The US Securities and Exchange Commission has filed charges against four former brokers for allegedly persuading federal employees to roll over holdings from federal retirement accounts into variable annuity products that charged higher fees. Their targets were Thrift Savings Plan (TSP) participants. The plan is administered by the Federal Retirement Thrift Investment Board, which is an independent government agency.
According to the regulator’s broker fraud case, then-brokers Jonathan Cooke, Christopher Laws, Brandon Long, and Danny Hoode promoted the VA products under the Federal Employee Benefits Counselors because they wanted the high commissions. Their alleged victims were federal employees who were 59 ½ years of age and older and with TSP account holdings that could be moved over into variable annuities, tax-free, in certain plans at annuity carriers.
Ex-Brokers Made High Commissions From the Alleged Elder Investor Fraud
The defendants are accused of selling about 200 VAs valued at over $40M in total to these employees. The brokers went on to make about $1.7M in commissions from the sales. They also are accused of misleading their victims and causing them to believe that the investments they recommended to them had either federal government approval or affiliation.
On certain occasions, when recommending investments that were not connected with the TSP, the former brokers would make misleading comparisons or leave out key information. They also purportedly sent out documents using a logo resembling the official seals that are used by the actual federal government.
The SEC said that the men sought to give the impression that the VA investments were somehow connected with the TSP by placing in just one form the documents for the new investment with part of the official TSP form that is required to move money from these government-affiliated accounts. They also purportedly engaged in other tactics intended to confuse.
The SEC’s complaint said that, in reality, the VAs being offered had no affiliation whatsoever with the US government or the TSP and were way more expensive. These “significantly higher fees and surrender charges” were not disclosed in promotional materials that talked about the benefits of investing in the VAs.
A number of the investors that were harmed were never even aware that other accounts had to be created under their name after their TSP accounts were liquidated. Five of them never received the prospectus for their investments even though the brokerage firm where the defendants worked was required to provide these documents.
Now, the four ex-brokers are charged with violating of the Securities Act of 1933’s Section 17(a), the Securities Act of 1934’s Section 10(b), and Rule 10b-5.
Securities Fraud Lawyers
At Shepherd Smith Edwards and Kantas, LTD LLP, our broker fraud attorneys have been working hard to help older investors and their families in recouping their investment losses. Please contact one of our elder financial fraud lawyers today.
SEC Warns Federal Retirees of Fraud
This week, the SEC issued an Investor Alert warning federal government employee retirement plan participants about the fraud involving the TSP, which has over 5 million participants. The regulator told them to be wary of offers from anyone about any kind of investment opportunity claiming to be affiliated with the federal government. It noted that the agency that administers the TSP would never get in touch by phone, email, or mail to ask for sensitive personal information.
Read the SEC Complaint (PDF)
Thrift Savings Plan (PDF)