According to FINRA, Malay Kumar was fined $10,000, suspended for 12 months, and ordered to pay $50,103.43 in restitution for willfully violating Regulation Best Interest by recommending customers exchange variable annuities without reasonably considering the impact of substantial surrender fees and the loss of benefits and liquidity.

Kumar did not have a reasonable basis to believe his recommendations were suitable or in his customers' best interest. Collectively, these exchange recommendations caused Kumar's customers to incur $50,103.43 in surrender fees. Kumar also provided inaccurate information about the source of funds on transaction documents he submitted to his member firm and the annuity issuers. Specifically, Kumar failed to identify and submit variable annuity purchases as exchanges even though each purchase was funded by the sale of another variable annuity. In doing so, Kumar caused his firm to create and maintain inaccurate books and records.

Variable annuity exchanges often trigger substantial surrender fees when an existing annuity is liquidated before the surrender period expires. These fees can be 7% or more of the account value, representing thousands or even tens of thousands of dollars. When brokers recommend exchanges that trigger such fees without a reasonable basis to believe the exchange benefits the customer, they violate suitability obligations and Regulation Best Interest.

Kumar's failure to disclose that the transactions were exchanges on the transaction documents is particularly problematic because it prevented the firm and annuity issuers from conducting proper suitability reviews. Exchange transactions receive enhanced scrutiny because of the risks of surrender charges and loss of benefits, but Kumar circumvented this oversight by misrepresenting the transactions as new purchases rather than exchanges.

The $50,103.43 in surrender fees paid by customers represents money that was taken directly out of their retirement savings to pay penalties for early withdrawal, while Kumar likely earned commissions on the new annuity purchases. This is a clear example of putting the broker's interests ahead of the customers' best interests.