US District Court Enters Final Judgment in SEC Annuity Commission Case

A federal court entered a final judgment against an investment adviser and his firm (the "defendants") following a jury’s finding that they defrauded clients by failing to disclose significant upfront commissions from the sale of annuity products.

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 — which included frequently switching clients into replacement contracts — imposed more than $640,000 in unnecessary surrender charges, reset clients’ surrender periods, and cost them valuable annuity bonuses. The SEC further alleged that the adviser failed to disclose free marketing services and payments of more than $1.1 million received from third-party marketing firms.

Following a trial before the U.S. District Court for the District of Massachusetts, a jury determined that the defendants violated Section 206(2) of the Advisers Act ("Prohibited transactions by investment adviser") by "engag[ing] in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client." The jury had found the defendants not liable under two other sections regarding intentional fraud and compliance procedures of the Advisers Act.

The Court entered final judgment ordering the firm to pay a $100,000 civil penalty and the adviser to pay a $50,000 civil penalty and barring both from violating Section 206(2) for a period of five years.