annuity. Expect surrender charges to be around 7%. The charges are assessed if you close the annuity within a specific period of time, called the surrender period. Surrender periods can vary widely, but some are as long as eight years.

Buy or Steer Clear?
My advice is to consider a variable annuity only after you have exhausted your other tax advantaged retirement options. For 2006, this means dumping $4K into your Roth or Traditional IRA and $15K into your 401K. If you elect to go with a variable annuity, conduct ample research and look for the lowest fee and no surrender charge plans.

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Thank you for the article, now I have a better understanding of why my financial adviser talked me into an annuity 4 years ago, I was 24 years old, and looking back don’t know what he could have thought my specific benefit would be. He did tell me that the guaranteed annual minimum appreciation clause was no longer going to be allowed after that year, and that is what sold me on it…Do you know if that was even true?

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Many plans still offer that clause. Your clause probably guaranteed you a minimum 3% per year. It was a benefit to your plan, but a variable annuity for someone age 24 is still poor advice.

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So basically, it goes like this:

1. Annuity – need to pay:
– broker
– insurance company admin fees
– underlying insurance fund management fees

In return, I get a guaranteed return of x %, am locked out of some upside (I presume), and have to pay half an arm if I want to get out of the plan?

…but it grows tax free.

2. Index fund – need to pay
– small index charge – maybe 0.5%

Provided you don’t sell, it also grows basically tax free.

3. Syphoning money to Panama
– need a relative to move there (could be costly)
– difficult to repatriate without being jailed for tax fraud

But it grows tax free, you have a wide range of investments available, and you pay no tax upon withdrawal.


…I think its time to speak to my brother about his relocation plans.


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Very interesting article! I don’t have experience with annuities, so thanks for bringing this subject to light.

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How does the NASD feel about Variable Annuities? Living Benefit’s consumer oriented product line or National distrust? you decide…

[ Elisse B. Walter, senior executive vice president of regulatory policy and programs at the NASD, says that her organization isn’t against Variable Annuities themselves.”Our concern is not whether the product is good or bad, but how it is being sold and whether it is appropriate to the people to whom it is being sold,”she says.]

Let’s look at this above statement

This above position taken by the NASD is what continues the problems with the Variable Annuity industry because there is no official position taken on suitability and in it’s marketing of living benefits to the seniors/retirees that are led to purchase a risk product with a false sense of safety conveyed that somehow their money is really not at risk.

But if the NASD is convinced that their Variable Annuity no longer presents itself as a risk,within the market risk products now because of all the added new enhanced living benefit guarantees? Then maybe they should petition the SEC to have it reviewed as a non-risk product regulated by the NASD.

After all any product that uses the word guaranteed as many times as in the Variable Annuity Presentation sale certainly must not be of any risk to any consumer.

I disagree with the above NASD statement and their broad position that it’s not a question of whether the product is good or bad? What is considered real compliance with the National Association of Securities Dealers? Only that their products offered are OK ?

IT’S NOT GOOD AS CURRENTLY DESIGNED PEOPLE ARE MISLED BY THE USE OF THE WORD GUARANTEED IN A RISK PRODUCT…{ It’s not the product but how it’s being sold and to whom } Is this for real? Is this then being Compliant ?

It’s a product by current design that in itself mis-leads.The word guaranteed is a word that should never be allowed to be expressed with a risk product. It conveys some type of assurance that’s it’s OK for you to buy this product and if this that or any other thing occurs you will be all right ! ! !

These problems will never go away because of this “misuse of the meaning guaranteed in a risk product.” Is this suitability? Is this being compliant? Is this a commingle of product designs and definitions?

Does the NASD rules send out mixed signals? Are they now a regulator of ambitiousness? Are their rules an exercise in contradictions? Why all the problems? Is this type of risk confusion that they allowed in the Variable Annuity now reached a point beyond their regulatory control?

This extra fee layer that you can buy back part of your loss/risk should not be allowed to be used in any same/similar manner as the word is used in a real guaranteed from loss product. The only real guarantee is that you will have to pay fees…

It tends to convey total safety from any real market loss when in reality there is none and then again tries to change this risk product the Variable Annuity by design and definition into a thing that it’s not.

Real product risk should be highlighted not hidden in design that can create this false sense of safety for a product that has direct exposure to the market and it’s real potential of loss for any purchaser let alone a senior or retiree.

Unacceptable meaning in product design definition is the real issue folks.

Once again the recent March 2006 decision expressed by the NASD that it’s OK for you to exchange you Variable Annuity for another because of better living benefits. Is this their idea of being in Compliance?

Then they get upset with product being offered that by design avoid principal loss and risk attack them as competition when in reality they are the ones who have decided to allow a [ commingle of two different product worlds ]{guaranteed from loss products vs risk products with so called “living benefits”} & actually wonder why all so many complaint’s still abound.[ Jump Ball vs Ping Pong Ball ] The Index Annuity vs the Variable Annuity.

The NASD refers to a Index Annuity as a “jump ball product” this is a term that should have applied to their”new Variable Annuity with living benefits” allowing to make a risk product into something it is not….a pretend to jump from risk to no risk with a introduction of the the word guaranteed in a risk product.

I’m really not sure the NASD does understand any real product difference.

Their boss had said Index Annuities are just too complicated to understand ! so based on these type of comments they just not might understand any real product difference between a true guaranteed “from loss product compared to the Variable Annuity with living benefits?”It could be rethinking time for the Annuity basics for the higher ranks instead of attack misdirect and then attack some more. NAIFA Action Alert Ask NASD to Back Off on Equity Indexed Annuities http://www.naifa.org/actionalert/20051129_nasd.html

The accreditation method of Index Annuities is not the real issue as the NASD would like you to believe although it does have many methods to reflect your potential for gain without risk to principal. It’s not so difficult or confusing that almost 27 billion a year are marketed within this safe product.

These different accreditation methods offer great selection choices for the consumer.This is what’s known also as fair market competition between one product or Annuity carrier with another.Just as in any case not all of the safe Index Annuity products are suitable for each and every clients needs.This is why the Index Annuity is offered in different accreditation methods and also different time spans of involvement.

It should not to be the issue as the NASD describes that the the two products are similar in risk etc. A Index Annuity is considered a”safe money product” where a Variable Annuity is considered a” risk product” both by design and definition trying to create confusion in this area is a NASD tactic only.

The Variable Annuity has direct exposure to market risks where as the Index Annuity uses market performance as a external guide only an without direct exposure to the markets and your principal is not a risk.

The NASD representative your Variable Annuity writer dodges a suitability bullet by marketing the Living Benefits in bulk to their consumer then takes a position that because of the guaranteed living benefits all suitability issues have been resolved is this safe thinking? for the senior and retired concerns?

The NASD as well as the SEC is happy to go along with this BS.. up until of course the next “major complaint unfolds” then it’s time to be fined….. only in America. Complaints and fines will continue Variable Annuity products do mislead and it’s not in how they are sold and to whom, but what it’s claims it will do and doesn’t ! after all, is not sales perception everything.

