SEC v. KEYSTONE CAPITAL PARTNERS, INC.; CHRISTOPHER S. LAWS; JONATHAN DAX COOKS; DANNY S. HOOD; and BRANDON P. LONG, Northern District of Georgia (July 31, 2017) — Complaint

UNITED STATES
DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA
DIVISION
SECURITIES
AND EXCHANGE
COMMISSION,
Plaintiff,
Civil Action File No.
v.
KEYSTONE CAPITAL PARTNERS, INC.
dlb/a FEDERAL EMPLOYEE
BENEFIT
COUNSELORS,
CHRISTOPHER
S.
LAWS, JONATHAN
DAX COOKS,
DANNY S. HOOD, and
BRANDON P.
LONG,
Defendants.
COMPLAINT
Plaintiff
Securities
and Exchange
Commission ("Commission")
alleges as
follows:
SUMMARY
1. Between
approximately March 2012
and
November 2014,
(the
"Relevant Period"),
Christopher Laws, Jonathan Cooke,
Danny
Hood, and
Brandon Long, each of whom were registered representatives
of
a
broker dealer

(collectively,
the
"Representatives"),
fraudulently
induced
federal employees to
rollover
significant
funds
from their federal retirement accounts,
referred to as
Thrift Savings
Plan
("TSP")
accounts,
into variable annuity
products promoted
under
the
banner
of an
entity called
Keystone
Capital
Partners,
Inc. d/b/a
Federal
Employee
Benefits Counselors.
2. Motivated
by the prospect
of high commissions
associated
with
the
variable annuities,
the
Representatives targeted
federal employees, age 59 1
/~
and
over, who had
significant
TSP
account holdings
that could be rolled
over on a
tax-free basis
into variable annuities
held
in
qualified plans
at annuity carriers.
3. Defendants
employed
several
tactics
calculated to
mislead
federal
employees
into
believing
that
Defendants and
their recommended
investment
(that is, a variable
annuity) were
affiliated
with or approved by the
federal
government.
For example, despite the
fact that
their
recommended
investments
had no
connection
to the
TSP, the Representatives,
in
recommending
this
investment: (a)
made
misleading comparisons
between their recommended
investment and the
life annuity offered
through
the
TSP
by
omitting key
information
oi• falsely
describing
the
actual fee structure and
surrender
fees
related to
their recommended
investment; (b) used
an
eagle
-encircled insignia
on

other documents
given
to
customers and
on their
website that
resembled the
official seal of
various agencies
of the
federal
government;
and (c) used a name,
Federal
Employee Benefits
Counselors, that
insinuated that they were affiliated
with
the
federal government while
obscuring
the
fact that they were associated
with
a
broker dealer.
4.
Further adding
to the
false
impression
that
their
investment
was
affiliated
with or approved by the
TSP,
the
Representatives combined into one
form
the
documents the
Representative needed to purchase the
variable annuity
with
the portions
of
the
official TSP Form that was needed to
transfer
funds
from
the
federal employees'
TSP accounts, and referred to the
variable annuity
investment
using terminology
from an
official TSP form.
5.
In truth,
the
variable annuities
that Defendants offered and sold
were
privately
-issued,
separate and apart
from
the
TSP and the
federal
government,
and had
much higher costs
than
alternatives available
through
the
TSP. Moreover,
the
Representatives
had no
affiliation with,
and were not
approved
or
vetted by, the
federal
government.
6.
The
promotional materials that Defendants
gave to
potential
investors also touted the
additional
benefits
of the investment
option
they

recommended as compared to the life annuity offered through the TSP, without
disclosing
the
significantly higher annual
fees and
surrender
charges.
7.
During
the Relevant Period, Defendants sold
approximately
200
variable annuities
with
a
total
face value
of over approximately
$40
million
to
federal employees,
who used
monies rolled over from their TSP
accounts to fund
their
purchases, and the Representatives
collectively
earned approximately $1.7
million in
commissions
on
these sales.
8.
In connection with
at least five
of
these sales, Defendants Hood and
Long made additional oral misrepresentations or
omissions
further suggesting
that the investment
option
they recommended was affiliated
with
the
TSP,
and
misrepresented
or
omitted to disclose the associated fees.
9.
Further obscuring that
Defendants and
their
recommended
investments were unaffiliated
with
the
TSP
and the
federal
government, some
of
the Defendants also opened accounts
with their broker dealer in
these five
investors'
names
without
the investors' knowledge
or
consent.
10. The
broker dealer that
employed the Representatives required that
an
account be opened
in an
investor's name before the Representatives could
place a variable annuity
order on
the investor's
behalf.
But some
of
the investors

did
not
learn of
the
creation or
existence
of
these accounts in
their
names until
after their TSP
accounts had
been
liquidated (that is, the
underlying
securities
were sold)
and
the
funds transferred to purchase the variable annuity.
11.
Defendants
also did not
give these five investors the prospectuses
for
those investments, even though
this was
required by
the
broker dealer
that
employed the Representatives. This also veiled the fact that the investment
option
they recommended to these
investors was a
variable
annuity issued by a
private insurance
company
that had no
connection
to, and had not
been
specifically
approved or vetted by, the TSP or the federal government.
JURISDICTION AND
VENUE
12.
The
Commission
brings this
action
pursuant to the authority
conferred upon it by Sections
20(b)
and 20(d) of the
Securities Act
of
1933
("Securities Act") [15 U.S.C. §§ 77t(b) and 77t(d)] and
Section
21(d)
of
the
Securities Exchange Act
of 1934
("Exchange Act") [15 U.S.C. § 78u(d)].
13. This Court has
jurisdiction
over
this
action pursuant to Section
22(a)
of the
Securities
Act [15 U.S.C. §
77v(a)] and
Section
27(a)
of
the
Exchange Act [15 U.S.C. § 78aa(a)].

14.
In connection with
the transactions, acts, practices, and courses
of
business described in this Complaint,
Defendants,
directly
and
indirectly,
have
made use
of
the means
or
instrumentalities
of
interstate commerce, of
the mails,
and/or of
the means and instruments
of transportation or
communication in
interstate commerce.
15. Venue
is
proper in
this district as
all
defendants reside
in
this
district.
FACTS
A.
Defendants
16.
Federal Employee Benefit Counselors
("FEBC")
is a
d/b/a
of
Keystone
Capital
Partners, Inc.,
which
is aGeorgia-registered corporation
that was cofounded by
Christopher
Laws and
Jonathan
Cooke
in early 2012.
From
its
inception until December 2014,
FEBC's office was located in
the
same
office
in Alpharetta,
Georgia as
the
Office
of Supervisory Jurisdiction
("OSJ")
for
the
broker dealer with whom
the Representatives were registered
(the
"Broker Dealer"). Christopher
Laws was the
manager of
this office (the
"Alpharetta OSJ").

