This case concerns VFA's failure to establish, maintain, and enforce a supervisory

system reasonably designed to identify red flags in the sale of multi-share class

variable annuities ("VAs"). Between July 2012 and August 2014 (the "Relevant

Period"), VFA earned over $198 million, or approximately 25%, of its revenue

from the sale of VAs. Approximately $72 million, or 36%, of VFA's VA revenue

was earned from the sale of L-share VAs ("L-share contracts"). L-share contracts

typically provide a shorter surrender period, of three to four years, than B-share

contracts, which typically have a surrender period of 7 years. Insurance

companies design L-share contracts so that customers pay a higher fee for the

benefit of a shorter surrender period. L-share contracts are designed for investors

with short-term time horizons or who want the optionality of being able to

surrender the L-share contract sooner than a B-share contract. Pursuant to the

terms established by the insurance company manufacturers, if a purchaser chooses

not to surrender an L-share contract during the surrender period, the purchaser

continues to pay a higher annual fee for the life of the contract, unless the contract

provides for a "persistency credit."

During the Relevant Period, current VFA customers purchased 1,315 L-share

contracts together with one of two Long-Term Income Riders. The first of these riders. frequently known as the Guaranteed Minimum Income Benefit Rider

(GMIB), provides for the added benefit of guaranteed income for life. The

second, frequently known as the Guaranteed Minimum Withdrawal Benefit Rider

(GMWB), provides for the added benefit of guaranteeing a minimum amount the

customer will be able to withdraw from the contract over time (the riders are

collectively referred to as the "Long-Term Income Riders"). Long-term income

riders are designed for investors with long-term time horizons and cost purchasers

additional annual fees in exchange fur the added benefits. Moreover, because of

the potentially incompatible time horizons, L-shares with Long-Term Income

Riders may present a red flag that the purchase may not be suitable for a

customer's investment objectives and time horizon.

Of the 1,315 L-share contracts with Long-Term Riders VFA sold during the

Relevant Period to current customers, approximately 70% of the customers had a

long-term investment horizon, which should have been a red flag given the short-term nature of L-shares. VFA, however, had no system to review for VA share

classes and no system for identifying potential patterns of unsuitable sales. VFA

also failed to provide its registered representatives and principals with adequate

training and guidance on suitability considerations for multi-share class VAs.

Even though VAs accounted for more than a quarter of the Firm's revenue during

the Relevant Period, the Firm failed to establish and maintain an adequate

supervisory system and procedures to ensure suitability of its VA sales and VA

share class recommendations.

In addition, during the Relevant Period, VFA failed to reasonably supervise VA

exchanges. VFA generated a monthly surveillance report, the "2330 Surveillance

Report," that was intended to monitor for inappropriate rates ofVA exchanges by

its registered representatives. VFA, however, failed to establish reasonable

parameters for the generation of these reports. As a result, the 2330 Surveillance

Report failed to capture the activity of over 90% ofthe Firm's registered

representatives who recommended multiple exchanges per year. Moreover,

during 21 months out of the 22 months ofthe Relevant Period, VFA's principals

failed to review the 2330 Surveillance Report. . . .