Greed to capture the fixed rate{real guaranteed market}is now what’s caused all these problems to begin with and false benefit guarantees that have been allowed to be fee forced on the Public in a risk product.

Living benefits are a”misrepresentation in risk reality”created to increase fees and misleading guarantees that allow the misuse of the word guaranteed that serves only to create an illusion that you are not in a risk product at all.

Guaranteed Minimum Withdrawal Benefits GMWB Guaranteed Minimum Income Benefit GMIB.Guaranteed Minimum Accumulation Benefit GMAB Guaranteed Minimum Death Benefits GMDB. I could go on and on. These fee based riders are designed to increase the cost of risk products yet “pound into the buyer is the word guaranteed” leaving them then think that by the conclusion of the sale process”their money is not really at any risk at all” but actually is guaranteed from any market loss.

Now they have convinced the SEC to join them in “witch hunts” starting in Florida to go after anyone giving “seminars to Seniors” I guess looking for more fine money they really can’t be taking a position the retired are better off in a risk products for all their retirement money or can they?

The NASD has to clean up it’s own act starting with this guaranteed Variable Annuity nonsense first and the SEC should be on their case also instead of looking at those who are trying to protect seniors/ retired from product that create false issues.

Why is there still so many complaints/ fines is it because of the guarantees that don’t? and why do they call these living benefits when death is required to collect on sum? If this were my retirement money I’m not so sure I would like to die or wait the remainder of my life to get back just what was put in..

If any regulatory agency deserves to be fined it’s the NASD for allowing this to continue.
.The annuity industry flounders on any clear cut rules for senior and retiree safety allowing State regulators to be set off on their own style of interpretation of what’s to be safe and considered suitable or not etc.

Do they want to keep [ all retirement dollars at risk in retirement? ] I don’t think this type thinking really meets the Principles and Code of Ethical Market Conduct ?

State regulators can not really regulate security products already a tilt in fairness has been created against the fixed/index annuity industry.

Once it allowed this word “guaranteed” to be bounced around the room in a Variable Annuity presentation without prejudice and any avoidance as much as any ping pong ball knowing all too well that any misuse of this word in any sale presentation for any risk product is all to easy to lead into the many misunderstandings that can be created for any age bracket.

This should not be allowed to happen when dealing with any ones retirement savings.

The”living benefits”might have saved the Variable Annuity industry but at what cost?

Never has any product generated so much national public distrust it really abounds but the NASD taken in a fortune in fines. They have allowed this problem to continue and are the only ones who can resolve it. Take away the NASD ability to profit from fines and objectivity might return to the issues at hand.

Does the Variable Annuity Industry today reflect National Distrust? 464,000 pages in just one browser below but it’s the Index Annuity that they want to take the heat! Why is that……….

Has any risk product generated so much in fines for the NASD?? Do you think the misuse of the word & meaning for guaranteed product has created this problem?? At the rate the “NASD fines everyone” you would thing that they only have total idiots to market this risk product amazing.

I don’t believe that at all but what is very obvious the NASD has found a good thing with Variable Annuities in more ways then one. Some how the words regulating and or orchestrating have seem to create these not so impressive results that have been achieved here. [ 464,000 pages of complaint issues ] on just one browser not a record I would like to hang my hat on…..The question who is really paying for these remarkable results has to be asked?

Variable Annuity Complaints Results 1 – 10 of about 464,000 for Variable Annuity Complaints. (0.16 seconds) http://www.google.com/search?hl=en&lr=&q=Variable+Annuity+Complaints&btnG=Search

NASD Should You Exchange Your Variable Annuity?

(Updated March 2, 2006) is this for real?

There are various reasons why a variable annuity contract holder may want to exchange an existing variable annuity contract.

Many annuity contracts now offer premium – sometimes called bonus – credits toward the value of your contract, of a specified percentage ranging from 1-5% for each purchase payment you make.

Also, in recent years, there have been new developments in annuity features, especially in variable annuities, that are valid reasons to consider an exchange. The number of investment options has increased. Less expensive variable annuity contracts have been created. Death and living benefits have been enhanced. Also, with the growth in the stock market in the 1990s, many insurance contract holders have wanted to take part in that growth.These are all valid reasons for considering exchanging one insurance contract for another.

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Thanks for the shout out. I will probably do a more advanced article on variable annuities as I learn even more about them.

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Hi Charles

Your post has lots of information, but you need to condense it down into a more concise, direct form.

Just some constructive criticism.

Kind regards,


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In 2 words or less, it’s a rip-off. Invest your own money,
cut off a lot of middlemen;
or at least invest in equity-indexed annuities,
which are much more fair.

A Math Prof.

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Index Annuities! Safe Money Product? For our times? That offers a true superior design? With guarantees built in that work? And what makes this product so important for the future of the Annuity Industry? That’s if you also consider the following: Where is all the money coming from to pay for regulations that effect our market place and create confusion and then upset any decision making process that might protect the retired and the senior?

You decide, I have, but what is more important is that clients decide and not a bias type regulations & what rules will control who’s regulators? Leading to more industry confusion.The never ending safe guard issue.Who will have final say..Risk vs Non Risk… let’s keep things in proper perspective as well as proper and correct priority.The only product that needs more oversight is the Variable Annuity which has tried to disguise itself as a non risk product. If the NASD is calling for more suitability and harmony with regulations it’s this product that needs more attention for the senior/retired scrutiny and protection not the Index Annuity that has not caused all the many complaints and loss in savings for the retired/seniors/elderly.

Fees vs Caps vs Risk? Age vs Safety vs Risk? Suitability vs Non Risk? vs Who pays the regulators paycheck and for enforcement? vs Securities license vs Insurance license vs Duel Licensing vs Risk product vs Non risk product vs Fines applied vs What product is really better for the higher age client etc. vs Variable Annuity vs Living Benefits vs Risk vs the Index Annuities vs Non Risk vs Who controls what products & why vs The politics that alter Annuity market bias vs conditions most agents can’t operate under vs The flow down of low IQ confusion vs If the people on the top don’t know their bounds, and can’t provide intelligent rules or regulation vs maybe it’s time for some new leadership .Since how much profit on fines can be obtained should not enter into any of these Industry decisions but some how I think they do.

{Sometimes no decision being made becomes a decision that has been made.}
Results 1 – 10 of about 1,410,000 .


Now, everyone outside of the Annuity Industry is making decisions whether they understand anything about Annuities or not. Thank You Mr NASD. The only major force left in the Industry yet to publicly state Variable Annuities are rarely suitable for Seniors. The NASD seems to be more concerned about the issuing of warnings about Index Annuities a safe product not under their control. Lower fees, higher fees is not the real issue it’s loss&again potential or great loss, plus fees any fees.The retired should not be directed to this type of a product not knowing how any future outcomes can effect their savings. The years that remain might not be enough to make up any given loss.

Not taking a firm position on behalf of the Seniors and it’s risk effects within the Variable Annuity and it’s misleading havoc that always seems to be at the heart of some many complaints. Well what did happen here?