17.
Christopher
S.
Laws ("Laws"),
age 49, lives
in
Alpharetta,
Georgia.
From July
2005 to
December 2014,
Laws was a registered
representative
with
the
Broker Dealer,
and at least as
early
as 2006, he was the
manager of
the
Broker
Dealer's Alpharetta OSJ. Laws co-owns FEBC
with
Jonathan
Cooke, and
during
the
Relevant
Period, was the entity's CFO and
Secretary. In
December
2014,
Laws was terminated from
the
Broker Dealer.
From
that time
until March
2017, Laws was a registered representative
with
another broker
dealer. On or about
March
31, 2017,
Laws was permitted
to
resign from
that
broker dealer when
that
firm
terminated its
relationship with
the
branch
office
from which
Laws had operated.
18.
Jonathan Dax Cooke
("Cooke"), age
34,
lives
in
Atlanta,
Georgia.
From
May 2009 to
December 2014,
Cooke was a registered
representative
with
the
Broker Dealer in
the firm's Alpharetta OSJ. Cooke co-
owns FEBC
with
Laws, and,
during
the Relevant Period,
was
the
entity's CEO.
In December 2014,
Cooke was terminated
from
the
Broker Dealer. From
that
time
until
the
voluntary termination of
his
registration in December
2016,
Cooke was a registered representative
with another
broker
dealer.

19.
Brandon Preston
Long ("Long"),
age 28,
lives
in
Atlanta,
Georgia.
From
Apri12014
to
December 2014,
Long
was a registered
representative
with
the Broker Dealer in
that
firm's Alpharetta OSJ.
In
December 2014, Long
was terminated
from
the Broker Dealer. From
that time
until
March
2017,
Long
was a
registered representative with another broker
dealer. On or
about March 31,
2017,
Long
was permitted to resign from that
broker
dealer when
that firm
terminated its
relationship
with
the
branch
office
from which
he
had operated.
20. Danny Scott Hood
("Hood"), age
44,
lives
in
Marietta,
Georgia.
From October 2012
to December 2014,
Hood was
a registered representative
with
the Broker Dealer
based
in
the firm's
Alpharetta OSJ.
In
December 2014,
Hood
was terminated
from
the Broker Dealer. From
December 2014
to August
2015, Hood was a
registered representative with two other
brokerage
firms,
and
with
respect to one of
those firms, was
an
investment
adviser
representative
for
the
affiliated investment adviser.
Since August 2015, Hood
has
been an
investment
adviser
representative
with an
investment adviser
that is registered
with
the
Commission.

B. Other
Relevant
Entity
21.
The Broker Dealer
is a California corporation
headquartered in
Boston,
Massachusetts and is dually
registered
with
the Commission
as a
broker-dealer
and
an
investment adviser. During
the Relevant
Period,
all of
the
variable annuity
sales at issue were processed through
the Broker
Dealer's
Alpharetta OSJ,
of
which
Laws was the
manager.
C. FEBC's
Origins and Treatment as an
Outside
Business Activity
22. In early 2012,
Laws and Cooke founded
FEBC as a
"doing
business as" name for
Keystone
Capital
Partners, Inc. As co
-owners
of
FEBC,
Laws
served as FEBC's CFO and Secretary,
and Cooke
served as the
company's CEO.
23. During
the Relevant Period,
FEBC was based in
the same
location as
the
Broker
Dealer's
Alpharetta OSJ
from
which
Laws (the OSJ
manager),
Cooke, Hood and Long
conducted
securities transactions
as the
Broker
Dealer's
registered representatives.
24.
Under
the
Broker
Dealer's
applicable policies,
registered
representatives were required to
provide
written
notice to
the
Broker
Dealer of
any
intended
outside business activity ("OBA"),
and they
were required to

obtain written
approval from the
Broker
Dealer before engaging in
the
proposed activity.
25.
In or
around
March 2012,
Laws and Cooke disclosed FEBC to the
Broker
Dealer's
Advisor
Review Group as
an OBA. In doing
so,
however,
they falsely
characterized FEBC as
anon
-securities related entity that sold
only
fixed
or non
-variable insurance products. The Broker
Dealer's
Advisor
Review
Group gave Laws and Cooke
written approval
to operate FEBC as a
non
-securities OBA that the
firm
had no
obligation
to
supervise
under FINRA
Rule 3040 (current Rule 3280).
D.
Background on the TSP Program and Relevant Withdrawal
Options
26. The federal government
offers its employees atax-deferred
retirement
savings account
which
is
akin
to a
401(k) program.
That
program
is
referred to as the Thrift Savings
Plan or "TSP."
27. Upon
leaving federal
service, federal
employees have three
options for making
a
full withdrawal of their
entire
TSP
account,
any
two
or
three
of which can
be combined:
(1)
a single payment,
(2)
a series of
monthly
payments spread out
over
time, and (3) as a
TSP
life annuity, which the TSP
purchases
on behalf of
the
TSP
participant
from
the TSP's annuity vendor. The

TSP
life annuity provides a
monthly
benefit paid to
the employee
for
life and,
if
the employee
chooses,
for
the
life of a designated
survivor.
28. To purchase the
life
annuity, the
former
employee must complete a
"Form
TSP-70," as a request
for
a
full withdrawal from
the
TSP,
and select the
"life annuity"
option within
the
"Withdrawal Election" section of
that
form.
29. Current
federal
employees
age
59 '/z
or older who are not
planning
an
immediate
separation from federal
service have the
option
to take
partial or
full
withdrawals
from their TSP
accounts. To
effectuate such a withdrawal,
which
is referred to as
an
age-based, in-service
withdrawal,
the employee must
complete a
"Form
TSP-75."
E.
The
Broker
Dealer's Required Procedures to Purchase a Variable
Annui
30. Before a registered representative
of
the
Broker Dealer
could
sell
a
variable annuity
through the Broker Dealer,
the
firm's Written Supervisory
Procedures and
Advisor
Compliance
Manual (collectively,
"Compliance
Procedures") required a retirement account to be opened
in
the customer's name
at the Broker
Dealer
that would
ultimately
be linked to the variable annuity
contract
(sometimes
called a
"tracking
account").

31.
The registered representative was required to
open
a
tracking
account in the Broker
Dealer's
new account system, which, in turn,
required the
registered
representative to
enter certain information about the
proposed account
holder, including the information requested in the
Broker
Dealer's "Account
Application."
32. After
the
tracking
account was opened, the registered representative
was
then
required to enter
certain information concerning
the variable
annuity
order
into the
Broker
Dealer's Annuity
Order Entry ("AOE") system, including
the date
on
which the registered representative sent the variable annuity
prospectus to the
customer.
33.
During much of
the Relevant Period, the
AOE system
generated
related
transaction
forms that the variable annuity customer was required to
sign,
including afour-page form
entitled,
"Important Information Regarding Your
Variable Annuity" (the "Variable Annuity
Form").
34.
The variable annuity
order
was
then
to be submitted in the AOE
system
for
a suitability review and approval
by the
OSJ manager or
the
manager's designated
principal,
and
then
submitted to the
carrier.
The
carrier
then issued the variable annuity contract and
sent a bound copy to the
registered

representative
with
instructions that he
or
she deliver the
contract to the
customer.
35. The
registered representative was
then
required
to
obtain
a signed
delivery
receipt from
the
customer,
send the
customer
-signed
receipt to the
carrier,
and preserve
copies
in
the
customer
file at the
Broker
Dealer.
F. The
Fraudulent Scheme to Sell Variable
Annuities
1.
Defendants Target Federal
Employees With Sizeable TSP
Accounts
for
Variable
Annuity
Purchases
36.
Contrary
to
disclosures made to the
Broker Dealer
concerning
the
scope
of
FEBC's
activities, Defendants sold approximately
200 variable
annuities
(with
a
total
face value
of
over approximately
$40
million)
to
approximately
200
FEBC-prospected
federal
employees who used
funds
from
their TSP
accounts to purchase these annuities.
37.
Hood and
Long
received
commissions
on each
variable annuity they
sold.
Laws and Cooke received a
share
of
the associated
commissions earned
on
each
variable annuity sold
by Hood and
Long.
38, To identify
prospective customers for
the sale
of
variable annuity
products, the
Representatives
and/or
FEBC
administrative
staff acting
at the

