Jeffrey Cutter, Cutter Financial faces SEC claims of fraud, deception

Jeffrey Cutter and Cutter Financial Group LLC have been charged with fraud, deceit, and deliberate disregard of regulatory requirements that cost substantial losses to their clients, according to court documents filed by the Securities and Exchange Commission. The 22-page complaint was filed March 17 in U.S. District Court in Boston.

Cutter, 55, has been a financial adviser since 2005. He founded Cutter Financial Group LLC, which has an office in Falmouth, in 2017. Cutter Financial managed $134 million in assets for 430 clients. Most clients were retired or close to retirement age.

The SEC is seeking a permanent injunction against Cutter and Cutter Financial Group, their agents, employees, and others from engaging in the conduct described in the complaint. The agency is asking that Cutter and Cutter Financial Group give up the profits made from illegal acts, pay a judgment interest, and pay a civil penalty.

Losses for seven clients amounted to at least $640,000, accord to allegations by the SEC.

Attorney Ian Roffman is representing Cutter Financial. He states the SEC is holding Cutter Financial to a standard above and beyond what's required in the industry in terms of disclosure.

The SEC is alleging that there are details in addition to those fundamental disclosures that should be disclosed, Roffman said.

"Our view is that the additional details the SEC is seeking are not required under law," he said.

The SEC made allegations against Cutter and Cutter Financial Group.

The complaint alleges that between 2014 and 2022 Cutter deceptively steered clients to certain investments over others without disclosing his financial motives. The complaint claims it was a "breach of his fiduciary duties as an investment adviser."

According to the SEC, clients were persuaded to buy certain annuities over others without Cutter disclosing the 7% to 8% commissions he earned from them. Annuities are essentially investments with insurance companies. Investors can get lump sum payments or a stream of income in some cases.

Cutter made false statements to insurance companies as to why clients were switching annuities before surrender periods were complete, according to the complaint.

Cutter received free marketing services and payments of more than $1.1 million in exchange for selling certain annuities to his clients, the complaint states.

The defendants' behavior resulted in substantial loss, or risk of loss, to his clients, according to the complaint.

The specifics of the allegations against Cutter and Cutter Financial Group were enumerated.

From 2014 to 2022, Cutter generated at least $9,340,302 in commissions from the sale of 580 annuities to his clients, according to the complaint.

Cutter replaced approximately 81 annuities for clients between 2018 and 2022. Of that amount, 38 were annuity contracts that Cutter had previously sold his clients and 34 were before the surrender period had expired, costing his clients fees. In many cases Cutter claimed his clients' financial circumstances or investment wishes had changed when none had, the SEC alleged in the complaint.

The annuity replacements generated at least $974,497 in commissions for Cutter, but cost clients at least $640,000 in surrender charges, the complaint stated.

The complaint laid out the circumstances of seven clients who are alleged to have lost money because of Cutter's actions. Clients were misled, lied to, and not apprised of Cutter's financial gains should they follow his advice, the SEC alleged in the complaint. And clients lost income riders without their knowledge, the complaint stated.

Surrender charges cost Cutter's clients anywhere from $21,000 to $84,652, along with the loss of income riders and the loss of bonuses because switches were made before the surrender period, the complaint stated.

Cutter failed to tell clients' the commissions he earned, ranging from $17,629 to $55,575, the SEC alleged in the complaint.

Cutter lied about how much he earned from commissions when asked, the SEC alleged. He gave misleading and false reasons for why clients wanted to switch annuities before their surrender period, the SEC also alleged.

Withdrawing money from annuities before the surrender period results in fees.

He did not disclose the services he received from selling certain annuities, the SEC alleged. Those services, valued at an estimated $148,000, were commissions, according to the SEC.

Attorney Roffman disputed the complaint filed by the SEC.

Cutter Financial Group has always said it sells insurance and that it receives commissions for selling insurance, Roffman said, adding the company uses an outside compliance consultant to help draft its disclosures. He claims the details the SEC is seeking are additional to what is fundamentally required in the industry.

"Our view is that the additional details the SEC is seeking are not required under law," Roffman said. "What the SEC is trying to do is move the needle."

Roffman said a number of annuity products emerged in 2019 and 2020 that had better features for a small percentage of Cutter Financial clients. Cutter Financial recommended the products as replacement annuities, Roffman said.

"We are confident that the facts will show those updated annuities are really good products for the customers, and they've been performing well," Roffman said.

Roffman plans to litigate the case one client at a time. He said he would show that the products were good for the clients, and that all terms and features were disclosed in writing.

"We want our side of the story out there," Roffman said, adding that it would take a few weeks to file a response to the complaint."

Contact Denise Coffey at [email protected]. Follow her on Twitter: @DeniseCoffeyCCT.