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San Diego Securities and Financial Attorneys: Former LPL Financial Brokers Charged By SEC With Annuity Sales Abuses To Federal Employees

By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Tuesday, August 8, 2017.

Erwin J. Shustak, Esq.
619.696.9500 ex. 109
[email protected]

This past Monday, the Securities and Exchange Commission charged four former Atlanta-based LPL brokers with selling 200 privately-issued annuities with a face value of approximately $40 million to federal employees, who rolled over funds from their federal Thrift Savings Plan accounts to fund the purchases.  According to the SEC charges, the brokers, allegedly “fostered the misleading impression that they were in some way affiliated with or approved by the federal government,” and earned about $1.7 million from the sales between March 2012 and November 2014.  The SEC alleges that some of the brokers opened accounts at LPL for five investors without their  consent so that the annuities that “had much higher costs than alternatives” available in the federal savings plans could be sold.

The SEC charges state: “Motivated by the prospect of high commissions associated with the variable annuities, the representatives targeted federal employees, aged 59½ and over, who had significant TSP account holdings that could be rolled over on a tax-free basis” into products held at annuity carriers.  Essentially, the SEC charges the LPL brokers mislead the federal employee victims into thinking they were affiliated with, or approved by the federal government, and “switched” them from low cost, conservative government savings accounts into very high commission variable annuity products, solely for the brokers own financial gain and to the detriment of the federal employees.

 The enforcement action was filed the same day that FINRA, the Financial Industry Regulatory Authority, published a permanent bar against former LPL Financial advisor Roger S. Zullo for failing to cooperate in an investigation of allegedly fraudulent sales of variable annuities. Zullo, who was based in a Boston suburb, previously disgorged $1.9 million and paid a $40,000 fine to Massachusetts.   LPL itself ponied up $3.7 million to Massachusetts and Zullo’s customers for its supervisory lapses.

 In the latest case, the SEC brought the fraud charges against brokers Christopher S. Laws, Jonathan D. Cooke, Danny S. Hood and Brandon P. Long, along with an entity called Keystone Capital Partners that they marketed as Federal Employee Benefits Counselors. Laws, 49, and Cooke, 34, cofounded Keystone in 2012, the SEC said, and Laws was the manager of the firm’s Alpharetta, Ga. branch, or Office of Supervisory Jurisdiction.

An unnamed LPL spokesman, which itself was not named as a defendant in the SEC action, did not immediately respond to requests for comment on its role and whether the firm  is being investigated by any regulators. The brokers “knowingly disregarded the[ir] broker dealer’s compliance procedures” by sending emails to federal employees under the Federal Employees Benefits Counselors address rather than their broker-dealer addresses, according to the SEC complaint.

LPL, the largest independent broker-dealer in the U.S., terminated Laws, Cooke and Long in December 2014 for “concerns regarding business practices, including communications with customers,” according to their BrokerCheck records. Each of the three brokers commented in responses that “they did nothing improper” and were terminated because of their “notice(s) to voluntarily resign.”

Hood, who like the others worked at an Alpharetta, Ga.-based firm called BCG Securities after leaving LPL, was not terminated. None of the brokers is currently registered with Finra, though Long and Cook remained at BCG until April of this year and Hood is majority owner of Agency Counselors, LLC, a registered investment advisory firm in Atlanta, according to his BrokerCheck history.

Variable annuities, which are one of the highest commission based financial products in the marketplace, continue to be the subject of regulatory investigations and charges.  LPL has had a series of problems arising out of abuses by its brokers in the sale of these little understood, and costly, products.  If you have questions about annuities you have been sold, please contact us.

Shustak Reynolds & Partners, P.C. focuses its practice on financial and securities matters and the securities industry affecting broker-dealers, registered representatives, investors and the financial services sector. For more information, contact Erwin J. Shustak, managing partner, at [email protected], or call 800.496.5900 for a free consultation.

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