Waddell & Reed Agrees to Consent Order by North Dakota Insurance and Securities Commissioners Posted on 10/27/2005
FOR IMMEDIATE RELEASE
Contact: Jim Poolman
October 27, 2005
701-328-2440
Bismarck, ND - Commissioners Jim Poolman and Karen Tyler today announced the terms of a settlement reached with Waddell & Reed, Inc., an investment and financial services firm. The North Dakota consent order approves the terms of the global settlement negotiated by the NASD and a coalition of state insurance and securities regulators. It requires that Waddell & Reed set up a fund in the amount of $11 million to be distributed to customers whose variable annuity funds were switched unlawfully.
Waddell & Reed encouraged its existing customers to switch from one variable annuity to a similar product issued by a different insurer without properly determining whether or not the transaction was suitable for their needs. About 5,000 policyholders paid $9.6 million in surrender charges, while Waddell & Reed earned about $37 million in commissions for the company and its agents.
The unlawful switches took place from January 2001 to August 2002 in numerous Waddell & Reed customer accounts. The $11 million will be paid as restitution to customers whose accounts were affected by the switching during this time period.
"Placing the client's interests first and assessing the suitability of any recommendation are two of the fundamental principles under which every firm must operate in every securities transaction," said Tyler.
"The variable annuity switches systematically conducted by Waddell & Reed were recommended without regard to whether the transactions were in the customers' best interests and cost consumers money they shouldn't have had to pay," Poolman said.