direction of
Laws and Cooke, used various Internet
sources and subscribed to
various
proprietary
databases to
obtain personal
information
about
federal
employees.
39.
Through
mailed surveys, FEBC employees scheduled
and
conducted initial
"benefits
review"
sessions
with federal
employees,
which
involved a review
of
the federal
employee's
life, health,
disability insurance
plans, and, based
on salary information
provided by the federal
employees,
their
projected payouts from
the
federal retirement system.
40. Interested
federal
employees who were eligible to roll
over
TSP
account funds to a qualified plan on a
tax-free basis were referred to one
of
the
Representatives
for "TSP counseling"
services.
41. In
the course
of
the
TSP "counseling"
sessions, the Representatives
obtained
from
the federal employee information concerning
his
or her
years
of
federal
service,
planned retirement date,
risk
tolerance, net
worth,
and
salary.
42. During an
online
meeting,
the
federal
employee was
shown
a slide
presentation,
based
on
a template created by
Laws,
Cooke and
Hood,
describing
options
for federal
employees'
TSP
accounts
upon
retirement.
~[~

43. Laws and
Cooke trained Hood and Long on
how to conduct
the
TSP counseling
sessions and
what to
tell
customers
during
these
TSP
counseling
sessions
to induce
them
to purchase
variable annuities.
44.
Furthering
the perception that
they were affiliated with
the federal
government and/or
the
TSP rather than
the Broker Dealer,
Hood
and
Long,
acting under
Laws' supervision, knowingly
disregarded
the
Broker
Dealer's
Compliance
Procedures by conducting
securities-related
communications
with
federal
employees via their
FEBC's
email
addresses, rather than
through
the
Representatives'
Broker Dealer
email
addresses.
45. Contrary to
the
Broker
Dealer's
Compliance Procedures, the
Representatives
failed to provide the Broker Dealer with their
securities-related
emails and paper
correspondence with federal
employees who
were solicited by
FEBC for
variable annuity
sales.
2.
Defendants' Misleading TSP
Report
46. After
the online meeting,
Defendants generated a "TSP
Report"
based on
a template created primarily
by Laws and Cooke with
contributions
from
Hood. As trained by
Laws
and
Cooke, Hood and Long then
sent these TSP
Reports to the targeted federal
employees.

47.
During much of
the Relevant
Period,
approximately
three
to
four
pages of each TSP
Report contained personalized information, including
the
federal
employee's name, age,
TSP
account value,
and
TSP
account allocation.
The
remaining
pages were
largely
the same
for
each federal
employee to whom
they were disseminated.
a. The
TSP
Report Misleadingly
Portrays the
Recommended
Investment
Option
as Related to or
Approved by the
TSP
48. The
TSP
Reports routinely
recommended
an
investment
option
characterized in the
reports as the "TSP-75 Election,"
"Hybrid
Option,"
and
"TSP-75 Hybrid."
49. The
names used
in
the
TSP
Reports to describe
the recommended
investment option—that is, "TSP-75 Election,"
"Hybrid
Option,"
and "TSP-75
Hybrid"—were
strikingly
similar to
the
official form
that
federal
employees use
for
age-based, in-service
withdrawals—the
Form
TSP-75.
50. During much of
the Relevant Period,
the
TSP
Reports contained
multiple
diagrams that misleadingly
depicted the so-called "TSP-75 Election,"
"Hybrid
Option," or
"TSP-75
Hybrid" as related
or
comparable to the
TSP's life
annuity.

51.
The
TSP
Reports did not
explain
that the
recommended investment
was
actually
a variable
annuity. Indeed, the phrase
"variable annuity" does not
appear
at
all in
the TSP
Reports that Defendants generated
and sent to multiple
customers.
52. In comparing
the features of the
TSP's life annuity with
the
recommended
"TSP-75
Election,"
"Hybrid Option," or
"TSP-75 Hybrid," the
TSP
Report identified
the
carrier for each option,
but did not reveal
that the
carrier for the
recommended investment had not been
selected
or
specifically
vetted by the
TSP or
the federal
government.
53. Additionally,
the
TSP
Reports fostered the misleading impression
that
FEBC and the Representatives were
employed by, contracted by, specifically
vetted by,
or especially
approved by the
federal
government to
advise
federal
employees on
the
TSP.
54. Specifically,
the
TSP
Reports
described FEBC as a "national
consulting
group dedicated
to
educating federal
employees," and
stated that
FEBC's
counselors "receive extensive
training in
...all the
alternative benefit
programs
available to
federal
employees." The
TSP
Reports also depicted
an

eagle-encircled insignia in red,
white
and blue
colors,
similar
to the
federal seal
used by
several federal
agencies.
b. The
TSP
Report Misleads as to the
Costs
of
the
Recommended Investment
55. The
TSP
Reports also made
misleading
statements regarding the
additional benefits
associated
with the
recommended "TSP-75
Election,"
"Hybrid
Option" or
"TSP-75
Election"
as compared to the
TSP's life annuity,
without disclosing
the
significantly higher
costs associated
with
these
additional
benefits.
56.
Specifically,
the
TSP
Reports depicted the "TSP-75
Election,"
"Hybrid
Option" or
"TSP-75
Election"
as
having
"features" not included in the
TSP's life annuity, such
as
liquidity, investment flexibility,
and longevity
protection.
57. The
TSP
Reports failed,
however,
to disclose that these
additional
features came at considerable
additional
costs as compared to the
life annuity
from the
TSP's annuity
vendor or the federal
employee's
taking monthly
payments
from
his
or her TSP account upon
retirement.

58. These undisclosed
additional
costs include mortality, expense,
and
administration
fees
of
1.3 percent
annually,
a
rider
fee
of 1.25 to 1.5 percent
annually,
and asurrender-fee schedule
requiring the
customer
to surrender up to
8.5 percent
of any
funds
withdrawn from the investment
during
the first
seven
years (thereby,
limiting the "liquidity" feature touted
therein).
c. The
TSP
Report
Misleadin lg~y
Depicts the Value
of
the
Variable Annuity
59. The
TSP
Reports also contained charts
that misleadingly obscured
the
relationship between the
underlying
"account value"
of
the variable annuity
and the "benefit-base value"
or
the "income-base
value"
of
that investment.
60. The
"account value"
of
a variable annuity is the
actual
value
of the
variable annuity subaccounts,
which
is
where the money is
actually
invested, and
grows
on
a
tax
deferred basis. The
account value fluctuates with
corresponding
gains
and
losses
in the subaccount investments, and could be
lower than
the
initial
investment.
61.
The so-called
"TSP-75 Election," "Hybrid
Election" or
"TSP-75
Hybrid" offered and sold by Defendants involved
an investment
in
a variable
annuity with a rider
providing
the
following
features:
a guaranteed minimum

withdrawal
benefit, guaranteed lifetime income, a guaranteed
annual seven-
percent "bonus," and
annual
step-ups.
62. In
this context, the "benefit-base value"
or
the "income-base value"
is the accounting entry
used to
calculate the minimum
guaranteed amount the
annuitant can withdraw
as
income
each
year. The benefit-base/income-base
value has no
cash
value and, thus, is not what customers receive
if
they
cash
out
of their
variable annuity.
63. The
rider
associated
with
the "TSP-75
Election,"
"Hybrid
Election"
or "TSP-75
Hybrid" guaranteed
that the benefit-base value would grow seven
percent
annually,
regardless
of
the market performance
of
the subaccounts
comprising
the account value.
64.
The charts
in
the
TSP Reports
failed to
depict clearly that during the
first
seven
years
of
the investment (that is, the
surrender
period), the
investor
was
not entitled to the benefit-base value (guaranteed to grow
seven
-percent
annually), but
was
only entitled to the account value minus a surrender fee. The
account value could have decreased
significantly from
the
initial
amount
invested.

