Insurance Company Deceives Investors With Omissions
False statements made in connection with the purchase or sale of a security violate the antifraud provisions of the federal securities laws, assuming they are material. In the typical case the investor is deceived and unaware that he or she has been furnished with false information that will impact an investment. This is the classic false statement case.
In other cases investors are furnished with information about an investment that is accurate and presented as complete but contains omissions. Again, the investor is deceived but in this instance by an omission. The omission of the material information under the circumstances detailed here also violates the antifraud provisions because the person furnishing the information had a duty to present all the information, not just portions of it. The duty arose from the fact that the person furnishing the information knew that what was presented was represented to be complete but it was not – there were material omissions. This was the situation in one of the few cases the Commission has brought recently dealing with omissions, In the Matter of Equitable Financial Life Insurance Company, Adm. Proc. File No. 3-20931 (July 18, 2022).
Equitable is an insurance company. One of its products is a variable annuity called Equivest. It is marketed to investors as a retirement savings product. Each version has distinct terms and fees that are described in a prospectus. Typically, an investment is made followed by periodic payments. The company agrees that in return for the investments at retirement payments will be made to the investor that correspond, at least in part, to the performance of subaccounts that invest in various underlying mutual funds. The version here was marketed to grade school and high school teachers.
Since 2016 Equitable has presented its fees to investors in the form of a quarterly spreadsheets. Those spreadsheets show the various types of fees paid by the investors. Those include separate account expenses, portfolio operating expenses, administrative and transaction fees and planning expenses.
The teacher-investors understood that the spreadsheets were complete – all the fees were listed. They were not; there were omissions. The fees omitted from the spreadsheets were typically some of the largest incurred in connection with the operation of the plan. Those listed, in contrast, tended to be small and often insubstantial. Investors did not discern from the spreadsheets that in fact the large fees were omitted while the small ones were included. The investors relied on the spreadsheets to be correct and complete. Stated differently, they relied on the insurance company to tell the truth. It did not. The Order alleges violations of Securities Act Sections 17(a)(2) and 17(a)(3).
To resolve the matter the Company agreed to implement a series of undertakings and consented to the entry of a cease-and-desist order based on the Sections cited in the Order. In addition, Equitable will pay a penalty of $50,000. The funds will be placed in a Fair Fund.