SEC: Cutter Financial press release on verdict ‘inaccurate and misleading’

The years-long dispute between the Securities and Exchange Commission and Cutter Financial Group appeared to end when the jury returned a split verdict April 23.

Not so fast.

The SEC now seeks court approval to conduct discovery on two issues, including the press release CFG issued in response to the verdict. In it, advisor Jeffrey Cutter and CFG claimed that the “Jury Clears Cutter Financial Group.”

Likewise, the press release said the jury found CFG “negligent in not also disclosing the specific upfront amount of those commissions for a limited number of clients.”

“This is inaccurate and misleading for several reasons, including because the finding of liability under Section 206(2) was not limited to specific clients and not limited only to CFG,” the SEC said in its June 18 motion for discovery.

The jury determined that Cutter and CFG did not violate Section 206(1) of the Investment Advisers Act of 1940, but did find violations of Section 206(2), which bars advisors from engaging “in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client.”

The SEC also wants to conduct further discovery into testimony from Jill Cutter, a licensed insurance agent since 2003 and co-owner of CFG, regarding a specific annuity replacement transaction.

In total, the agency is asking the court to OK “up to six subpoenas” on the two issues.

In its response, Cutter accused the SEC of conducting “a fishing expedition” that will further burden his six-person office.

“For nearly five years, this case has imposed an enormous strain on Defendants,” the Cutter response said, “who have had to manage the financial, emotional, and resource demands of ‘fighting city hall’ while still performing their day jobs of providing financial advice to clients.”

In March 2023, the SEC filed charges against Jeffrey Cutter and CFG, for “recommending that their advisory clients invest in insurance products that paid Cutter a substantial up-front commission without adequately disclosing Cutter’s and CFG’s financial incentive to sell the products.”

Cutter is also a licensed insurance agent and the case attracted the attention of industry trade associations who oppose any fiduciary regulation of agent insurance product sales.

Spread on social media

One day after the verdict, the Cutter team issued its press release, posted a similar statement on the CFG website, and promoted it through both the CFG Facebook page and Cutter’s own Facebook page. As people commented, and Cutter responded, a perception emerged, the SEC said in its motion for discovery.

“The publicly available reactions, shares and comments to the Facebook posts demonstrate that the press release and postings had the effect of suggesting that the jury had in fact ‘cleared’ the Defendants of all violations, and that others were to blame for an unjustified regulatory action,” the agency stated.

On May 1, the SEC notified Cutter’s legal team of “its concerns regarding the inaccuracies in the press release on the CFG website,” the motion stated. However, the post remained public for nearly two more weeks.

In its response, Cutter’s attorneys included its official press release from April 23, which acknowledged the split verdict.

“As to Mr. Cutter’s quote that Defendants ‘prevailed’ against the SEC, it accurately reflects Defendants’ feeling of vindication from the jury verdict on intentional fraud and the adoption and implementation of reasonable policies and procedures after years of investigation by and litigation against the SEC,” the response said. “There is nothing improper about Mr. Cutter sharing his feelings about that win.”

The SEC asked the court to allow it to conduct discovery in an attempt to discern Cutter’s “nonpublic communications” about the verdict.

“Facts related to Mr. Cutter’s communications regarding the jury verdict are directly relevant to the Court’s upcoming determination of the appropriate remedies in this case,” the SEC wrote.

Annuity replacement questioned

The second issue pertains to annuities sold to Kim Webber, who first purchased an Allianz annuity from Cutter in 2014, court documents say. In 2020, Webber spoke to the firm about replacing the Allianz product with a Nationwide annuity. She also bought a second annuity with the proceeds from the sale of her deceased father’s house.

The annuities were for $300,000 and $400,000, court documents say.

At trial, Webber was shown the her Nationwide application filled out by CFG. It included two questions: “Are you aware of any existing annuities or insurance owned by the applicant?” and “Will the applied-for Contract replace, discontinue or change any existing life insurance or annuity contract?”

The box “No” was checked for both questions and Webber testified that these answers were inaccurate. Likewise, Webber indicated that other sections of the applications were inaccurate, the SEC noted, including the amount of her annual income and the claim that she was receiving Social Security payments.

Jill Cutter testified that she believed she had filled out the applications accurately and with input from the business’s third-party insurance marketing organization. The SEC wants further depositions to find out what went awry during the application phase.

The Cutters’ attorneys say the agency had ample opportunity to pursue its questions at the trial.

“During trial, it could have cross-examined Ms. Cutter about this precise issue,” the response said. “It also could have called a rebuttal witness to testify, including the witness from Nationwide who testified during its case-and-chief. The SEC’s failure to do so does not justify another bite at the apple.”

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