SEC Hails Massachusetts Jury for guilty verdict Against Financial Advisor on violating his FIDUCIARY DUTY to Clients

The SEC hailed the verdict against the investment advisor, who the agency said breached his fiduciary duty to retired and pre-retiree clients.

A Massachusetts jury has found Cutter Financial Group and its founder, Jeffrey Cutter, liable for violating fiduciary standards under the Investment Advisers Act, marking a partial win for the Securities and Exchange Commission in a long-running enforcement case that underscores the regulatory focus on undisclosed conflicts of interest in annuity sales.

In a verdict delivered Wednesday, following a seven-day trial in the US District Court for the District of Massachusetts, the jury concluded that Cutter and his firm, Cutter Financial Group, breached Section 206(2) of the Act. That provision prohibits fraudulent or deceitful conduct by investment advisers.

The jury did not find them liable under the more serious anti-fraud provisions of Sections 206(1) and 206(4).

The case centered on Cutter’s failure to disclose significant upfront commissions and other compensation arrangements tied to annuity sales to his advisory clients, many of whom were retirees or nearing retirement.

According to the SEC’s March 2023 complaint, between 2014 and 2022, Cutter steered clients into fixed index annuities while withholding information about the substantial commissions he earned – reportedly between seven and eight percent of contract value.

The complaint alleged that Cutter replaced annuities for dozens of clients, including many he had previously advised to purchase the original policies. In many cases, clients incurred surrender charges and forfeited previously accrued bonuses. The SEC argued these replacements were driven by Cutter’s financial gain rather than clients' changing financial circumstances.

In total, Cutter reportedly earned over $9.3 million in commissions from 580 annuity transactions, with nearly $1 million attributed to replacements executed between 2018 and 2022, the agency said. One client, for example, lost more than $26,000 in surrender charges on a switch while Cutter collected a $23,857 commission that was never disclosed.

Cutter also reportedly received more than $1.1 million from marketing firms for his annuity sales efforts.

Jury verdict narrows legal findings

While the jury upheld the SEC's claim that Cutter and his firm engaged in deceptive practices by omitting critical disclosures, it rejected the regulator’s allegations that their actions involved intentional fraud or lacked proper compliance policies.

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

The decision also comes under the watch of newly installed SEC Chair Paul Atkins, who was sworn in earlier this week on Monday. This marks the first enforcement action issued under his leadership.

“Unclear, overly politicized, complicated and burdensome regulations are stifling capital formation, while American investors are flooded with disclosures that do the opposite of helping them understand the true risks of an investment,” Atkins said, indicating he would "reset priorities and return common sense to the SEC.”