Equitable Financial Life Insurance Company was charged with fraud by the SEC (Securities and Exchange Commission). This was pursuant to the company’s omissions and misleading statements regarding fees charged to investors that were made on the account statements issued to around 1.4 million variable annuity investors.
The impact investors are primarily public school staff members and teachers. Equitable has agreed to a $50 million compensation to them.
It appears from the SEC’s allegations that Equitable has been conveying to its investors the impression, apparently falsely, that all fees charged to them are listed on their account statement. The SEC investigations found that under the section for fees, more often than not, an amount of $0.00 was listed. Further, the statement captured only some of the fees charged, not all.
Gurbir S. Grewal, director of the SEC’s division of enforcement, commented on the issue and said, “When considering how to invest their hard-earned money and save for retirement, it is essential that investors not be misled about the fees they are paying. This case should serve as an important reminder to investment firms to carefully review their statements to ensure fee information is disclosed properly.”
Equitable has been found to be in breach of the Securities Act of 1933, and guilty of violating the antifraud provisions. Equitable, without acceptance or denial of the SEC findings, has agreed to pay $50 million as a civil penalty for distribution to impacted investors and to cease and desist from future violations being committed. Additionally, the presentation of fee information on its variable annuity account statements has also been agreed to be reviewed and updated by Equitable.
Warning Signs of Financial Advisor Fraud
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One warning sign of financial advisor fraud is the receipt of unsolicited investment offers. These offers may be in the form of phone calls or emails. They are investments offered to unsuspecting investors with the intent of separating the victim from their money. These investment offers are often scams that offer high returns or even a guaranteed return. If you receive such offers, you should avoid the advisor immediately. It is wise to know your rights when dealing with these advisors.
Financial advisors promise or guarantee higher than market returns
A recent study found that investors have a much higher expectation for higher returns from their investments than their financial advisors. More than 44 percent of investors in the U.S. want to avoid risky investments in favor of safety and performance, according to a new report. The research included surveys of 750 U.S. investors with at least $200,000 and 300 U.S. financial advisors in July 2016.
In addition to promises of higher returns, financial advisors also sell products that are not necessarily good for clients, just because the commissions are larger. While this is fine if a product is acceptable to a client, it’s not wise if an advisor promises higher returns than the market. In addition, advisors may not practice diversification and are prone to making investments that do not help their client’s financial goals.
They make unsuitable investment recommendations
When brokers and financial advisors make investment recommendations that are not suitable for a client’s needs, the investor may to recover losses from the broker or wealth management firm. Financial advisors violate FINRA rule 2111 by making unsuitable investments and not disclosing material risks. These risks may include lack of liquidity, use of internal leverage, opaque financials, conflicts of interest, and undisclosed costs.
Brokerage firms have a duty to make investment recommendations that are suitable for a customer’s risk tolerance and investment objectives. In order to be able to make these recommendations, a financial advisor must have reasonable grounds to believe that the product is suitable for a customer. To understand a customer’s investment profile, a financial advisor typically gathers information about the customer’s age, other investments, tax status, and investment objectives.
They falsify internal documents to effect unauthorized wire transfers
The SEC recently charged former investment adviser and registered representative Michael Barry Carter with securities fraud. Carter allegedly stole from customers, including an elderly advisory client. His fraud was a result of false documents he falsified to gain access to their accounts. His actions were not caught until the SEC filed charges against him. However, the case is far from over. The SEC is adamant that it will pursue legal action against those who are responsible for unauthorized wire transfers.
They make false representations
When financial advisers use misleading representations to attract investors, the outcome can be disastrous for investors. In order to be held liable for making false representations to clients, a financial advisor must first show that he intended to mislead the client. The statement must be false, and the information must be material. A financial advisor must also have a scienter, which requires proof that he knew he was deceiving his client, or that he acted without a reasonable basis for the misrepresentations.
A broker can engage in financial misconduct, and this can be due to carelessness, a lack of proper due diligence, or intentionally omitting relevant facts. The latter can constitute investment fraud. When this occurs, a securities fraud attorney can evaluate the facts of the claim and help investors pursue legal action. They will help investors determine if the misrepresentations caused them harm.
They steal from clients
You should seek legal counsel if you suspect that your financial advisor is stealing from you. There is little time to take action once you realize that you’ve been a victim. An attorney can review the specifics of your case and advise you on how to proceed. Since every financial fraud case is unique, an attorney may be able to raise the issue with the compliance department of the financial advisor’s firm, resulting in a quick settlement.
A registered financial advisor has the obligation to act in the best interests of their clients. In addition to the regulatory requirements, financial advisors must abide by the Custody Rule, which was created to protect their client’s assets. By following these guidelines, financial advisors can minimize their risk of being sued.
