State Begins Inspections of Brokers

The state agency that regulates brokerage firms began conducting surprise inspections Monday of broker-dealer offices in Southern California and throughout the state to weed out suspected illegal sales activity.

The Department of Corporations is the state’s investment and financing authority. The “sweeps” will go on for about three weeks, said Corporations Commissioner William P. Wood. He said the impetus was a reported increase in fraudulent sales tactics by agents pushing unsuitable investments to the public.

Although most of the details of the sweeps are confidential, the department will focus on variable annuities, a complex combination of insurance and securities investments, he said.

Recent news accounts have highlighted variable annuity products, which are often marketed to unsuspecting and vulnerable investors by agents who often are rewarded with substantial commissions from insurance companies, the department said.

Specifically, department officials will closely examine records to determine the suitability of the investments sold to the public, the kinds of sales practices used and whether there are conflicts of interest for the brokers.

Wood said one example of an unsuitable investment involved a 78-year-old California woman who was sold a variable annuity that forced her to close out several mutual fund accounts she had been saving for retirement.

Wood said his department could assess a range of penalties, including sending letters ordering brokers to desist from certain activities; suspending or barring brokers; or reporting questionable activity to the state attorney general or to district attorney’s offices for criminal investigation.

He said results of the sweeps might be released after a review of the findings.