Advisor Charged With Defrauding Clients in Annuity Switching Scheme

The Securities and Exchange Commission charged an advisor in Falmouth, Massachusetts, and his firm with defrauding clients as part of an annuity replacement scheme that caused the clients to incur a total of $640,000 in surrender charges between 2018 and 2022.

In a complaint filed Friday in U.S. District Court for the District of Massachusetts, the SEC alleged Jeffrey Cutter, 55, and his firm, Cutter Financial Group, recommended that their advisory clients invest in fixed indexed annuities that paid Cutter a significant upfront commission without adequately disclosing his and CFG’s financial incentive to sell those products.

Cutter has been registered with the SEC as an advisor for the past 16 years, according to his report on the regulator’s website. During that time, he was an advisor with four firms, starting with ING Financial Partners in 2005. He was registered an advisor for his own firm, CFG, since 2017.

The SEC’s complaint alleged that, since at least 2014, Cutter sold his clients certain fixed indexed annuities, without adequately disclosing his and CFG’s financial incentive to recommend fixed indexed annuities over other investment options.

“Time after time, Cutter switched clients out of annuity contracts he had previously sold them into new annuity contracts without adequately disclosing his financial incentive to recommend these switches, including the substantial, up-front commissions he received from the insurance company and other third parties,” according to the complaint.

The complaint also alleged that Cutter recommended some clients surrender a fixed indexed annuity the client already owned, including fixed indexed annuities he sold the client previously, and use the funds to buy a new fixed indexed annuity through Cutter, generating a second upfront commission and sometimes causing clients to incur surrender charges, without adequately disclosing his and CFG’s conflict of interest.

“To perpetrate his scheme, Cutter made false statements to the insurance companies to effectuate the switches and generate a new round of commissions for himself,” the complaint alleged. “In doing so, Cutter and CFG breached their fiduciary duties to never place their own interest ahead of their clients’ interests, to disclose all material conflicts of interest, and to obtain clients’ informed consent to those conflicts before proceeding.”