Did everyone wake up one morning and decide to change from risk product regulation into safe product regulations? Without any existing regard for the entire Annuity Industry and it’s already existing rules, laws and regulations in place?

Or have they now really come to the conclusion as most have that Variable Annuities are not quite as suitable for most senior situations but how can we stay onboard in the game as these Industry attitudes are now changing?

NASAA is also the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, Canada, and Mexico.

Variable annuities are tax-deferred investments that typically place mutual funds inside of an insurance wrapper for tax deferred potential investment growth. While these products are legitimate investments, regulators are concerned about their popularity in the sales community. Commissions to those who sell variable annuities are very high, which provides incentive for sellers to engage in inappropriate sales. Variable annuities are only suitable for a very small percentage of the investing public and generally are not appropriate for most seniors. The steep penalties for early withdrawals also make variable annuities unsuitable for short-term investors. Be especially wary of any broker who wants to sell you a variable annuity to hold inside a 401(k) or IRA. You are already getting tax-deferred growth in an IRA or a 401(k), and the variable annuity simply adds a layer of cost with no additional tax benefit. http://www.nasaa.org/home/index.cfm

Honest, Complete, and Balanced Presentations by all the Opponents who do understand the differences and have obtained the best fact finders and are honest in all aspects and have the clients interest at heart! Hard to find right and does bias and “limited one sided training”cause to prevail in these issues and how about being forced to consider limited company or product choices?

Further reasons to keep the”two different worlds apart” that is Risk vs Non risk and let the client decide what’s in their best interest. Risk world vs no risk and when should one world step aside because of retirement/age and lack of years ahead to make up any given loss as well as other risk factors.

With the Indexed Annuity you can participate in the up growth of the stock market without having to risk a dime of your principal. Indexed Annuities provide guaranteed minimum interest rates similar to fixed annuities, Cd’s and Bonds. But unlike these other safe money investments your Annuity return is linked to the performance of the stock market as a external guide only with 100% downside protection. Index Annuities are considered a safe money product with guarantees that work while afforded the opportunity to keep your savings in tune with inflation trends & without risk to principal?

You decide which index you want to follow. Most people pick the S&P 500 or the Dow Jones Industrial Average, but you can also pick from several other index’s.If the indexes you pick do well, you do well. If the market performs poorly and your indexes goes down, you’ll have the peace of mind knowing your money is still safe guaranteed to earn no less than your Index Annuity contracts minimum guaranteed growth rate.

Indexed annuities can entice savers with two common features one is they are considered as safe as certificates of deposit yet offer a chance to capture some of the stock market type possible future gains without any risk to loss of principal guaranteed by the insurance carrier. As a index annuity owner you can never lose your principal and credited gain this a safe money product that’s performed to all of it’s designed and promised expectations.This is not considered a risk product such as Stocks, Commodities, Real Estate, Mutual Funds, and of course Variable Annuities and certain Bonds.

While interest rates still have remained at all-time lows investors seeking traditional safe investments like Cd’s and money markets, run the risk of losing their purchasing power. Most current rates of returns earned on most Cd’s and money markets are actually earning lower than current inflation rates.On the other hand, because of the always prevailing uncertainty in the stock market, you could run an even greater loss, risk investing directly into that market.These Index Annuities can offer the best of both worlds downside protection like Cd’s but the great opportunity to participate in market type ups but with the trade off of limitations on those gains called Caps etc.

As you know,when you place money with the bank in a CD they invest this money, earn a return, and after subtracting their costs, pay you a net interest for a stated period of time. Your principal does not fluctuate, but the interest you receive can fluctuate from period to period. Index Annuities operate the same way, except you place your money with an insurance company they invest this money, earn a return, and after subtracting their costs pay you net difference or gain. The gain/growth on the CD is reportable tax each year where the growth on the Annuity is considered as deferred not reportable taxable gain until the growth is removed from the Annuity.

Today’s market environment is primed for Indexed Annuities and statistics are proving it. Sales of indexed annuities are up and it’s no wonder. Where else can you participate in the stock market’s growth without having to risk your principal? Principal safety is guaranteed at all times by the insurance carrier if the product is held full term 5years 7years 10 years 14 years etc. In fact individual indexed annuities always provide a minimum cash value for their policy holders,a minimum floor requirement. If your product is not held to your policy term early surrender charges will be in effect/imposed.

Here’s something to consider: If you had invested $100,000 in an S&P 500 stock index fund in 1998 the value of your investment would have fallen to $78,900 in 2002, and then gradually recovered to be worth only $106,000 today. On the other hand, if you had placed that $100,000 in a guaranteed from loss index annuity, your account would be worth over $143,000 today.

Moreover, during the 1999-02 bear markets, your growth would not have declined.

Welcome to the exciting world of indexed annuities, a hybrid strategy that promises the safety of traditional annuities, tax deferred long-term equity growth potential, guaranteed minimum interest,and no risk of principal loss. There are many different methods for calculating this growth for the Index Annuity owner and there is no certain way of predicting which method will perform best for any given year or is there?

In practice, the annuity either gains or maintains value each year, but your purchase cannot lose any value due to negative market fluctuations.It,s also important to note that all Index Annuities have a minimum rate guarantee associated with their returns.For example, this guarantee might state that if the market declines every year over the life of the annuity, the insurance company will guarantee payment of 2% on 88% of the premium deposited.
How do these annuities perform? Historically many of these accounts have averaged returns of 7% or better. In years when the broader markets have performed well so have Index Annuities. It is not uncommon for investors to enjoy growth amounts during these prosperous years of 10-20% or better.

But the crucial value of these accounts is realized during rapid market declines, when the indexed annuity will maintain its principal as well as interest gains from past years as well as any prior gains locked in…

These facts may explain the recent popularity of Index Annuities especially among retirees looking to preserve their lifetimes worth of hard work. With the market advancing and declining so rapidly many consumers are looking for safety & security without having to sacrifice reasonable interest returns.

There are a few carriers who have registered their Equity Index Annuity products with the NASD etc. most suppliers of this SAFE product now refer to the non-registered Index Annuity as a Index Annuity only etc. If you are not sure what you have purchased call your agent back if they are no longer available then usually a Security product is marketed with a risk tolerance test/asset allocation program and you are given a prospectus. If you are still not sure call your carrier or Department of Insurance for further help.

General Rules and Regulations promulgated under the Securities Act of 1933 Rule 151 — Safe Harbor Definition of Certain “Annuity Contracts or Optional Annuity Contracts” Within the Meaning of Section 3(a)(8) Any annuity contract or optional annuity contract (a “contract”) shall be deemed to be within the provisions of section 3(a)(8) of the Securities Act of 1933, Provided, That The annuity or optional annuity contract is issued by a corporation (the “insurer”) subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State or Territory of the United States or the District of Columbia; The insurer assumes the investment risk under the contract as prescribed in paragraph (b) of this rule; and
The contract is not marketed primarily as an investment. The insurer shall be deemed to assume the investment risk under the contract if: The value of the contract does not vary according to the investment experience of a separate account; The insurer for the life of the contract Guarantees the principal amount of purchase payments and interest credited thereto, less any deduction (without regard to its timing) for sales, administrative or other expenses or charges; and Credits a specified rate of interest (as defined in paragraph (c) of this rule) to net purchase payments and interest credited thereto; and The insurer guarantees that the rate of any interest to be credited in excess of that described in paragraph (b)(2)(ii) will not be modified more frequently than once per year.

