SEC charges four former reps with fraud for VA sales targeting federal employees

Brokers implied government affiliation or approval, says enforcement action

Jul 31, 2017 @ 5:30 pm

By InvestmentNews

An earlier version of this story incorrectly implied that the former brokers charged were registered with another securities firm when the allegations occured.

The Securities and Exchange Commission has charged four former Atlanta-area brokers with fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan retirement accounts into higher-fee, variable annuity products.

The activity under question took place between approximately March 2012 and November 2014 when the four brokers — Christopher Laws, Jonathan Cooke, Danny Hood and Brandon Long — were registered with LPL Financial and affiliated with Federal Employee Benefits Counselors.

The SEC's complaint, outlined in a release from the agency, charges that it was through FEBC that the brokers targeted federal employees who had sizable funds invested in the Thrift Savings Plan and were nearing retirement. The complaint alleges that the brokers misled investors concerning significant details about the variable annuity investments they recommended, including the associated fees and guaranteed investment returns. In addition, the SEC charged that the brokers fostered the misleading impression that they were in some way affiliated with or approved by the federal government.

(More: SEC charges 13 with fraud in $14 million pump-and-dump scheme)

In some instances, the SEC charged, investors were led to believe that their funds would be invested in a product that was offered, vetted or specifically selected by the savings plan. Moreover, the SEC charged that the brokers sent investors incomplete or modified transaction forms, as well as written materials they devised, that obscured that the VA was privately issued, had no connection to the savings plan and would be processed through a brokerage firm with which the brokers were associated.

The SEC said the brokers sold approximately 200 variable annuities with a total face value of approximately $40 million to federal employees, who used rollover money from their plans to fund the purchases. The brokers collectively earned approximately $1.7 million in commissions on these sales.

(More: Finra whacks mid-sized NJ broker-dealer with $325,000 fine over variable annuity sales)

The SEC said it seeks disgorgement of the brokers' "ill-gotten gains" plus interest and penalties and permanent injunctions.

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