Jury Finds Adviser Defrauded Retirees in Sale of Annuity Products

A federal jury found that an investment adviser and his firm ("defendants") defrauded "current and future" retirees by failing to disclose significant upfront commissions in the sale of insurance annuity products.

Before the U.S. District Court for the District of Massachusetts, a jury determined that the defendants violated Section 206(2) ("Prohibited transactions by investment advisers") of the Advisers Act, by “engag[ing] in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.” However, the jury found the defendants did not violate Section 206(1) that "[p]rohibits employing any device, scheme, or artifice to defraud any client or prospective clients," or 206(4) which details compliance rules or procedures.

In the original Complaint, the SEC alleged that the adviser "engaged in a pattern of deception designed to steer his investment advisory clients to certain insurance products" from which he personally profited. The SEC alleged that the adviser orchestrated at least 580 annuity sales yielding over $9.3 million in commissions. The SEC argued that these transactions imposed unnecessary surrender charges, reset clients’ surrender periods, and cost them annuity bonuses. The SEC further alleged that the adviser failed to disclose over $1.1 million in perks and payments from marketing firms.

In an SEC press release, the agency said that the verdict held the defendants "accountable for breaching their fiduciary duties to their clients."

In the firm's press release, the adviser stated: "Today, the jury found what we have been saying for more than four years: that we did not intentionally or recklessly defraud any clients, ... The jury also found no violations of applicable SEC rules about compliance policies and procedures."