The term “specified rate of interest,” as used in paragraph (b)(2)(ii) of this rule, means a rate of interest under the contract that is at least equal to the minimum rate required to be credited by the relevant non forfeiture law in the jurisdiction in which the contract is issued. If that jurisdiction does not have an applicable non forfeiture law at the time the contract is issued (or if the minimum rate applicable to an existing contract is no longer mandated in that jurisdiction) The specified rate under the contract must at least be equal to the minimum rate then required for individual annuity contracts by the NAR Forfeiture law.

The typical equity-indexed annuity is not registered with the SEC. and is considered a safe product not a risk product now called a Index Annuity the word equity has been dropped. Who should I contact if I have a problem? I see nothing issued from the SEC that says you should contact the NASD!

If you have a problem with an equity-indexed annuity, you should contact your state insurance commissioner. In addition, we would also like to hear from you, although we will likely only have jurisdiction to resolve your particular issue if your equity-indexed annuity is a security.

What makes the NASD think they can resolve issues for product that is not a security product and they themselves are under the control of the SEC for security products only, and have no real authority to regulate the insurance industry product lines? Who has given them this false authority to regulate beyond their control?

The SEC has to be able to control the NASD in these matters or it will lead to more confusion in itself and it will also lead to more over-stepping of the safe product bounds & those type spin off problems that are now occurring.

The NASD does not control all the Insurance Industry and never should be allowed to, it’s the same difference between what makes a risk product a risk and a one that is not a risk product. This seems to be a concept that the NASD still does not have a good handle on..as the Variable Annuity reflects and all if it’s many still ongoing problems.
You can send us your complaint using our online complaint form at http://www.sec.gov/complaint.shtml.

You can also reach us by regular mail at: Securities and Exchange Commission Office of Investor Education and Assistance
100 F Street, N.E. Washington, D.C. 20549-0213
For more information about investing wisely and avoiding fraud, please check out the Investor Information section of at http://www.sec.gov/investor.shtml.

A New Problem has unfolded in the market place for Seniors/Retired

Please review the following news release from the NASD below… What the NASD does to control it’s own membership is it’s own business, but I want the public to see what they are doing to control the Index Annuity as a safe product and it’s effects for seniors and the retired.Once again they look at the Index Annuity as very serious competition and are very fearful of this product and it’s position in the market place and have issued the following guide line and rules for it’s membership. Index Annuity design and safety standards that are built into protect principal loss are now the real issue.

The NASD does not control all of the Annuity Industry nor the products that are non-registered with them etc. but they can and do control it’s members that fall under both the NASD rules and Insurance Industry regulation and rules by choice. Not everyone wants to be part of this NASD etc. and not all of it’s membership wants to be limited to Variable Annuities only.Hence the problem. Risk vs Non-Risk and who approves this suitability issue…..for any client?

Are there more problems in the wings? Let’s not forget “Suitability”Issues of a risk nature have long been the cause of the problems with the Variable Annuity product/Industry and not the Index Annuity Industry. So who is going to be reviewing these issues on any clients risked behalf? Based on what “suitability” criteria? Is it really going to be risk against non risk? Safety of principal vs product that by design that does not have any? Age?

Remember the understanding by the NASD gears around suitability of risk. Were as that is not any real consideration for suitability of Index Annuities since market downside will not result in loss for the Index Annuity holder So will a new set of standards now apply for the risk market to the non risk purchaser?

Since the NASD still has not taken a formal position with the senior market and any effect the Variable Annuities have played with their problems as a public position,as the SEC has done, it should be very interesting as to how they think they can resolve the many issues of suitability that can and do occur between the Variable Annuity and the Index Annuity client base.

The question remains by whose authority does the NASD plan to oversee the non registered Index Annuity a safe product and how they are supplied and by whom to the Senior Market? A product that’s suppose to be overseen by the Insurance Industry and the many great organizations already in place to do just that. Suitability complaints/fines have been many with the Variable Annuity Industry not the Index Annuity Industry, so once again we ask the NASD if you can not keep your own backyard clean… why are you concerned about jumping the fence into someone else’s back yard?
News Release

Monday, August 8, 2005 Nancy Condon (202) 728-8379Herb Perone (202) 728-8464

NASD Issues Guidance Regarding Equity Indexed Annuity Sales
Concerns About Marketing, Supervision and Investor Protection Cited
Washington, D.C. — Expressing concerns about marketing, supervision, disclosure and investor protection issues, NASD today issued formal guidance to registered firms selling equity indexed annuities (EIAs).

EIAs are complex financial instruments in which the issuer, usually an insurance company, guarantees a stated interest rate and some protection from loss of principal, & provides an opportunity to earn additional interest based on the performance of a securities market index. Some of the EIAs are registered with the Securities and Exchange Commission (SEC) as securities. Many are not, based on a determination that they are insurance products that qualify for exemption under the Securities Act of 1933. The question of whether a particular EIA is an insurance product or a security is complicated,depends upon the particular facts& circumstances concerning the instrument offered or sold, and is determined on a case-by-case basis.

Notice to Members 05-50 does not take a position on whether a particular EIA is a security. Nevertheless, this uncertainty over whether a particular unregistered EIA may be a security complicates a broker-dealer’s supervisory responsibilities. If an EIA is an insurance product, then a firm would have to treat sales of the EIA by its brokers as an outside business activity. If the EIA is a security, the firm would have to supervise the sale as a private security transaction.Because of this uncertainty,some firms require their brokers to obtain specific approval to sell unregistered EIAs. Still other firms maintain a list of approved EIAs and prohibit the sale of all others.

NASD’s Notice says that firms should:
Consider maintaining a list of acceptable unregistered EIAs and prohibiting their brokers from selling any other unregistered EIA without the firm’s written confirmation that the sale is acceptable.

Consider whether additional supervisory procedures would help protect the firm’s customers. For example, a firm could require that all sales of unregistered EIAs are processed through the firm, meaning the firm must supervise the marketing material, suitability analysis and other sales practices in the same way it supervises the sale of securities through the firm.

Provide brokers selling any unregistered EIA through the firm with the proper training to ensure they understand the EIA’s features and the extent to which the EIA meets the needs of a particular customer.

The Notice also reminds firms that under any circumstances, NASD suitability rules apply to any recommendation that a customer liquidate or surrender a registered security for the purpose of purchasing an unregistered EIA.


My registered representative had placed me into a Index Annuity not of my choosing because He or She said the the NASD organization they are with said ZYX Index Annuity was not available for my needs based on what ??? Product/Company availability/limitations/indexes or suitability thinking?

