Securities Regulation Daily Wrap Up, INVESTMENT ADVISERS—D. Mass.: Jury finds adviser and firm liable for switching clients’ annuities for their own gain, (Apr 24, 2025)

By Rebecca E. Hoffman, J.D.

The SEC carried its burden to show that the defendants ran afoul of Advisers Act Section 206(2), the jury found, for failing to disclose conflicts of interest and working to promote their own interests.

Following a seven day trial, a jury in the District of Massachusetts found investment adviser Jeffrey Cutter and his firm, Cutter Financial Group, LLC (CFG) liable under Section 206(2) of the Investment Advisers Act for engaging a pattern of conduct whereby Cutter or his employees, under his direction, moved advisory clients’ funds to certain investment products without disclosing that they were conducting the switch to earn commissions or other payments. The failure to make these conflicts of interest known to clients was a breach of Cutter’s fiduciary duties as an investment adviser (SEC v. Cutter Financial Group, LLC, No. 23-cv-10589 (D. Mass. Apr. 23, 2025)).

Switching scheme. According to the complaint, Cutter made commissions by steering his clients to fixed index annuities, netting seven to eight percent of the annuity’s value. Cutter did not adequately explain that these financial incentives were his reason for encouraging the sales. Furthermore, the defendants would “switch” clients from one annuity to another to get additional commissions, the complaint said. Often, the switches triggered surrender charges to the clients. The defendants also earned free marketing services and other benefits by engaging in this “replacement” strategy.

“Cutter, or other CFG employees acting at Cutter’s direction, often trolled for replacement options before meetings with clients and thus before Cutter could have been aware of any changes to clients’ financial goals or circumstances that were typically necessary to justify switching,” the complaint explained. The SEC alleged that Cutter made false statements to the insurance companies to effectuate the switches and generate a new round of commissions for himself, to the detriment of his clients’ interests. “His most common justification was a purported ‘change in the client's objectives’—even when the client’s financial circumstances and goals had not changed,” the complaint said.

Jury verdict. The jury determined that the SEC proved by a preponderance of the evidence that the defendants violated Section 206(2) of the Investment Advisers Act, which prohibits investment advisers from “engag[ing] in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.” The complaint underscored that Cutter and CFG breached their fiduciary duties to never place their own interests ahead of their clients’ interests, to disclose all material conflicts of interest, and to obtain clients’ informed consent to those conflicts before proceeding.

"We are pleased with the jury verdict holding Jeffrey Cutter and Cutter Financial Group, LLC accountable for breaching their fiduciary duties to their clients,” acting director of SEC’s Division of Enforcement, Samuel J. Waldon, said in a press release. “‘As the hard work of the SEC team demonstrates, we will continue to hold investment advisers responsible when they engage in wrongdoing."

The SEC’s complaint sought: (1) a permanent injunction restraining Cutter and CFG and other persons in active concert or participation with them from directly or indirectly engaging in the conduct described in the complaint; (2) an order requiring Cutter and CFG to disgorge all ill-gotten gains and to pay prejudgment interest; and (3) an order that Cutter and CFG pay appropriate civil penalties.

The case is No. 23-cv-10589.

Attorneys: Susan Cooke Anderson for the SEC.

Companies: Cutter Financial Group, LLC

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