The Securities and Exchange Commission announced that it has charged four former Atlanta area brokers with fraudulently targeting retired federal employees.
The SEC’s complaint states that brokers from an entity called Federal Employee Benefits Counselors targeted federal employees nearing retirement with sizable funds invested in the Thrift Savings Plan by inducing them to roll over their TSP holdings into higher-fee, variable annuity products.
The complaint alleges that the brokers misled investors concerning significant details about 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 brokers collectively earned approximately $1.7 million in commissions on these sales.
The four former brokers charged in the SEC’s complaint are Christopher S. Laws, Jonathan D. Cooke, Danny S. Hood, and Brandon P. Long. The complaint charges them and Federal Employee Benefits Counselors with violating and aiding and abetting violations of some or all of the provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Act of 1934, and Rule 10b-5. The SEC seeks disgorgement of ill-gotten gains plus interest and penalties and permanent injunctions.
Steve Councill, an attorney representing Laws and Cooke, told CNN Money, “We have only reviewed the SEC’s press release at this time, but it is shockingly false and misleading” and added that his clients “did not do what the SEC claims.”
The SEC also issued an alert to federal employees stating that the TSP will never contact them with requests to provide sensitive personal information and does not authorize third parties to provide counseling or investment-related services.
“As alleged in our complaint, these brokers were motivated by the prospects of higher commissions as they targeted federal employees age 59½ and over and intentionally obscured important details when recommending variable annuity purchases. They even allegedly excluded the words ‘variable annuity’ from some materials they shared with TSP account holders,” said Aaron W. Lipson, Associate Director of the SEC’s Atlanta Regional Office.