A broker-dealer based in Syracuse, NY, agreed to settle FINRA charges that it had inadequately supervised one its then registered representatives ("RRs"), who sold unsuitable variable annuities ("VA") transactions. Case Overview. Caderet, Grant & Co, Inc. provides brokerage and other services to customers through approximately 1,000 RRs representatives located in some 525 branches. It has no relevant disciplinary history. Acting through one of its then RRs, the firm recommended 19 unsuitable VA transactions to 13 elderly customers between May 2006 and September 2008 - violating NASD Rules 2310,2821(b), and 2110.  The transactions were unsuitable because the RR recommended an enhanced death benefit rider, which would provide only limited value and demonstrated that the RR didn't understand or appreciate the significance of an age restriction or the reduced benefit of the rider when sold to a person close in age to the cutoff. The Firm failed to respond to red flags, failed to adequately supervise the RR in her VA sales, and the firm had inadequate systems and procedures for supervising VAs - violating NASD Rules 3010, 2821(c) and (d), and 2110.  Firm further failed to adequately monitor RR's use of personal email accounts to conduct Firm business - violating NASD Rules 3010, 3110 and 2110, FINRA Rule 2010, and Securities Exchange Act Rule 17a-4. FINRA's Findings and Allegations re: Apparent Red Flags. For its part, the firm failed to adequately respond to "red flags" concerning the RR's V/A sales.

• Prior to being associated with the firm, the RR had several customer complaints on her Form U4, some of which related to annuity sales.
• After the RR joined the firm, additional customers filed complaints connected with VA sales, and were posted to amended Form U4s the firm filed.
• Despite these complaints, the RR was never placed on heightened supervision and her VA transactions were never subject to greater supervisory review or scrutiny.
• The firm received actual notice that the RR had been issued a FINRA Wells Notice for unsuitable VA sales transacted at her prior firm, but the firm failed to heighten the representative’s supervision in any way.
• Some of the unsuitable recommendations took place after the firm received notice of the Wells.

FINRA's Findings and Allegations re: Firm's Supervisory Practices. The firm's systems and procedures for VA sales were inadequate.

• RR's supervisor reviewed and approved the representative’s VA transactions, which were subject to a 2nd-level of review by the firm’s VA Department.
• Firm failed to ensure that its supervisors, including the RR's supervisor, were properly trained and knowledgeable about the VAs they were reviewing and approving.
• The 2nd-level review process relied on a single reviewer, who reviewed a large number of VA transactions each day, in addition to performing other duties, and did not have any VA-specific surveillance or exception reports to assist in the review.
• The VA log and a trading report failed to provide all the information necessary to assist supervisors in conducting a VA review.
• The VA log failed to have all the information necessary to conduct a suitability review and was not accessible to RRs or all of their principals.
• The trading report did not contain the information necessary for a principal to review a transaction for suitability and failed to contain certain information necessary to comply with the firm’s own standards for reviewing the transactions in the report.
• Firm failed to enforce its policies and failed to retain business-related emails for some of its RRs.
• Although firm had a policy prohibiting the use of personal email accounts for business-related communications, the firm knew, or should have known, that certain of its RRs, including the RR who made unsuitable recommendations, her supervisor, and a third colleague in her branch, were using personal e-mail addresses for business-related correspondence.
• The RR's use of personal e-mails was known to her supervisor, who mistakenly believed that the firm’s systems captured such emails, but was also known to others at the firm, because, among other things, the RR communicated with the firm’s compliance department via personal email.

FINRA Sanctions. Cadaret, Grant & Co., Inc. agreed to a $200K fine.  It also agreed to offer rescission to each of the living customers involved in this matter - offering to rebate the purchase price of his or her original investment, interest from the date of purchase until the effective date of this AWC, and any applicable surrender charges charges, adjusted for miscellaneous items.  Firm also agreed to conduct a comprehensive review of its pols and procedures concerning suitability of VAs.  Firm's director of compliance had to certify in writing, within 90 days of the settlement, that the firm completed all the tasks to which it agreed. [Disciplinary Actions for March 2012]  [This is FINRA AWC #2008015475201.]