July 29, 2022
On July 18, 2022, the SEC announced that it settled fraud charges against an insurance company (Company) in connection with allegations that the Company provided misleading account statements to investors in the Company’s variable annuities. Without admitting or denying SEC findings, the Company agreed, among other things, to revise its presentation of fee information and pay a $50 million civil penalty to be distributed to affected investors.
According to the SEC order, since at least 2016, the Company distributed quarterly account statements that contained materially misleading statements and omissions to approximately 1.4 million variable annuity investors, many of whom were teachers and other employees of K-12 public school districts. The account statements wholly omitted the most significant fees that investors paid and failed to adequately describe those fees that were listed. For example, the Company failed to disclose that the “Fees and Expenses” line item did not include all fees and expenses, creating a false implication that all fees paid during the relevant period were described in the account statements. Additionally, in May 2017, an advisory committee to one of the Company’s clients informed the Company that the account statements were unclear. Years later, the Company began providing additional fee information in that client’s account statements, but continued to distribute misleading account statements to its other clients.
The Company was charged with fraud under Sections 17(a)(2) and 17(a)(3) of the Securities Act. In addition to payment of a civil penalty, the SEC order requires that the Company undertake to modify its account statements to:
The SEC Press Release can be found here.
The SEC order can be found here.
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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