Details of SEC Complaint Against Brokers Allegedly Targeting TSP Investors

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By on August 10, 2017 in Retirement with 0 Comments

Businessperson's hand holding individual letter blocks that spell the word 'scam'

Recently, I posted a summary of an announcement made by the Securities and Exchange Commission against four Atlanta area brokers who were being accused of fraudulently targeting retired federal employees. What follows are more details about the SEC’s allegations from the complaint that has been filed.

SEC Allegations

According to the formal SEC complaint, the four individuals named are Christopher Laws, Jonathan Cooke, Danny Hood, and Brandon Long. They worked with an entity doing business as Federal Employee Benefits Counselors.

Between approximately March 2012 and November 2014, the SEC alleges that these individuals fraudulently induced federal employees to rollover significant funds from their federal retirement accounts into variable annuity products, presumably motivated by the prospect of higher commissions for the brokers selling these products.

Tactics

The SEC alleges that the defendants used the following tactics to mislead the federal employees into believing that the recommended investment was affiliated with or approved by the federal government:

  • Made misleading comparisons between their recommended investment and the life annuity offered through the TSP by omitting key information or falsely describing the actual fee structure and surrender fees related to their recommended investment
  • Used an eagle-encircled insignia on other documents given to customers and on their website that resembled the official seal of various agencies of the federal government
  • Using the name Federal Employee Benefits Counselors that insinuated that they were affiliated with the federal government while obscuring the fact that they were associated with a broker dealer

The SEC also alleges that the defendants combined the documents needed to purchase the variable annuity into one form with the portions of the official TSP Form that was needed to transfer funds from the federal employees’ TSP accounts, and referred to the variable annuity investment using terminology from an official TSP form.

The allegations further state that promotional materials given to potential investors  touted the additional benefits of the investment option they recommended as compared to the life annuity offered through the TSP—without disclosing the significantly higher annual fees and surrender charges.

Despite all of this, the SEC states:

In truth, the variable annuities that Defendants offered and sold were privately-issued, separate and apart from the TSP and the federal government, and had much higher costs than alternatives available through the TSP. Moreover, the Representatives had no affiliation with, and were not approved or vetted by, the federal government.

Sales to Specific Investors

The SEC alleges that the defendants sold approximately 200 variable annuities with a total face value of over approximately $40 million to federal employees, who used monies rolled over from their TSP accounts to fund their purchases. The representatives collectively earned approximately $1.7 million in commissions on these sales.

In at least five of these transactions, the allegations also state that Hood and Long made additional oral misrepresentations or omissions further suggesting that the investment option they recommended was affiliated with the TSP, and misrepresented or omitted to disclose the associated fees. The SEC also alleges that some of the defendants opened accounts with their broker dealer in these five investors’ names without the investors’ knowledge or consent in order to obscure the fact that the investment was not affiliated with the TSP and/or the federal government.

The SEC added:

The broker dealer that employed the Representatives required that an account be opened in an investor’s name before the Representatives could place a variable annuity order on the investor’s behalf. But some of the investors did not learn of the creation or existence of these accounts in their names until after their TSP accounts had been liquidated (that is, the underlying securities were sold) and the funds transferred to purchase the variable annuity.

The SEC also states in its complaint that the defendants did not give these five investors the investment prospectuses.

A copy of the SEC’s formal complaint is included below. It contains further details about the allegations along with information about the company and four defendants named.

The SEC also issued an alert to federal employees in conjunction with the release of the news about this complaint warning them about con artists who claim to be affiliated with federal agencies.

SEC v. Keystone Capital Partners

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About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.

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