[Ed. Note: Our good friends at Chapman Law in Cleveland asked us to post this on their behalf.]
On July 31, 2017, the Securities and Exchange Commission filed an action against Keystone Capital Partners, Inc., doing business as Federal Employee Benefit Counselors (FEBC)
of Alpharetta, Georgia, along with its employees Christopher S. Laws, Jonathan Dax Cooke, Danny S. Hood and Brandon P. Long.
According to the SEC Complaint, FEBC employees sold approximately 200 variable annuities with a face value of over $40 million to federal employees between March 2012 and November 2014. The annuity purchases were funded by encouraging the federal employees, many of whom were near retirement, to roll over their Thrift Savings Plans (TSPs). A TSP is a defined-contribution plan for federal employees, similar in nature to a 401(k) plan. Federal employees who meet certain criteria have the option to take partial or full withdrawals from their TSP accounts, by completing a “Form TSP-75.”
In order to facilitate the movement of retirement funds from the TSPs to the variable annuity contracts, many of the investors were required to open retirement accounts at a brokerage firm and were required to sign a four-page form entitled “Important Information Regarding Your Variable Annuity.” The FEBC employees then intentionally obscured important details when recommending the variable annuity purchases.
As a result of the variable annuity scheme, the FEBC employees collected over $1.7 million in commissions. Prospective customers were identified through the use of various internet sources and subscriptions to proprietary databases, used to obtain personal information about the federal employees. The SEC Complaint alleges that the FEBC employees were then able to trick these individuals into believing the variable annuities were affiliated with or approved by the federal government. In reality, the annuities were not indorsed or affiliated with the federal government and were instead processed by a private brokerage firm.
The Complaint further alleges that the FEBC employees concealed material information regarding the variable annuities and falsely described the fee structures and surrender charges attached to the annuities. For instance, the FEBC employees made misleading statements and provided false reports which depicted the variable annuity investments as having special “features” such as liquidity, investment flexibility and longevity protection. The annuity investment options were routinely conveyed to investors as the “TSP-75 Election,” “Hybrid Option,” and “TSP-75 Hybrid.”
In truth, the additional “features” of the variable annuities came at a considerable cost to investors. The annuities had a much higher cost structure compared to alternative investments. The annuities also had a surrender-fee charge of up to 8.5%, triggered by withdrawing funds within the first seven years of the investment, resulting in potentially devastating consequences for many of the soon-to-be retirees. Overall, the annuities had a much higher cost structure compared to alternative investments. The high fees associated with the variable annuities sold enabled the FEBC employees to receive higher commissions at the expense of the investors.
As a result, the SEC now charges FEBC, Christopher Laws, Jonathan Cook, Danny Hood and Brandon Long with violating Section 10(b) of the Securities Exchange Act of 1934 and 10b-5 of the Securities Act of 1933, along with other charges. The SEC’s Complaint seeks civil penalties, as well as disgorgement of profits and a permanent injunction preventing defendants from violating additional securities laws.
If you invested in a variable annuity through Federal Employee Benefit Counselors or one of its employees or brokers, you may be able to recover losses. Since 1998, the experienced attorneys at Chapman LLC have been representing victims of investment fraud and broker misconduct. Call us today at 1-877-410-8172 for a free, no obligation consultation.