Is this sale of Index Annuity process on forced limitations leading to a new kind of law suite or complaint in the future? Traceability is good, who sold what and why to john or Mary etc. but those limited choices will cause new problems. Accountability is good… was the right thing done for the right reason.Suitability is in the eye of the beholder when it comes to risk vs non risk…the beholder can only be the writing agent and the client..Will equal product presentation occur here? Based on what company/ product choices?

Your NASD firm’s has now decided a control process of what Index Annuity products will be suitable to it’s customers and what ones will not be!! Wow suitability? but limited choice? now I can sleep at night. Anyone who buys a product under the above guidelines will indeed have had limited choice of whats available from the marketplace & this will restrict suitability choices as well.

Running the risk also by the right product not being offered for the client needs and will be also running a risk of limited choice compared to more choice.This is not real suitability?Remember now it’s the client in the Index Annuity sale who makes all the final decisions based on all the information provided along with many choices for companies products growth selections.

It’s true principal will be protected but their opportunity for gain might equally be limited by not offering a complete choice selection this could reflect on the value and market place growth offered by Index Annuity as a product choice but with allowable gain per the clients final decision based on choice and not the agents decision being limited by one product or one company or one growth selection process etc.Limited choice means there is also a limited suitability.

A problem no faced for Seniors/Retired & yet to be addressed by the NASD for age/risk and the products that are not guaranteed from loss. The Index Annuity is not a risk product. The Variable Annuity is a investment product subject to fees and potential loss as well as market gain without any caps or market growth restrictions.Living Benefits can not prevent Market loss and Caps limit market growth return the trade off caps or fees vs age vs risk?

You see what makes a Index Annuity Broker of such value to this client is not only all product and company selections but also all the market choices between the growth selections and the bonus selections that are available in the market place at large and offering this selection to their clients needs as choices with the client making all the final decisions etc. I think this is a point the NASD has still yet to understand.The Index Annuity does not work the exactly the same way as a Variable Annuity it’s not just a choice of more or less & same available funds less fees Index Annuities have moving parts.

Folks these problems are just now beginning and will only get worse as the NASD tries to control what Index Annuity is now suitable for what client through this limited choice enforcement process it’s NASD firms apply.

Yet then who will assume any responsibility and what will be the qualifying criteria that the NASD firm’s impose on themselves concerning the Index Annuity products and choices that they do have approved? & If those do not perform as well as others or give as many choices, bonuses, indexes growth selections, companies and so on and so forth who will suffer here?
What will be their responsibility? Or, will it be, the same as when mutual funds in the Risk Variable Annuity do not perform well? Do they want to be indemnified from the remainder of the sale process? Once limited selection approval for carriers/products/indexes/growth options/bonuses in selection made on a limitation of choice process has been completed?
This is not a issue you can dump back on the Annuity owner because limited choice was involved in the decision making process.Open market selections is a strong part of the Index Annuity process not just rating or the strength of any given carrier but the innovation of a product design plays a big role.

Lets see now my NASD Rep put me in this company or product but the other guys company or product had better growth gains/choices/bonuses! or XYZ company has more index selections or more growth selections? Does not a registered representative have even more of a higher responsibility to their clients or less? of what’s better and why? Or will just the opposite apply.

Here it goes again Folks your NASD firm will be trying to squeeze you into the same old size shoe nine whether it fits or not. They have finally made a decision on what is suitable…for you..happy now? Suitability and it’s being seen through the eyes of your area NASD firm and soon to be brought to you and made available by your local NASD representative.

I see two real problems here the NASD trying it’s best to get more and more involved with the Index Annuity products by placing as many restrictions or rules on it’s membership which in turn will subject a now open industry via their membership as to what company or products for their reasons, will or will not be allowed by it’s membership. This is a little bit more then normal backroom supervision, it’s using its membership numbers then to control a safe product industries sales. I just don’t know, the controlling of 600,000 agents more or less and who’s index annuity they can or can’t sell, does not sit well in my pea brain for some reason. It’s result does not sound right!

I think the Insurance Industry should take a stand that if you are Securities Licensed we don’t want you to be able to sell Index Annuities etc. Since the NASD can’t seem to take a positive decision the Insurance Industry should. The two worlds do not get along and do not mix well…..Those that do have a duel license will have to decide which world they want to be of service in… I really don’t want the NASD preaching suitability after the way I seen their organization handle the retired and the senior issues anyway.

The NASD has yet to say, what specific “Variable Annuity” is now approved for the Senior or any Senior Purchase etc. Yet some how, they feel that they can approve what Index Annuity has their approval for any Senior Purchase!

What’s wrong with that picture???Why… does the NASD want it’s members to sell the Index Annuity Product at all? Their interference in the Insurance Industrys safe for senior products have been the cause of many situations & the negative press that is quick to follow all Senior complaints and fines.

If the NASD is in the risk business control why not stay there? Confusion they have created for Seniors and the retired in their situations with the Variable Annuity, they now want to carry over to the safe product world of the Index Annuity. They have forced themselves into areas of concern that are out of their area of control. It’s not that, their issues with the Variable Annuity have not caused a nightmare for all of the Annuity Industry.

If the NASD response is we are not in the business of approving any one Variable Annuity over another etc. Just the rules that monitor those sales etc. Then how can they now take a position that favors one Index Annuity over another and they do not set the rules for that Industry? Is this more of NASD confusion hard at work? What is their logic or philosophy here?

I am curious as to why the NASD thinks all Index Annuity carriers offer the same product choices in growth selections within different Index variations. These product choices can be a important decision feature for the public.

I wonder who will receive the NASD acceptance and who will not and if they can’t get access to certain companies or products will that mean they are no good for their clients or customers? You know not as suitable?

And what does this mean? The Notice also reminds firms that under any circumstances, NASD suitability rules apply to any recommendation that a customer liquidate or surrender a “registered security” for the purpose of purchasing an unregistered EIA. Are we Talking “Risk vs Non Risk here”? It does not say that, are we talking higher age brackets? If their membership has no age standard to apply for clients, and how do they end up in any risk product and now what is considered a problem? I guess what I am asking if this same clients age was never a consideration going into any deal as a risk factor and there is still not one in effect for leaving this risk deal, then why is there any product change being made at all for this client?????

If there has been no position taken by the NASD for Seniors Retired Risk and/Suitability. Where is any common sense position to bleed risk away from those who are no longer working and can’t afford future loss. Their retirement money must last as long as they do? The Aug 8th News Release certainly has cleared up many of the concerns I have had about the NASD and their suitability decisions with the Index Annuity.Risk/Seniors/Retired.

How About You………I can’t believe this low regard the NASD has placed on the Index Annuity. If you find yourself in the wrong Index Annuity who are you going to call ? The NASD? The SEC? Insurance Department? & Whose suitability guidelines will have got you into that product ? What guidelines were in force and how do they interplay with a limited choice enforcement process as the NASD has allowed put into place. Only that this product will be suitable while this other product has this that or the other thing is not? But of course that one, is not suitable for your needs because I don’t have any access to it etc. or my firm will not approve this or were only limited to one company or one product. This type of thinking is archaic and has gone the way of the direct writers and mutual life companies that are no more.

