NASD Fines Hornor, Townsend & Kent, Inc. $325,000 for Improper Sales Contests, Email and Supervision Violations; Firm Ordered to Prohibit Variable Product Sales Contests for Three Years

WASHINGTON, PRNewswire -- NASD announced today that it has  fined  Hornor, Townsend & Kent, Inc. (HTK), of Horsham, PA, $325,000  for conducting  prohibited sales contests for its brokers and managers,  as well as for email  and supervision violations. The contests violated  NASD rules by awarding  exclusive or greater weight to the sales of  proprietary variable life and  variable annuity products over  non-proprietary products, thereby creating  improper incentives for  brokers to sell those products instead of focusing  on the investment's  merits and the customer's financial interests. In  resolving this  matter, HTK agreed to prohibit any sales contests promoting  the sale  of variable life or annuity products for the next three years.

NASD also found that HTK failed to retain the email communications of  approximately 83 employees. Those employees included HTK's president  and two  other senior managers, who approved at least some of the  violative national  sales contests. NASD rules require that email  communications be retained for  at least three years.

"By favoring the sale of some variable life and annuity products over  others, these contests created conflicts of interest that could  undermine  the broker's obligation to recommend suitable investments  based on the needs  of the customer," said NASD Vice Chairman Mary L. Schapiro. "NASD rules are  designed to prevent such conflicts between  the broker's self-interest and  the customer's."

Between 2001 and 2003, HTK conducted six national and numerous branch  office  sales contests to promote the sale of variable life and  variable annuity  products. When a firm stages a sales contest for a  particular product line,  NASD rules require that it cover all products  the firm offers within that  line, and that equal weight be given to  the sales of all products within  that line.

NASD found that several of the national sales contests were based only  on  the sale of variable products offered by Penn Mutual Life Insurance  Company,  HTK's parent company. In determining the winners for some of  the national  contests, sales of Penn Mutual variable life products  were given exclusive  or greater weight than sales of Penn Mutual  variable annuity products.

HTK offered or awarded substantial rewards for the national contest  winners,  including: weekend trips to New York City, New Orleans and  Las Vegas;  vouchers worth $400 or $800 that could be used for personal  entertainment or  education, and gift cards that could be used to  purchase items from a number  of name-brand merchants. The total value  of the national sales contest awards exceeded $200,000.

Between 2001 and 2003, HTK's branch offices conducted additional sales  contests. Nine were based solely on the sale of proprietary Penn Mutual  variable products. In another four, sales of the proprietary products  were  given greater weight than sales of non-proprietary products. Prizes for the  branch contests included such items as golf trips,  tickets to sporting  events and other entertainment, dinners,  high-definition television sets and  other expensive electronic goods.

NASD found that the non-cash compensation that HTK provided to its  sales   force was substantial enough to provide the improper incentives that  the  non- cash compensation rules were designed to prevent.  NASD also found that HTK did not have an adequate supervisory system  and   procedures with respect to the non-cash compensation rules.

In settling this matter, the firm neither admitted nor denied the  charges,  but consented to the entry of NASD's findings.

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