The Financial Industry Regulatory Authority (FINRA), the regulatory organization overseeing broker/dealers, recently initiated a "sweep" examination of broker/dealer practices that target potential or early retirees, particularly those with accounts that withdraw money from IRAs before age 59 1/2 under Section 72(t) of the IRS code. That provision exempts some early withdrawals from penalties if the retiree's plan meets certain requirements.
FINRA's close scrutiny follows enforcement action in this area by its predecessor, the National Association of Securities Dealers (NASD), which earlier fined two organizations for giving misleading advice to potential retirees and retirees in seminars.
Citigroup Global Markets Inc. was fined $3 million in June to settle charges involving retirement seminars for BellSouth employees in North and South Carolina. And Securities America Inc. of Omaha, Neb., was fined $2.5 million last September for inadequately supervising a broker who convinced Exxon Corp. employees to retire prematurely. Citigroup also was ordered to pay $12.2 million in restitution to 200 former BellSouth employees and Securities America was ordered to pay $13.8 million in restitution to 32 former Exxon employees, all of whom took the misleading advice and tried to withdraw money from their retirement accounts.
Representatives should be careful about any statements they make regarding early withdrawal from IRA accounts, warns Brian Rubin, a partner at the Washington, D.C. office of Sutherland Asbill & Brennan LLP, a law firm with six offices nationwide. Rubin, a former deputy chief counsel at NASD, adds that financial firms also should carefully examine advice they give to potential retirees at seminars.
Rubin notes that firms who didn't receive a letter from FINRA in the current sweep shouldn't let their guard down because FINRA is expected to maintain its interest in this issue and a second sweep is probable.