A regulator in Massachusetts has charged LPL Financial-affiliated advisor Roger S. Zullo with fraud due to his sales of “unsuitable variable annuities to retirees and older clients” since 2013. In addition, Secretary of the Commonwealth William F. Galvin charged the independent broker-dealer with supervisory failure.
“For years, Roger S. Zullo, an LPL advisor, has defrauded his clients, lied to his supervisors and fabricated client financial suitability profiles, in order to enrich himself and LPL by selling scores of identical, illiquid and high-commission variable annuities,” according to the complaint.
The regulator’s office says that Zullo and LPL received more than $1,825,000 in variable annuity commissions over three years. About $1,791,000 of that came from commissions on the same product, the Polaris Platinum III (B Shares) variable annuity.
The Boston-based advisor “bypassed LPL’s paper-thin compliance review process for these sales by fabricating client financial suitability information, such as age and liquid net worth,” the 84-page complaint explained.
Galvin’s office says the vast majority of Zullo’s annuity sales were the Polaris Platinum annuities, which carry a 7% commission, which is split 90% for Zullo and 10% for LPL. In many instances, clients had to pay surrender charges when Zullo persuaded them to switch to the Polaris Platinum annuity.
Zullo, who joined LPL in 2004, has been in the industry since 1988 and has no disclosures previously, according to the Financial Industry Regulatory Authority’s BrokerCheck.
“For its part, LPL rewarded Zullo’s fraudulent practices and suspicious sales patterns with the accolade of a place in LPL’s ‘Chairman’s Club’ for top annuity production,” the complaint stated, “and actively disregarded and denied not only countless warning signs and red flags, but deliberate and specific supervisory attempts to escalate concerns with Zullo’s sales practices, as well as a written complaint made on behalf of a cognitively impaired senior citizens that affirmatively identified Zullo’s fraud.”
The regulator seeks to revoke Zullo’s registration as an adviser in Massachusetts and permanently bar him from the securities business in the state, while seeking restitution for those harmed.
It also asks LPL to retain an independent third-party investigator and compliance consultant to probe Zullo’s annuity sales and recommend improvements in LPL’s supervisory review process and client complaint resolution procedures.
The complaint highlights what happened to 11 clients who had worked in the health care industry. It adds that regulatory staff members have not finished their investigation of how others were affected.
“We take our responsibility to supervise very seriously and are committed to serving our investors. We are reviewing the matter and hope to work with the Massachusetts Securities Division to reach a full resolution,” LPL Financial said in a statement shared with ThinkAdvisor.
Commissions Before Clients
Galvin’s complaint argues that the advisor’s “greed for commissions at times led him to disregard the well-being of his clients,” including a single woman that he had known for 20 years “with no financial sophistication [and] no assets at her disposal except those in Zullo’s hands and no nearby family to assist her financially.”