Former advisor Jonathan Dax Cooke has been barred from the industry by the Securities and Exchange Commission (SEC) for his role in a fraudulent scheme to persuade hundreds of current and former federal employees to liquidate their Thrift Savings Plan accounts in order to purchase high-fee variable annuities that netted Cooke and three other defendants in the case nearly $2 million in commissions.
The U.S. District Court for the Northern District of Georgia recently entered a final consent judgment against Cooke which bars him from serving as an officer or director of certain publicly held companies; and orders Cooke to pay disgorgement of $396,409 and a civil penalty of $103,591.
Cooke, who the SEC says resides in Medellin, Colombia, and had been affiliated with LPL, accepted the ban and acknowledged his role, according to a report in Barron’s that cites an SEC document describing the settlement.
Three other individual defendants named in this litigation—former Atlanta-area brokers Christopher Laws, Danny Hood, and Brandon Long—settled before trial. On March 22, 2022, the jury in the Northern District of Georgia ruled in favor of the SEC on all counts against Cooke.
“This verdict underscores our continuing efforts to protect investors, particularly those who are approaching retirement.”
SEC’s Gurbir S. Grewal
“We are pleased with the jury’s verdict holding former registered representative Jonathan Dax Cooke and the entity he co-founded, Keystone Capital Partners, Inc., known as Federal Employee Benefit Counselors, liable for fraudulently selling variable annuities to hundreds of federal employees who were at or near retirement age by falsely portraying himself and his company as counselors hired by the federal government to educate federal employees about their retirement benefits, and convincing them to roll over funds from their retirement accounts to fund the purchase of higher-fee variable annuity products,” said SEC Division of Enforcement Director Gurbir S. Grewal, after the March verdict came down. “This verdict underscores our continuing efforts to protect investors, particularly those who are approaching retirement.”
The SEC alleged that the advisors misled investors concerning significant details about the recommended variable annuity investment, including the associated fees and guaranteed investment returns. The advisors allegedly fostered the misleading impression that they were 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 SEC’s original complaint filed in July 2017, the advisors 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 advisors were associated. The advisors 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. The brokers collectively earned approximately $1.7 million in commissions on these 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,” said Aaron W. Lipson, Associate Director of the SEC’s Atlanta Regional Office. “They even allegedly excluded the words ‘variable annuity’ from some materials they shared with TSP account holders.”
SEE ALSO:
• Prison-Bound Financial Advisor Racked Up 37 Complaints in Two Years
• Broker Targeted Federal Retirees with Fraudulent Annuity Rollovers
• Thrift Savings Plan Gets Much-Needed July Boost