3. Defendants' Misleading
TSP-75 Election Form
65. After
a
customer
elected the
so-called "TSP-75 Election,"
"Hybrid
Option,"
or "TSP-75
Hybrid"
upon
Defendants' recommendation,
Defendants
assisted
with
the
related mechanics
of
transfemng
funds
from
the customers'
TSP
accounts to purchase
the variable annuity and,
unbeknownst to at least five
customers,
open
accounts at the
Broker
Dealer
to effectuate the
purchase
of
the
variable annuity.
66. To
accomplish
these feats,
Defendants had the
customers complete
a
form
that
Defendants created, the "TSP-75 Election Form."
While the
"Elections Forms"
given
to customers varied
to some degree depending on
the
Representative who sent them,
these forms included pages from
the
official Form
TSP-75 (to facilitate
the in-service, age-based withdrawal from
the
TSP)
combined with
pages
from Broker Dealer
-specific forms (to
open
tracking
accounts at the
Broker Dealer), or
combined
with
a page that was graphically
similar
to pages from the official Form
TSP-75 and
requested
information
needed to open
a
tracking
account at the Broker Dealer in
the customers' names.
67.
Laws and Cooke trained and/or
instructed
Long
and Hood on which
pages of
the
Form
TSP-75 and
Broker Dealer
-specific forms the
Representatives

were
"required" to send federal
employees to effectuate
the variable annuity
purchase.
68.
The
participant signature page of
the
official
Form
TSP-75,
which
was included in
the
"Election
Forms,"
indicates that the
form
must be
notarized
by
a
notary
public.
69. Laws improperly
notarized the signature
of
at
least one customer
without
(1)
personally witnessing
the customer sign
the relevant
pages
of
the
Form
TSP-75,
(2)
confirming with
the
customer
via
telephone
or email
communication
that
he/she had indeed signed
these pages,
or
(3) obtaining
copies
of
agovernment-issued identification from
the customer
to compare the
signature affixed thereon
to the signatures
on
the relevant
pages
of
the Form
TSP-75.
a. Lon~'s
Election
Forms
70. The
"TSP-75
Election Form"
that Long
sent to certain federal
employees consisted
of
five
pages excerpted
from
the official Form
TSP-75 and
three pages excerpted from the Broker
Dealer's Account Application.
71.
Longs
"TSP-75
Election
Forms"
included a
cover
page similar
in
appearance to that
of
the
official Form
TSP-75, including
the
TSP
insignia

printed to the left
of
the
words
"Thrift
Savings
Plan."
But the
words "Age
-Based
In
-Service
Withdrawal
Request" that
appeared
on cover
page
of
the official Form
TSP-75 were
replaced
with
the words "Election
Forms."
72.
Longs
Election
Forms omitted the instruction
pages that were
included
in
the official Form
TSP-75.
In addition,
these Election
Forms omitted
the
page
of
the
official Form
TSP-75 directing
the completed form to be
sent
directly
to the TSP,
and replaced it
with
a graphically similar-looking
page
instructing
that the completed form
instead be sent
directly
to FEBC.
73. None of
the pages included
in
these Election
Forms disclosed that
the customer
would be opening an account at
the
Broker Dealer
(and not with
the
TSP or
the
carrier
of the
annuity).
b. Hood's
Election
Forms
74.
Hood sent
a
slightly
different
version of
a
so-called "TSP-75
Election Form"
to
several federal
employees. This form
included a
cover
page
similar in
appearance to the
cover
page of the official Form
TSP-75, including
the
TSP
insignia printed
to the
left of
the words "Thrift
Savings
Plan."
But the
words "Age-Based In
-Service
Withdrawal
Request" on the cover
page
of
the
official Form
TSP-75
were replaced
with
the words "Election Form."

75. Following
the
cover
page,
the "Election Form"
sent by Hood to
multiple
customers included three
information-requesting
pages
taken from
the
official Form
TSP-75, including
section
headings numbered I through IX. But
this
"Election Form"
also included
an additional
page designed to appear
indistinguishable
from,
and as a
continuation of,
the three pages
taken
from the
official Form
TSP-75.
76.
For
example, the first
information-requesting
section of the
additional
page
in
the
election form
sent by Hood was numbered
X,
thereby
appearing
as a
continuation of section IX from
the
official Form
TSP-75. The
additional
page also used the
same font
types and sizes, page borders, page
header,
and date
-edition designation in
the
footer
as the prior three pages that
were
taken from
the
official Form
TSP-75.
77. The additional page in the election form sent to multiple customers
by Hood requested the type
of personal information
requested
in
the
Broker
Dealer's Account
Application, including, for
example, driver's license
number,
beneficiary
designations, and employer's address. None
of
this information was
requested on any pages of the TSP's official Form TSP-75 in effect during the
Relevant Period.

78.
As
with
the so-called
"Election
Forms"
sent by
Long,
the "Election
Forms" sent by Hood
omitted the
instruction
pages included in
the
official Form
TSP-75.
79. Hood instructed federal
employees to sign and return
the so-called
TSP-75 Election Form
to FEBC,
rather
than directly
to the
TSP, in
order
to
effectuate
their
so-called TSP-75
election.
4. Additional Actions Masking the
Distinctions between De endant
and their
Recommended Investment versus the TSP
and Its Life
Annui
a. Surreptitiously Opening Tracking
Accounts
80. Hood and
Long
opened tracking
accounts at the Broker Dealer for
at least five customers without
those customers' knowledge or
consent.
81.
To open
these accounts, Hood and Long
used the
information
they
obtained from
the customers,
either from
oral
communications
or
from the
Election
Forms that the
customers completed.
82.
For multiple
customers,
Long, or
others at
FEBC
acting on
his
behalf,
combined the signature page
of
the Broker
Dealer's
Application
Form
that
was included
in
Long's
"Election
Forms" that
these customers signed with
the other
pages
an Application Form
that these
customers
never
received.

