Jury Finds Investment Advisor Liable for Failing to Disclose Annuity Commissions
From the desk of Jim Eccleston at Eccleston Law
A federal jury in Massachusetts has found investment adviser Jeffrey Cutter and his firm, Cutter Financial Group, liable for violating federal securities law by failing to disclose significant upfront commissions and conflicts of interest related to an annuity replacement scheme.
According to ThinkAdvisor, the verdict followed a seven-day trial and five hours of jury deliberation. The jury concluded that Cutter and his firm violated Section 206(2) of the Investment Advisers Act of 1940, which prohibits practices that operate as fraud or deceit upon clients or prospective clients.
The SEC alleged that between 2018 and 2022, Cutter recommended that advisory clients purchase fixed indexed annuities that generated substantial upfront commissions for himself and his firm. The agency claimed that Cutter and his firm failed to adequately disclose these financial incentives, resulting in $640,000 in surrender charges for clients involved in the annuity transactions.
While the jury ruled in the SEC’s favor on the Section 206(2) claim, it rejected the Commission’s allegations under Sections 206(1) and 206(4).
ThinkAdvisor also reports that Cutter had previously moved to dismiss the case, arguing that he acted as a state-licensed insurance agent, not as an investment adviser, in connection with the annuity sales. Industry groups, including the National Association for Fixed Annuities and the Investor Choice Advocates Network, filed amicus briefs in support of Cutter’s position, asserting that fixed indexed annuities fall outside the SEC’s jurisdiction.
Despite those arguments, the jury determined that Cutter’s conduct as an investment adviser triggered obligations under the Investment Advisers Act, and his failure to disclose material conflicts of interest violated federal securities law.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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