Bank Of America Offers Refunds On Annuities In Response To Probe

By Mark Jewell, Business Writer
The Associated Press
July 13, 2005

Bank of America Corp.'s agreement to offer refunds to thousands of elderly investors who bought variable annuities could lead to similar deals with other banks whose annuities sales are also being investigated, the state's top securities regulator said Wednesday.

The pact with Bank of America, announced Wednesday, was the first in Secretary of State William Galvin's investigation of sales to customers who may be inappropriate investors in annuities because of factors including their age, their savings and the investment risks involved.

Galvin said he was less hopeful a settlement could be reached with Citizens Bank, which faces a 5-month-old complaint by Galvin's office alleging its brokerage unit targeted annuities sales pitches to elderly customers.

Bank of America and Citizens were among seven banks and five broker-dealers subpoenaed by Galvin's office in February. Regulators in other states are conducting similar probes.

In response to the Massachusetts investigation, Charlotte, N.C.-based Bank of America "was willing to come forward and acknowledge that some of its sales practices were unacceptable," Galvin said.

The agreement, first reported by The Boston Globe on Wednesday, requires the bank to offer refunds on variable annuities investments made by 800 Massachusetts residents and thousands of others nationwide. Eligibility is restricted to those who were 78 or older when they made investments in either 2003 or 2004.

Those customers can receive the current value of their annuities without paying "surrender fees" - penalties for withdrawing cash early, typically because of a financial or medical emergency.

Bank of America also will provide investors who were 75 to 77 years of age at the time of purchase a chance to have an expedited review conducted into whether their investments were appropriate.

Jon Goldstein, a Bank of America spokesman, declined to estimate how much money would be returned to investors, or how many customers are eligible.

"Our focus is on communicating that this opportunity is available to each of the eligible customers nationwide, and making them aware of what's being offered and making sure they're comfortable with the products they hold," Goldstein said.

Annuities, a popular way to save for retirement, combine features of mutual funds and insurance. With a variable annuity, the company agrees to make periodic payments to the investor, beginning immediately or at some future date. Payments to the holder can vary depending on the performance of the underlying investments, so variable annuities can be riskier than many other investment options, such as certificates of deposit.

Galvin did not say which other banks might reach agreements similar to the Bank of America settlement, but added, "The fact that an entity like Bank of America has set a standard in acknowledging a problem is indicative of the fact that there is definitely something that is going to be done in the industry."

The subpoenas Galvin's office issued in February sought records on annuities sales practices from the following banks: Sovereign, Citizens, Bank of America, Century, BankNorth, Eastern, and Medford Co-Operative Bank, which is part of Brookline Bank. The subpoenas do not necessarily mean investigators found wrongdoing at each bank.

Heather Campion, a spokeswoman for Providence, R.I.-based Citizens, said the bank was cooperating.

Copyright © 2005 by Associated Press

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