83. For
multiple customers, Hood, or
others at FEBC
acting on
his
behalf,
copied
and pasted the signatures of certain
customers
from
pages they
actually
signed
onto the signature page
of an
Account Application
that these
customers
never
received.
84. By opening
the tracking
accounts
in
these customers'
names
without
these customers'
prior
knowledge or
consent, Hood and
Long
reduced
the possibility that these
customers would
discover
that they and
FEBC were
affiliated with
a
broker dealer,
were not
affiliated
with or specifically
approved
by
the
federal
government,
and the investment
option
these
customers had
selected
was a variable annuity issued by a
private insurance
company
that was
not specifically
selected by, vetted by, or in any
way affiliated with the TSP.
b.
Failure to
Timely
Provide Customers with
Prospectuses
or
the Complete Variable
Annuity
Form
85.
Pursuant to the
Broker
Dealer's
Compliance Procedures, before
submitting
a variable annuity order in the Broker
Dealer's
AOE
system for
review and
approval,
a
registered representative was required to
send the
customer a product
prospectus and
obtain
the
customer's signature
on
the
Broker
Dealer's
Variable
Annuity
Form.

86. Contrary to
these procedures, Hood
and
Long
did not
send
a
prospectus to multiple
customers.
87. Instead, Hood and Long falsely
reported in
the
Broker
Dealer's
AOE
system
that they had sent
theses customers a
prospectus
on
dates
occurring
before these
customers'
TSP
account
funds were sent to the carver.
88.
For
multiple customers, Hood did not
send,
or obtain
the
valid
signatures and
initials
on,
the Broker
Dealer's Variable
Annuity Form
before
submitting
these
customers' variable annuity
orders
in
the Broker
Dealer's
AOE
system for
review
and
approval.
89. Instead, Hood, or
others at FEBC acting on
his
behalf,
copied and
pasted the signature of
at least one customer from other
forms
this
customer
had
signed earlier
onto the
Broker
Dealer's Variable Annuity Form, which
this
customer
had
never
received.
90.
Long
did not obtain
the initials and
signatures
of
multiple
other
customers
on
the Broker
Dealer's Variable
Annuity
Form
before
submitting their
respective
variable annuity
orders
in
the
Broker
Dealer's
AOE
system for review
and approval. Rather,
Long, or
others at FEBC acting on
his
behalf,
sent
these
customers only
two pages
of
the four
-page
Broker
Dealer's Variable Annuity

Form—the
two
pages
requiring
the
customer's
initials
and
the
signature—after
their
TSP
accounts
funds
had
already
been
sent
to
the
annuity
carrier
and
an
annuity
"contract"
was
generated
in
their
respective
names.
Long
never
sent
these
customers
the
pages
of
this
Variable
Annuity
Form
that
listed
the
full
name
of
the
variable
annuity
product,
delineated
the
associated
fees
and
surrender
-fee
schedule,
and
set
forth
the
date
on
which
the
customer
was
purportedly
provided
the
prospectus.
91.
Through
these
actions,
Hood
and
Long
were
able
to
facilitate
the
suitability
review
and
approval
of
these
transactions
by
the
designated
principal
assigned
to
the
Alpharetta
OSJ.
92.
After
the
variable
annuity
carrier
had
approved
a
variable
annuity
purchase
facilitated
by
Defendants,
the
carver
mailed
a
bound
copy
of
the
customer's
annuity
contract
along
with
a
delivery
receipt
and,
if
applicable,
a
client
acknowledgement
form,
to
one
of
the
registered
representatives
of
record
for
the
transaction
with
instructions
that
the
registered
representative
send
the
contract
packet
to
the
customer.
93.
Defendants
did
not
send
the
bound
contract
to
multiple
variable
annuity
customers.

94. By failing
to provide multiple customers
with
prospectuses,
the
complete
version of
the
Broker
Dealer's Variable Annuity
Form,
and
the annuity
contract, Defendants reduced the
possibility that these
customers
would
discover
that the
investment option
they
had selected
was
a variable annuity issued by a
private insurance company that was not
specifically
selected by, vetted by,
or in
any
way affiliated
with
the
TSP.
S. Oral Misrepresentations and Omissions Made
By
Hood and Long
95. Hood and
Long
made
oral
misrepresentations and omissions to
multiple customers
in connection with the sale
of
variable annuities.
96. Hood and
Long
tailored
their oral
representations to these
customers based on those customers'
financial sophistication
and the specific
questions they asked,
making
the
minimal
disclosures
necessary
to
attain
each
particular
customer's assent to the subject investment.
97.
For
example, Hood told at least one
customer
that he was a
counselor
with the
TSP.
98.
Long
told
at
least
one customer that roughly
one third
of
government employees go into the so-called "TSP-75
Election."

99. Hood and
Long
did not
orally clarify
to multiple customers the
misleading
statements and omissions
in the TSP
Reports
concerning
the
recommended investment's
lack of government
affiliation
or specific selection
and the
Representatives'
lack of government
affiliation.
100.
For
example,
although
one
customer repeatedly
told
Long
that she
could not believe that the government offered the so-called "TSP-75
Election"
depicted in the TSP Report, Long
never
clarified that the investment was not
being
offered by the
federal government.
101.
These
misrepresentations and omissions by Hood and
Long further
contributed to the
belief
by
certain
customers that the recommended investment
was offered, vetted,
or specifically
selected by the
TSP
and that the
Representatives and
FEBC were employed by, contracted by, vetted by, or
specifically
approved by the
federal
government.
102.
Hood and
Long
told multiple customers that the recommended
investment guaranteed aseven-percent
annual return.
But they failed to
explain
to these
customers
that
this
guarantee
applied
only to the
benefit-base value
of
the recommended investment and that
their actual
account value would fluctuate
with
the
stock
market.

103. Hood and
Long each misrepresented the
annual
fees
associated
with
the recommended
investment to at least one
customer.
104. For example,
although
the
total annual
fees
for the variable annuity
purchased
by one
such
customer
included a mortality,
expense, and
administration
fees
of
1.3 percent and
a rider
fee
of
1.25 to 1.5 percent,
Long
told
this
customer
that the
total
fee was
under
one percent and a
tiny
bit more
than the
TSP.
105. And Hood told
at least one
other customer
that the
annual
fees
associated with the recommended investment
were only 1.5 percent.
106.
Moreover, Hood and
Long
misled multiple customers
about the
seven-year surrender
-fee schedule
associated with the recommended
investment.
107. For example,
Long
told
at
least one
customer that there was a
seven-year
period
of
marginal
and acceptable penalties
for early
withdrawal,
but
he failed to disclose to this
customer that
such
penalties
included up to 8.5
percent of the invested amount.
108. And
Hood told at least one
customer
that
her
investment was
guaranteed to
grow seven-percent
annually
as
long
as she did not
touch
the
money
in the first four
years.

109. As a result of
Hood's
and
Long's omissions and misrepresentations,
at least five customers did not understand the
true
nature of their
investment,
including
the significant fees,
until after
their TSP account
funds had
been
liquidated and sent to the variable annuity
carver.
("ni1NT T
(All Defendants)
Violations
of Section
17(a)(1) of the Securities Act
[15 U.S.C. § 77q(a)(1)]
110. The Commission
realleges paragraphs
1 through
109 above.
111. Between approximately March 2012
and November 2014,
Defendants
in
the offer
and
sale of the
securities described
herein,
by the use
of
means and
instruments
of transportation
and
communication in
interstate
commerce and by use
of
the mails,
directly
and indirectly,
employed devices,
schemes and artifices to defraud purchasers of such
securities,
all
as more
particularly described
above.
112.
Defendants
knowingly,
intentionally, and/or recklessly
engaged
in
the aforementioned devices, schemes and
artifices to defraud.