The NASD has not stayed in tune with all industry changes current times and a more educated product oriented public. What saved the Variable Annuities were the introduction of living benefits and their temporarily appeal, but now superior design with built in safety features offered by the Index Annuity is what will continue to reflect future choices for most all of the Annuity Industry clients who are seniors and retired.

Clients questions that will avoided by the writing agents because of lack of knowledge or lack of product accessibility this is NASD SUITABILITY? This type of thinking will lead to many new problems and I guess this is what the NASD is hoping for..The consumer,the public,the retired, the senior should not be allowed to suffer as NASD strategy unfolds their plans to enforce this limited product choice and selection policy for it’s membership. It’s not only unfair to the above but takes away from the Index Annuity product by being offered on such limitations. Why does the NASD want their membership to write this product at all? and then not offer it in a correct manner anyway?

As they claim carriers that have their Equity Index Annuity as a registered Security Product why not just allow them to sell those products instead of jumping borders into areas away from their attention and control?

What I think is their membership is now not so sure about selling any of the Variable Annuity to the retired/senior because of the many still open issues around suitability/lawsuits/fines/loss to clients/fees many years of bad press/tax problems, so on and so forth, I know I would be… What is the real bottom line here going to be? I guess if their current position that has now allowed for further sale/understanding of the Index Annuity where is it all going to lead into? more and more of the public will become aware of the real difference between a Index Annuity / Variable Annuity this will begin to seal the fate of the Variable Annuity as a product in the market place.

The Future of the Annuity Industry and the retired client remains with the Index Annuity.

Market Proof your Safe Money Today

Suitability issues? Index Annuity vs the retired/senior vs suitability/standards vs age vs Risk vs Non Risk

What is the format for qualifying clients and their initial interest in The Index Annuity my opinion Non Risk/Age and Suitability/ Meaning client timespand for involvement with annuity and goals/objectives etc.Choice of company, growth selection, bonus remain with the client. Suitability with the Index Annuity Purchaser is in the eye of the beholder meaning items that discussed between the client and the writing agent not a regulator.

What will their regulators going to be following up on that the client was put into the wrong Index Annuity based on what their limited selection of choice via their own process has done that maybe cost the client money?

1. What is their age and why do they have a interest in annuities.Gather as much information as possible here because this conveys goals expectations concerns etc. don’t try to reinvent the wheel if after they have conveyed all their interest and concerns if Annuities don’t fit tell them so and why.

Learn to walk away if the products will not work for them… I have met very few seniors and retired that did not reflect a great concern for safety of their money/principal it just becomes amazing to me why all so many can then end up then in a risk Annuity when loss was such a concern of theirs.

2. Do they understand the difference in the various Annuity products that are offered in the marketplace. If not explain to them up front and if you don’t know the correct difference between the products you should not be in the Annuity business. Ask questions to see if they have a good handle on what you are saying. Cover the product time spans available and why.

Learn to be the best guide you can be but its the client who will make the final decision.What is their understanding of risk vs non risk. There are many problems that exist in the risk vs non risk industries today don’t add to them.

3. Gather now their Financial status {see what they have to work with and why} See if they know what tax bracket they are in & what their net worth totals. If they are unwilling to discuss their financial status to where you as the the writing agent don’t feel comfortable then tell them so and why.Trust has to be the dominate here and don’t be afraid to review existing business to see if it is still on tract with their goals and wishes etc.

4. Now cover the products its features,how it blends in with their goals and accessibility for their desired results. Explain the product again and again and make sure they have asked the right questions.Make sure they also do understand how the Annuity works and the services available through out their Annuity time span they have chosen and what if this that or the other thing occurs.

Make sure your answers inform and are complete. Index Annuities do have many growth options leave brochures and set a date to return for additional questions/concerns prior to any writing situation. Then the clients makes all final decisions, not the writing agent hence suitability in the final phase remains with the client and their needs and choices.

If the NASD is looking for a opening as to any given result between a Index Annuity and a Variable Annuity there is no ground work to uncover here if risk vs non risk remains the top concern/issue in a equal definitions & then any final choice is made by the client.You will now see the NASD come alive with that comment in the form of if you are not securities licensed in that area etc. etc.etc. Well you don’t have to be if the issue remains potential for loss against non potential for loss etc. It will be the client that decides his risk position/product choice and safe money position etc.

Now lets get into the heart of the matter your NASD position follows this thinking that if a agent replaces a Variable Annuity for a Index Annuity by what authority had that been accomplished. In other words a securities type product was replaced by a non securities licensed person and does this leave the door open for the NASD to get involved. It’s a valid point but one with no real merit this type problem is somewhat complex my feeling is that most of these situations occur when a senior or retired has lost money and feels as though they are trapped in their Variable Annuity because a death benefit will replace the loss when they die for their family etc. but they are now not happy about their loss maybe they need the money to get by and maybe they don’t etc. How they got into this problem is now a mute point. How to make the NASD happy and the client happy is the problem that remains. A signed replacement form is now required by the State of New Jersey and will more then satisfy their interest but the problems remains.

The fact that some Index Annuities now offer living benefits is also a mute point.What remains is a client that is not happy and who is probably just as unhappy with his NASD rep.etc.also a mute point, the NASD position is that only a registered rep. can only make this transition is silly unless the NASD allows their reps. to write and be licensed with all Index Annuity Carriers.

We have returned to a result that the NASD has created themselves limited choice enforcement of Index Annuity Selections a weak position to satisfy a client who has lost money with a Variable Annuity and is now being forced into a Index Annuity not of his choice and maybe not see their prior losses having the best shot to be restored.Your client is now happy being given full selection and made a choice to recover etc. & the NASD has sealed their own position by not being able to offer a full selection to their unhappy clients.

The client has chose his new position from their change from Variable to a Index is now a mute point.The end results of replacement has been moved to the bottom of the totem pole.I am also equally confident the NASD will find some solutions for these problems they have created to better benefit their position in the market with the senior and the retired.

It’s always been once the client wants out of the risk market, then, so goes the rules that got him there to begin with……Now, why should any of this thinking not continue or change? Because the NASD has problems with the Variable Annuity that are beyong their resolve?

Rules that once applied to the original sale, are no longer in effect, once the need or desire to remain with the product is no longer the issue. You would now be trying to fine a memory that no longer exist. Maybe the original sale was then suitable but now per the clients wish it’s no longer suitable.Things change, clients get older, risk or the lack of risk remains, it’s always clients who will make the final decisions. The index Annuity agent has a obligation to serve their clients and complete any sale process correctly and in a timely fashion and not have to worry about the Risk Industry and their attempts to then discredit his or hers hard work.

If current and or annual risk tolerance reviews were conducted the door would never be left open to have this occur anyway so how can the NASD police what their own agents have not serviced or completed or as a item of requirement to keep abreast of how any clients feels as the years go by about their goals being met etc. and the closer to retirement age the more this should be a item of both great concern for any client and agent since the original reasons for the Annuity purchase are getting close to that point in time this is especially true since they have been paying large fees over the years for this service to be completed with annual reviews being taken to make sure risk is still in it’s original position. Annual statements alone do not provide this service only the agent and client can complete this.

