Jury Finds Cutter Financial Group Liable for Disclosure Failures in Annuity Sales
From the desk of Jim Eccleston at Eccleston Law
A federal jury in Massachusetts has found investment advisor Jeffrey Cutter and his firm, Cutter Financial Group, liable for failing to disclose significant commissions and conflicts of interest tied to an annuity replacement strategy sold to clients.
According to ThinkAdvisor, the jury deliberated for five hours before determining that Cutter and his firm violated Section 206(2) of the Investment Advisers Act of 1940. This provision prohibits any transaction, practice, or business course that operates as a fraud or deceit on a client or prospective client. The Securities and Exchange Commission (“SEC”) alleged that Cutter and his firm recommended fixed indexed annuities that paid large upfront commissions without adequately disclosing the firm’s financial incentives.
While the jury held the defendants accountable for failing to disclose these material conflicts, it found in Cutter’s favor on other claims brought under Sections 206(1) and 206(4), which are the anti-fraud provisions of the Advisers Act. The verdict partially vindicated Cutter’s argument that the firm did not intentionally or recklessly defraud its clients, nor did it violate SEC rules related to compliance policies and procedures.
The case has drawn industry attention, according to ThinkAdvisor. Advocacy groups such as the National Association for Fixed Annuities and Investor Choice Advocates Network (ICAN) filed amicus briefs supporting Cutter. ICAN’s founder, Nicolas Morgan, told ThinkAdvisor that the verdict warrants scrutiny, cautioning against regulatory overreach that could impose costly, unnecessary burdens on financial professionals and limit investor choices.
Cutter Financial Group announced plans to launch new educational initiatives aimed at helping clients better understand commission structures and potential conflicts of interest in financial transactions. ThinkAdvisor reports that the case may be appealed.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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