113. While
engaging in
the
course
of
conduct described above,
Defendants acted
with scienter, that is,
with an
intent to deceive, manipulate
or
defraud
or with
a severe
reckless disregard
for
the
truth.
114. By reason of the
foregoing,
Defendants
indirectly,
have violated
and, unless enjoined,
will
continue to violate
Section 17(a)(1) of
the
Securities
Act [15 U.S.C. §
77q(a)(1)].
COUNT II
(FEBC,
Hood, and Long)
Violations of Section
17(a)(2)
and (a)(3)
of the Securities Act
[15
U.S.C. § 77q(a)(2) and (a)(3)]
115. Paragraphs
1 through 109 are hereby realleged and are
incorporated by reference.
116.
Between
approximately March 2012
and
November 2014,
Defendants FEBC, Hood, and
Long,
in
the offer and sale
of
securities
described
herein,
by use
of
means and instruments
of transportation and
communication in interstate commerce and by use
of
the mails,
directly and
indirectly:
a. obtained
money and property by means
of
untrue statements
of material
fact
and omissions to state
material
facts
necessary in

order
to make the statements made,
in
light
of
the circumstances
under which
they were
made, not misleading;
and
b. engaged
in transactions,
practices
and
courses
of
business
which would and did operate as a fraud and deceit upon
the
purchasers
of such
securities,
all
as more
particularly
described
above.
117. Defendants
FEBC, Hood, and Long, directly and indirectly, have
violated and, unless enjoined,
will
continue to violate Sections
17(a)(2)
and
17(a)(3) of the Securities Act [15 U.S.C. §§
77q(a)(2)
and 77q(a)(3)].
~niTNT ni
(Laws and Cooke)
Violations of Section
17(a)(3)
of the Securities Act
[15 U.S.C. § 77q(a)(3)]
118. Paragraphs
1 through
109 are hereby realleged and are
incorporated by reference.
119. Between approximately March 2012 and November
2014,
Defendants Laws and Cooke
in
the
offer
and sale
of
the securities described
herein,
by use
of
means and instruments
of transportation
and
communication in
interstate commerce and by use
of
the mails,
directly
and
indirectly,
engaged
in

transactions, practices and courses
of
business which would
and did
operate as
a fraud and deceit
upon
the purchasers
of such
securities, all as more
particularly
described above.
120.
By reason of
the
foregoing,
Defendants Laws and Cooke
directly
and indirectly,
have violated
and,
unless enjoined,
will
continue to violate
Section
17(a)(3)
of
the Securities Act [15 U.S.C. § 77q(a)(3)].
(:'ni1NT TV
(FEBC,
Hood, and Long)
Violations
of Section
10(b)
and Rule
lOb-5
of
the Exchange Act
[15 U.S.C. § 78j(b) & 17
C.F.R. §
240.1Ob-5]
121.
The
Commission
realleges paragraphs
1
through
109
above.
122. Between approximately March 2012
and
November 2014,
Defendants FEBC, Hood and
Long, in connection with
the purchase and sale
of
securities described
herein,
by the use
of
the means and
instrumentalities
of
interstate
commerce and by use
of the
mails,
directly
and
indirectly:
a. employed devices, schemes, and artifices to defraud;
b. made untrue statements
of material
facts and omitted to state
material facts
necessary
in
order
to make the
statements
made, in

light
of
the circumstances
under which
they were made,
not
misleading; and
c. engaged in
acts, practices, and courses
of
business
which
would and did operate
as
a fraud
and deceit
upon
the purchasers
of
such
securities,
all
as more
particularly
described above.
123. Defendants FEBC, Hood, and Long knowingly, intentionally,
and/or recklessly
engaged
in
the aforementioned devices,
schemes
and
artifices
to defraud, made untrue
statements
of material
facts and omitted to state
material
facts,
and
engaged
in
fraudulent acts, practices and courses
of
business.
In
engaging in such
conduct, Defendants FEBC, Hood, and Long
acted
with
scienter,
that
is,
with an intent
to deceive, manipulate
or
defraud
or with
a severe
reckless disregard
for
the
truth.
124. By reason of
the
foregoing,
Defendants FEBC, Hood,
and
Long,
directly
and indirectly, have violated
and, unless enjoined,
will
continue to
violate Section
10(b)
of
the Exchange Act [15 U.S.C. § 78j(b)~ and Rule lOb-5
thereunder
[17
C.F.R. §
240.1Ob-5].

COUNT
V
(Laws and
Cooke)
Violations of Section 10(b) and Rule
lOb-5(a) and (c) of the Exchange Act
[15 U.S.C. § 78j(b) & 17 C.F.R. §
240.1Ob-5(a) and (c)]
125. The
Commission
realleges paragraphs
1 through
109 above.
126.
Between approximately March 2012
and November 2014,
Defendants Laws and
Cooke,
in connection with
the purchase and sale of
securities described
herein,
by the use of
the means and instrumentalities
of
interstate commerce
and by use
of
the mails,
directly
and indirectly:
a. employed devices,
schemes,
and
artifices to defraud; and
b. engaged in
acts, practices, and courses
of
business
which
would and
did operate as a fraud and deceit upon the
purchasers
of such
securities,
all
as more particularly
described above.
127. Defendants Laws and Cooke
knowingly,
intentionally, and/or
recklessly
engaged
in
the aforementioned
devices, schemes and artifices to
defraud, made untrue
statements
of material
facts and omitted to state material
facts, and engaged in
fraudulent acts, practices and courses of
business.
In
engaging
in such
conduct, Defendants Laws and Cooke acted
with
scienter,
that

is, with an
intent to deceive,
manipulate
or
defraud or with
a severe
reckless
disregard for
the
truth.
128. By reason of
the foregoing,
Defendants
Laws and Cooke directly
and
indirectly,
have violated and,
unless enjoined,
will
continue
to violate
Section
10(b)
of
the
Exchange Act [15 U.S.C. §
78j(b)] and
Rule lOb-5(a) and
(c) thereunder
[17 C.F.R. §
240.1Ob-5(a) & (c)].
rnTTNT VT
(Laws and Cooke)
Aiding and Abetting
Violations of Section
17(a) of the
Securities Act and
Section
10(b)
of
the Exchange Act
and Rule
lOb-5 thereunder
129. Paragraphs
1
through
109 are hereby
re-alleged and are
incorporated herein
by reference.
130. Between
approximately March 2012
and November 2014,
Defendants Laws and Cooke knowingly or
recklessly
provided substantial
assistance to
Defendants FEBC, Hood and
Long's violations of Section
17(a)
of
the
Securities Act [15 U.S.C. § 77q(a)]
and
Section
10(b) of
the Exchange
Act
[15 U.S.C. § 78j(b)]
and Rule lOb-5 thereunder
[17
C.F.R. §§
240.1Ob-5],
and therefore are liable
as aiders and abettors.

131.
Unless restrained
and enjoined,
Defendants Laws and
Cooke will
continue to aid and
abet FEBC, Hood,
and Long's
violations
of
Section
17(a)
of
the
Securities Act
[15 U.S.C. § 77q(a)]
and Section
10(b)
of
the
Exchange
Act [15
U.S.C. § 78j(b)]
and Rule lOb-5 thereunder
[17
C.F.R. §
240.1Ob-5].
COUNT VII
(Laws
and Cooke)
Liability under
Section
20(a)
of
the
Exchange Act for
Violations of Section
10(b) of the
Exchange Act
and Rule
lOb-5 thereunder
X15 U.S.C. ~~ 78t(a)1
132.
Paragraphs
1 through
109 are hereby
re-alleged and
are
incorporated herein
by
reference.
133. Pursuant
to
Section
20(a) of
the
Exchange Act,
Defendants Laws
and Cooke by, directly or
indirectly,
controlling
Defendants
FEBC, Hood and
Long,
are liable
for
their
violations
of
Section
10(b)
of
the
Exchange Act
and
Rule
lOb-5 thereunder.