What’s now happening in our Industry every day!!!!……..

American Equity contends that for sales agents who are dual-licensed to sell both insurance and securities products, the NASD “has created confusion and unwarranted impediments to sales by those agents. The NASD, whose authority is limited to regulating sales of securities, has overstepped its bounds by attempting to regulate insurance products which are excluded from the coverage of the federal securities laws.”The company said it would “explore all courses of action to remedy this situation.”

Carl Wilkerson, VP and chief counsel of the American Council of Life Insurers (ACLI), told NASD in a September 19 letter that the new rule is unjustified, and “contradicts Congressional anti-trust standards by targeting a single product among thousands in the marketplace without justification.”—Melanie Waddell

Author’s gravatar

The New American Trust? National Security? The Patriot Act? The Banks? The State? The NASD?

by Charles
National Security? The Patriot Act? Or are our systems going crazy looking for Money? Can the Index Annuity really survive against all these politics and bed fellas? Who has promised who what? And where is the SEC? How about a ruling on the following?

SEC to clarify status of Index Annuities? Bias ruling forth coming or what?

WASHINGTON – The Securities and Exchange Commission soon will clarify whether equity index annuities should be classified as securities or not…… let’s see what kind of Politics will unfold!

[ NASD Registered Rep? ] (Maybe/Maybe Not) In a Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D. If you want legal advice or accounting advice you would hope they don’t send over a IRS agent to gather information on your problem!!! If you need financial advice you would also hope they don’t send over a FBI agent! Well,the NASD admits doing just that!!! What ever happened to all the oaths we all take???? Is this now our American way of doing business??? What’s up with the NASD? Have sting operations gone too far? Has the NASD gone too far? Is this now why, the NASD thinks it can get whatever, from the SEC? If you had a ” license” made up to represent a position of trust that was fake, it’s not legal, then why does the FBI and the NASD think that they are above this law? Rules? The Regulations? Forget about it………….

This is why we say “In God We Trust” not the government……..Did the FBI agents have to state their “FBI Income” on their U4 form’s? This could make the NASD rules the biggest joke in the industry today and how much in fines have they collected from those that have not reflected, forgot or were tardy in showing all their income and from where, on their U4 form’s? And why is the SEC not looking into all these matters and who is obtaining what jobs in the private sector for what favors rendered, on both sides of violated laws…? No, I work for the State! No, I work for the Banks! No, I work for the NASD now! Who is paying Who,What and Why? Who does regulate the NASD? And by what authority is this type activity approved? “No I am a fee consultant only for the Bank’s with National Security matters etc. but do receive hard earned commissions from my sales of securities, and I do receive some compensation from the State on Patriot Act matters only! but, as my main source of income it’s derived from my affiliation as being a active member and associate of the FBI”..”sting expenses” aside of course…….but, I will arrest you and any body any time especially if they buy from me……. and not real competitor’s… Hell, it’s all done on the tax payers dollars.I swear to God I’m what I say I am,Trust me….If you can’t trust me or your Doctor, Lawyer, Banker, Accoutant, Priest, Rabbi, Financial Advisor, who can you trust? Yes,that’s right I did not include all our politicians.. who we can really trust? Who is my employer anyway? no comment. How about bird’s of a feather…..etc.etc…fight crime with a crime.

Following posted by Mark Astarita

In an unlikely lawsuit, a private company is suing the NASD for securities fraud. A small cancer-research firm called Shimoda-Atlantic, based in Bentonville, Ark., filed a lawsuit against the NASD on Wednesday because, the company says, the self-regulatory organization helped several men, allegedly employed by the FBI, to create and perpetrate a fraudulent securities scheme against the company.

Shimoda alleges that the FBI operators, with the help of the NASD, committed fraud against the company by posing as NASD-registered brokers, working for an NASD-registered broker/dealer called Talon Holdings, and pretending to secure $3 million in private placement funding for Shimoda. The alleged FBI agents were named in the suit as John Firo a/k/a Thomas Faro, and Robert Betes a/k/a Robert Brewer. Also named in the suit were Patrick Joseph Lochrie, The Mix Group of South Florida,Talon Holdings and Mohammed Galani a/k/a Mohammed Gilani.

According to the lawsuit, filed by attorney John Dodge of Little Rock, Ark.,“NASD senior managers and/or directors instructed subordinate staff at NASD in Dallas, Texas, in Washington, D.C., and in New York to create false registrations for these defendants, all the while knowing that they were intentionally facilitating bogus operations and operators, regardless of their ulterior motives.” What’s more, the NASD allowed the defendants to operate without a fidelity bond in place something that is supposed to cover monetary damages to an injured third partyviolating NASD Rule 3020, the suit alleges.

The NASD declined to respond to repeated questions about the case or about cooperation between the regulatory body and the FBI, saying it doesn’t comment on pending litigation. The Arkansas offices of the FBI said they had been instructed to direct all inquiries on the matter to the Washington FBI offices, which could not immediately respond to requests for comment.

According to Shimoda’s FDA compliance officer, Jim Bolt, Shimoda was first approached over email by John Firo in April 2005. After a year of negotiations, on May 9, 2006, Shimoda signed a $3 million private placement agreement with one of the defendants, Mohammed Galani, allegedly a wealthy man from Dubai. The next day, May 10, Bolt says the FBI came to Shimoda’s offices, told them the deal was off, that they had been dealing with “enforcement officers” and handed them a grand jury subpoena for all of their corporate records, patient records and computer hard drives.

Shimoda also alleges that the NASD, when it got wind of the potential lawsuit, began erasing records of the registrations it provided to the broker/dealer and one of the agents. (According to the lawsuit the NA SD issued defendant Talon Holdings with CRD# 126778, and issued defendant John Firo with CRD# 4654582. Shimoda provided Registered Rep. with a faxed copy of a former CRD for the b/d and says it called the NA SD broker-check numerous times to verify that Talon had a clean record before doing business with the firm. But “Talon Holdings” and Firo no longer exist in the NASD’s official CRD database, records that the NASD says are never eliminated.)

The lawsuit alleges that in the process of securing the financing from Talon, Shimoda turned over proprietary and trade-secret data to the defendants, one of whom—Lochrie—is engaged in competitive business operations through pharmaceutical companies of his own. In addition, they say, if they hadn’t been contacted by Talon they would have secured financing from other sources.

Why would the NASD and the FBI want to trick Shimoda? Bolt says they have several theories about that, but he’s not sure. “When people start shredding files, they have something to hide,” says Bolt.

I think the NASD has serious problems in it’s lack of ability to understand the meaning of misleading not only with it’s Variable Annuities but in it’s understanding of the entire subject matter. { allowing false registrations }

NASD shoots back in Arkansas lawsuit

. . . admits that it has been creating fake brokerages, fake brokers

by Tom Winters

BENTONVILLE, Arkansas (ACNN) July 7, 2006 -The National Association of Securities Dealers and its subsidiary NASD Regulation, Inc., fired back at an Arkansas company suing it for marketing a defective product called “BrokerCheck.” NASD’s lawyers filed a rambling memorandum brief late Friday afternoon in Federal Court in Fort Smith, Arkansas. The brief was filed in opposition to the issuance of an emergency injunction prohibiting NASD from destroying records in the case. The request came on behalf of Rogers based Shimoda Atlantic, Inc., a pharmaceutical manufacturer that says it was injured when it relied on NASD’s online system that allows the general public to check the records of stock brokerages and brokers. The suit, filed in Benton County Circuit Court, was partially removed by NASD to federal court in Arkansas last month.

