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Regulation and Compliance > Federal Regulation > SEC

SEC Prevails in LPL Rep Annuity Fraud Case

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What You Need to Know

  • The rep persuaded federal employees to roll over funds from their retirement accounts to fund the purchase of higher-fee variable annuities.
  • The rep falsely portrayed himself and his company as counselors hired by the federal government to educate federal employees, the complaint states.

After a nine-day trial, a jury on Monday in the Northern District of Georgia ruled in favor of the Securities and Exchange Commission against a former registered representative of LPL Financial LLC and Keystone Capital Partners, a firm he co-founded.

Gurbir Grewal, director of the SEC Division of Enforcement, said in a statement that the SEC is pleased with the jury’s verdict holding former registered rep Jonathan Dax Cooke and 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.”

Grewal stated that Cooke persuaded the federal employees “to roll over funds from their retirement accounts to fund the purchase of higher-fee variable annuity products.”

The verdict, Grewal continued, “underscores our continuing efforts to protect investors, particularly those who are approaching retirement.”

LPL did not respond to a request for comment by press time.

In July 2017, the SEC charged four former Atlanta-area brokers, including Cooke, with fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan (TSP) retirement accounts into higher-fee, variable annuity products.

The SEC’s enforcement action came at a time when the agency had been focusing more specifically on brokers’ and advisors’ interactions with older investors, and others investing for retirement, through the ReTIRE initiative of the agency’s national exam program and the work of the Broker-Dealer Task Force in its Enforcement Division.

The SEC’s complaint charged Federal Employee Benefits Counselors, through which the brokers targeted federal employees nearing retirement with sizable funds invested in the TSP.

The complaint alleged that the brokers misled investors concerning significant details of the recommended variable annuity investment, including the associated fees and guaranteed investment returns.

The brokers 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 complaint, “the brokers 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.”

The brokers “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 SEC said.

The brokers collectively earned approximately $1.7 million in commissions on these sales, the complaint said.