COUNT
VIII
(Laws, Cooke, Hood, and Long)
Aiding
and Abetting
Violations
of
Section 17(a) of
the Exchange Act and
Rule 17a-4(b)(4)
thereunder
134.
Paragraphs
1 through
109 are
hereby re-alleged and are
incorporated herein by
reference.
135. Between
approximately March 2012
and November 2014,
Defendants
Laws, Cooke, Hood, and
Long
knowingly or
recklessly
provided
substantial
assistance to the Broker
Dealer's violations of Section
17(a)
of
the
Exchange Act [15
U.S.C. § 78q(a)] and Rule
17a
-4(b)(4)
thereunder
[17
C.F.R. §
240.17a
-4(b)(4)],
and
therefore are liable as
aiders and abettors.
136. Unless
restrained and enjoined,
Defendants Laws, Cooke, Hood,
and
Long will
continue to aid and abet the Broker
Dealer's
violations
of
Section 17(a) of
the Exchange Act [15
U.S.C. § 78q(a)] and
Rule 17a
-4(b)(4)
thereunder
[17
C.F.R. §
240.17a
-4(b)(4)].
PRAYER FOR
RELIEF
WHEREFORE,
the Commission respectfully
prays
for:
.~

I.
Findings
of
fact and
conclusions
of
law pursuant to Rule
52 of
the
Federal
Rules
of Civil
Procedure, finding that the
Defendants named
herein
committed
the
violations alleged herein.
II.
Permanent
injunctions
enjoining
Defendants
from
violating, directly or
indirectly, or aiding
and
abetting
violations of
the laws and rules alleged
in
this
complaint.
III.
An order requiring
the disgorgement by Defendants
of
all ill-gotten gains
or
unjust enrichment
with
prejudgment interest, to
effect the
remedial
purposes
of
the
federal
securities laws.
IV.
An order
pursuant to
Section
20(d)
of
the
Securities Act [15 U.S.C.
§ 77t(d)] and Section 21(d)(3) of the
Exchange Act [15 U.S.C. § 78u(d)(3)]
imposing civil
penalties against Defendants.

V.
Such other
and further relief
as this
Court may deem
just, equitable,
and
appropriate
in
connection with
the
enforcement
of
the federal
securities
laws and
for
the protection of
investors.
JURY
TRIAL
DEMAND
The Commission
hereby
demands a
jury
trial
as to
all
issues
so triable.
This
31
day of July,
2017.
/s/M.
Graham
Loomis
M. Graham
Loomis
Regional Trial
Counsel
Georgia
Bar
No.
457868
loomism(a~sec.gov
Kristin
W. Murnahan
Senior Trial
Counsel
Georgia Bar
No. 759054
murnahank(a~sec.gov
United
States Securities
&Exchange Commission
950
E.
Paces Ferry
Road
NE
Suite 900
Atlanta, GA
30326
404-842-7600

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,
Civil Action File No.

v.

KEYSTONE CAPITAL PARTNERS, INC.
dlb/a FEDERAL EMPLOYEE BENEFIT
COUNSELORS, CHRISTOPHER S.
LAWS, JONATHAN DAX COOKS,
DANNY S. HOOD, and BRANDON P.
LONG,

Defendants.

COMPLAINT

Plaintiff Securities and Exchange Commission ("Commission") alleges as

follows:

SUMMARY

1. Between approximately March 2012 and November 2014, (the

"Relevant Period"), Christopher Laws, Jonathan Cooke, Danny Hood, and

Brandon Long, each of whom were registered representatives of a broker dealer

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 1 of 42 



   

(collectively, the "Representatives"), fraudulently induced federal employees to

rollover significant funds from their federal retirement accounts, referred to as

Thrift Savings Plan ("TSP") accounts, into variable annuity products promoted

under the banner of an entity called Keystone Capital Partners, Inc. d/b/a Federal

Employee Benefits Counselors.

2. Motivated by the prospect of high commissions associated with the

variable annuities, the Representatives targeted federal employees, age 59 1/~ and

over, who had significant TSP account holdings that could be rolled over on a

tax-free basis into variable annuities held in qualified plans at annuity carriers.

3. Defendants employed several tactics calculated to mislead federal

employees into believing that Defendants and their recommended investment

(that is, a variable annuity) were affiliated with or approved by the federal

government. For example, despite the fact that their recommended investments

had no connection to the TSP, the Representatives, in recommending this

investment: (a) made misleading comparisons between their recommended

investment and the life annuity offered through the TSP by omitting key

information oi• falsely describing the actual fee structure and surrender fees

related to their recommended investment; (b) used an eagle-encircled insignia on

-2-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 2 of 42 



   

other documents given to customers and on their website that resembled the

official seal of various agencies of the federal government; and (c) used a name,

Federal Employee Benefits Counselors, that insinuated that they were affiliated

with the federal government while obscuring the fact that they were associated

with a broker dealer.

4. Further adding to the false impression that their investment was

affiliated with or approved by the TSP, the Representatives combined into one

form the documents the Representative needed to purchase the variable annuity

with the portions of the official TSP Form that was needed to transfer funds from

the federal employees' TSP accounts, and referred to the variable annuity

investment using terminology from an official TSP form.

5. In truth, the variable annuities that Defendants offered and sold

were privately-issued, separate and apart from the TSP and the federal

government, and had much higher costs than alternatives available through the

TSP. Moreover, the Representatives had no affiliation with, and were not

approved or vetted by, the federal government.

6. The promotional materials that Defendants gave to potential

investors also touted the additional benefits of the investment option they

-3-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 3 of 42 



   

recommended as compared to the life annuity offered through the TSP, without

disclosing the significantly higher annual fees and surrender charges.

7. During the Relevant Period, Defendants sold approximately 200

variable annuities with a total face value of over approximately $40 million to

federal employees, who used monies rolled over from their TSP accounts to fund

their purchases, and the Representatives collectively earned approximately $1.7

million in commissions on these sales.

8. In connection with at least five of these sales, Defendants Hood and

Long made additional oral misrepresentations or omissions further suggesting

that the investment option they recommended was affiliated with the TSP, and

misrepresented or omitted to disclose the associated fees.

9. Further obscuring that Defendants and their recommended

investments were unaffiliated with the TSP and the federal government, some of

the Defendants also opened accounts with their broker dealer in these five

investors' names without the investors' knowledge or consent.

10. The broker dealer that employed the Representatives required that

an account be opened in an investor's name before the Representatives could

place a variable annuity order on the investor's behalf. But some of the investors

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 4 of 42 



   

did not learn of the creation or existence of these accounts in their names until

after their TSP accounts had been liquidated (that is, the underlying securities

were sold) and the funds transferred to purchase the variable annuity.

