On Monday, a jury in the Northern District of Georgia ruled in favor of the SEC against a former LPL Financial registered representative and a firm he co-founded “for fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan (TSP) retirement accounts into higher-fee, variable annuity products.”
“He fostered the misleading impression that he was in some way affiliated with or approved by the federal government.”
The SEC’s complaint, originally filed in 2017, charged an entity called Federal Employee Benefits Counselors with targeting federal employees nearing retirement with sizable funds invested in the TSP.
The complaint alleged that the broker misled investors concerning significant details about the recommended variable annuity investment, including the associated fees and guaranteed investment returns.
The SEC said he fostered the misleading impression that he was in some way affiliated with or approved by the federal government. In some instances, investors were led to believe that their funds would be invested in a product that was offered, vetted, or specifically selected by the TSP.
According to the complaint, the broker sent investors incomplete or modified transaction forms as well as written materials they devised that obscured that the investment was a privately issued variable annuity with no connection to the TSP and would be processed through a private brokerage firm with which the brokers were associated.
‘Motivated by higher commissions’
The SEC said the broker and others affiliated with the firm sold approximately 200 variable annuities with a total face value of approximately $40 million to federal employees, who used monies rolled over from their TSP accounts to fund their purchases. They collectively earned approximately $1.7 million in commissions on the sales.
“As alleged in our complaint, these brokers were motivated by the prospects of higher commissions as they targeted federal employees age 59½ and over and intentionally obscured important details when recommending variable annuity purchases,” Aaron W. Lipson, Associate Director of the SEC’s Atlanta Regional Office, said at the time charges were filed. “They even allegedly excluded the words ‘variable annuity’ from some materials they shared with TSP account holders.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
The four former brokers charged in the SEC’s complaint are Christopher S. Laws, Jonathan D. Cooke, Danny S. Hood, and Brandon P. Long.