NASD denies it destroyed records in the case and says it was only helping the U.S. Justice Department when it manufactured fraudulent records for Talon Holdings, Inc., and brokers John V. Firo and Robert O. Brewer. In its reply, NASD did not address the issue of the legality of creating fake brokerages and allowing their operation for several years. NASD did, however, claim it had authority to investigate its own members and their registered representatives. Shimoda, in the NASD response, was not characterized as a NASD member firm.

NASD admitted in its filing that it does indeed create fictional brokerages and places their records on public view without telling the public that the brokerage is not legitimate.

Rogers lawyer John Dodge, in a telephone interview, said that NASD’s filing may lead to further trouble for the organization. “Very clearly, their filing takes the form of a very low personal attack. It seems to rely heavily on carefully selected news articles that villify people that are not even part of this lawsuit. They are attempting to draw attention away from the fact that this case is not about whether they destroyed records. This case is about their abusing a records system to mislead people. They deliberately made their BrokerCheck product defective and it is probably still defective at this time. They lied to the public and to every state securities administrator in the U.S. when they created these fake stock brokerages.”

Language in part of the NASD filing claims that one of Shimoda’s employees, Jim Bolt, has a criminal history spanning 30-years, and included an exhibit supposedly from an Oklahoma state court claiming Bolt was convicted of a misdemeanor in the 1970’s. “NASD has shot back alright, and hit itself in the foot on the first shot,” said Dodge.

Bolt has a 1984 conviction in Federal Court in Oklahoma for aiding and abetting attempted mail fraud, according to court records. NASD’s attempt to portray an existence of a criminal history prior to that date and case contradicts a finding by the 10th Circuit Court of Appeals. In a 1985 opinion of that Court, it stated, “for the record reflects that Bolt had a ‘clean record,’ without prior convictions giving rise to ‘mug shots.’ ”

Reached by phone, Bolt said he had not seen the NASD filing and would not comment further until he had a chance to review the matter.

NASD cited a lengthy article published in 2002 by “Arkansas Business,” a Little Rock publication that was highly critical of a company that Dodge and Bolt were formerly employed by, Golf Entertainment, Inc. NASD did not disclose to the court in its filing that the article had been written in conjunction with an online publisher devoted to stock-shorting. That company, Long and Short Reports, was headed by a former NASD broker with a lengthy disciplinary history for fraud. The broker, Dallas based Leonard Mauck, had boasted at one time before the story appeared that he was 27 million shares short in the stock of the company he was attacking through Arkansas Business.

NASD also claimed in their fling that Shimoda had entered into an illegal transaction with The Mix Group of South Florida, Inc., but did not deny that the agreement was signed by a fraudulently registered representative with an NASD license. That person, John V. Firo, is also sued in the Shimoda case. Firo is reportedly an FBI agent who was acting undercover. One of Firo’s associates in The Mix Grouup, Patrick Lochrie has since been linked to an extensive series of penny stock securities frauds, and is apparently either himself an FBI agent, or, using his FBI connections through Firo to perpetrate frauds using a company called Recab International, Inc., (Pinksheets:RCAB). Lochrie has also been linked to scams involving other companies including Amenni, Inc, Nannaco, Inc., and others.

The agreement that Firo signed, already an exhibit in federal and state courts, clearly indicates his representation that The Mix Group, and/or himself was, on May 9, 2006, registered and in good standing with the NASD as a broker-dealer. The NASD BrokerCheck system clearly verified that Firo was indeed a registered securities professional working for Talon Holdings, Inc., according to other court exhibits.

The “Broker Engagement Agreement” that NASD now characterizes as a “kickback deal” included a provision for a ten percent brokers fee for privately placing a $3 million dollar stock offering for Shimoda. NASD’s now missing records showed that on May 9, 2006, Firo was employed by a company that was registered with both the NASD and the SEC to do “private placements.” Dodge said that after checking on Firo a number of times with the NASD and always receiving a glowing report, company officials trusted Firo when he represented that Mix Group was an affiliate of Talon. Firo and The Mix Group agreed in their contract with Shimoda that they would make all required governmental filings necessary to make the transaction comply with all governmental regulations.

Among the other exhibits NASD filed was a copy of a complaint by a pair of alleged stock manipulators, one of which had been sued in 2002 by Golf Entertainment. That suit, filed without a lawyer by Carla Sue Hohenhouse was thrown out by a Georgia federal judge shortly after she filed it. The court ruled the complaint was meritless.NASD’s including it as an exhibit without mentioning its disposition, is tantamount to a fraud on the Court said Dodge.

NASD also attached a copy of an article written by Carol Remond of Dow Jones News as an exhibit. Attempts to reach NASD for comment were unsuccessful. The matter of issuing an injunction is set for hearing before a magistrate on July 12, 2006 at 1:30 p.m. Dodge said he will likely file additional pleadings before then that time and may ask the federal court to remand the case to state court, where the balance of NASD’s co-defendants, including Talon Holdings, Inc., the Mix Group of South Florida, Inc., and others are due to file answers by mid-July.

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Very interesting article and comments. I am in the financial planning business and have a very bad taste in my mouth about variable annuities. I believe they make those of us who are truly trying to help our clients look like vultures! The comments about the NASD (and SEC) are eye opening. Keep in mind these organizations are supposed to help protect the consumer – the reality is quite different. All you have to do is look at the mandated prospectus for a fund or VA. No average citizen can comprehend the legalese these things are written in. They are not going to condemn VA products because they are scared to death of the insurance company lobby. I’ve had to deal with the NASD before and was told by one of their attorneys that although I had done nothing wrong, I should think of my time and money spent as a “cost of doing business.” Ya gotta love it! The truth is, legitimate planners are always looking out for their client’s well being. Regulatory agencies, on the other hand, are more interested in self preservation so they make this business as complex as possible.

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Everyone on this post… STAY AWAY FROM VARIABLE ANNUITIES. I invested over $50,000 in several VA contracts that my, what I thought at the time, credible financial advisor said were “guaranteed” quarterly lock in investments with a 7% upside guaranteed! The one thing he left out was the fact that the 7% “guaranteed” gain was on the DEATH BENEFIT…so I would have to die and my beneficiary would get the benefit… I didn’t invest in my death. Now I have lost 48% of my initial investment…. If I would left it where it was, I would have made money. I am closing both contracts because you can write off the loss….

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Chad Timothy is the CEO of the Software Billions Club in Portland, OR. Having started off in Internet Marketing in 1998 Chad Timothy is considered a respected pioneer. He is committed to helping others by writing about what he has learned about strategic Internet Marketing.

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