Ex-LPL Brokers Draw More Fraud Charges Over Annuity Sales
There are days when executives at LPL Financial may wish they had never put a variable annuity product on the company’s platform.
The Securities and Exchange Commission on Monday charged four former LPL brokers in Atlanta with selling about 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.
The brokers, who allegedly “fostered the misleading impression that they were in some way affiliated with or approved by the federal government,” earned about $1.7 million on the sales between March 2012 and November 2014, the SEC charged. Some of the brokers opened accounts at the broker-dealer for five investors without consent so that the annuities that “had much higher costs than alternatives” available in the federal savings plans could be sold, it said.
“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, the civil filing said.
The enforcement action was filed the same day that 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.
Spokespeople for LPL, which was not named as a defendant in the SEC action, did not immediately respond to requests for comment on its role and whether it 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, the complaint said.
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.
Stephen Councill, a lawyer at Rogers & Hardin in Atlanta who is representing Laws and Cooke, did not immediately return a call for comment. He earlier told CNN that the SEC’s press release about its action was “shockingly false and misleading,” and that his clients “did not do what the SEC claims.”
Hood, 44, did not return a message left for him at Agency Counselors, which lists robo advisor Betterment as its “investment platform.” No listing could be found for reaching Long, who is 28, according to the SEC complaint.