11. Defendants also did not give these five investors the prospectuses

for those investments, even though this was required by the broker dealer that

employed the Representatives. This also veiled the fact that the investment

option they recommended to these investors was a variable annuity issued by a

private insurance company that had no connection to, and had not been

specifically approved or vetted by, the TSP or the federal government.

JURISDICTION AND VENUE

12. The Commission brings this action pursuant to the authority

conferred upon it by Sections 20(b) and 20(d) of the Securities Act of 1933

("Securities Act") [15 U.S.C. §§ 77t(b) and 77t(d)] and Section 21(d) of the

Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78u(d)].

13. This Court has jurisdiction over this action pursuant to Section

22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27(a) of the

Exchange Act [15 U.S.C. § 78aa(a)].

-5-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 5 of 42 



   

14. In connection with the transactions, acts, practices, and courses of

business described in this Complaint, Defendants, directly and indirectly, have

made use of the means or instrumentalities of interstate commerce, of the mails,

and/or of the means and instruments of transportation or communication in

interstate commerce.

15. Venue is proper in this district as all defendants reside in this

district.

FACTS

A. Defendants

16. Federal Employee Benefit Counselors ("FEBC") is a d/b/a of

Keystone Capital Partners, Inc., which is aGeorgia-registered corporation

that was cofounded by Christopher Laws and Jonathan Cooke in early 2012.

From its inception until December 2014, FEBC's office was located in the

same office in Alpharetta, Georgia as the Office of Supervisory Jurisdiction

("OSJ") for the broker dealer with whom the Representatives were registered

(the "Broker Dealer"). Christopher Laws was the manager of this office (the

"Alpharetta OSJ").

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 6 of 42 



   

17. Christopher S. Laws ("Laws"), age 49, lives in Alpharetta,

Georgia. From July 2005 to December 2014, Laws was a registered

representative with the Broker Dealer, and at least as early as 2006, he was the

manager of the Broker Dealer's Alpharetta OSJ. Laws co-owns FEBC with

Jonathan Cooke, and during the Relevant Period, was the entity's CFO and

Secretary. In December 2014, Laws was terminated from the Broker Dealer.

From that time until March 2017, Laws was a registered representative with

another broker dealer. On or about March 31, 2017, Laws was permitted to

resign from that broker dealer when that firm terminated its relationship with

the branch office from which Laws had operated.

18. Jonathan Dax Cooke ("Cooke"), age 34, lives in Atlanta,

Georgia. From May 2009 to December 2014, Cooke was a registered

representative with the Broker Dealer in the firm's Alpharetta OSJ. Cooke co-

owns FEBC with Laws, and, during the Relevant Period, was the entity's CEO.

In December 2014, Cooke was terminated from the Broker Dealer. From that

time until the voluntary termination of his registration in December 2016,

Cooke was a registered representative with another broker dealer.

-7-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 7 of 42 



   

19. Brandon Preston Long ("Long"), age 28, lives in Atlanta,

Georgia. From Apri12014 to December 2014, Long was a registered

representative with the Broker Dealer in that firm's Alpharetta OSJ. In

December 2014, Long was terminated from the Broker Dealer. From that time

until March 2017, Long was a registered representative with another broker

dealer. On or about March 31, 2017, Long was permitted to resign from that

broker dealer when that firm terminated its relationship with the branch office

from which he had operated.

20. Danny Scott Hood ("Hood"), age 44, lives in Marietta, Georgia.

From October 2012 to December 2014, Hood was a registered representative

with the Broker Dealer based in the firm's Alpharetta OSJ. In December 2014,

Hood was terminated from the Broker Dealer. From December 2014 to August

2015, Hood was a registered representative with two other brokerage firms, and

with respect to one of those firms, was an investment adviser representative for

the affiliated investment adviser. Since August 2015, Hood has been an

investment adviser representative with an investment adviser that is registered

with the Commission.

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 8 of 42 



   

B. Other Relevant Entity

21. The Broker Dealer is a California corporation headquartered in

Boston, Massachusetts and is dually registered with the Commission as a

broker-dealer and an investment adviser. During the Relevant Period, all of the

variable annuity sales at issue were processed through the Broker Dealer's

Alpharetta OSJ, of which Laws was the manager.

C. FEBC's Origins and Treatment as an Outside Business Activity

22. In early 2012, Laws and Cooke founded FEBC as a "doing

business as" name for Keystone Capital Partners, Inc. As co-owners of FEBC,

Laws served as FEBC's CFO and Secretary, and Cooke served as the

company's CEO.

23. During the Relevant Period, FEBC was based in the same

location as the Broker Dealer's Alpharetta OSJ from which Laws (the OSJ

manager), Cooke, Hood and Long conducted securities transactions as the

Broker Dealer's registered representatives.

24. Under the Broker Dealer's applicable policies, registered

representatives were required to provide written notice to the Broker Dealer of

any intended outside business activity ("OBA"), and they were required to

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 9 of 42 



   

obtain written approval from the Broker Dealer before engaging in the

proposed activity.

25. In or around March 2012, Laws and Cooke disclosed FEBC to the

Broker Dealer's Advisor Review Group as an OBA. In doing so, however,

they falsely characterized FEBC as anon-securities related entity that sold only

fixed or non-variable insurance products. The Broker Dealer's Advisor

Review Group gave Laws and Cooke written approval to operate FEBC as a

non-securities OBA that the firm had no obligation to supervise under FINRA

Rule 3040 (current Rule 3280).

D. Background on the TSP Program and Relevant Withdrawal Options

26. The federal government offers its employees atax-deferred

retirement savings account which is akin to a 401(k) program. That program is

referred to as the Thrift Savings Plan or "TSP."

27. Upon leaving federal service, federal employees have three

options for making a full withdrawal of their entire TSP account, any two or

three of which can be combined: (1) a single payment, (2) a series of monthly

payments spread out over time, and (3) as a TSP life annuity, which the TSP

purchases on behalf of the TSP participant from the TSP's annuity vendor. The

-10-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 10 of 42 



   

TSP life annuity provides a monthly benefit paid to the employee for life and, if

the employee chooses, for the life of a designated survivor.

28. To purchase the life annuity, the former employee must complete a

"Form TSP-70," as a request for a full withdrawal from the TSP, and select the

"life annuity" option within the "Withdrawal Election" section of that form.

29. Current federal employees age 59 '/z or older who are not planning

an immediate separation from federal service have the option to take partial or

full withdrawals from their TSP accounts. To effectuate such a withdrawal,

which is referred to as an age-based, in-service withdrawal, the employee must

complete a "Form TSP-75."

E. The Broker Dealer's Required Procedures to Purchase a Variable
Annui

30. Before a registered representative of the Broker Dealer could sell a

variable annuity through the Broker Dealer, the firm's Written Supervisory

Procedures and Advisor Compliance Manual (collectively, "Compliance

Procedures") required a retirement account to be opened in the customer's name

at the Broker Dealer that would ultimately be linked to the variable annuity

contract (sometimes called a "tracking account").

-11-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 11 of 42 



   

31. The registered representative was required to open a tracking

account in the Broker Dealer's new account system, which, in turn, required the

registered representative to enter certain information about the proposed account

holder, including the information requested in the Broker Dealer's "Account

Application."

32. After the tracking account was opened, the registered representative

was then required to enter certain information concerning the variable annuity

order into the Broker Dealer's Annuity Order Entry ("AOE") system, including

the date on which the registered representative sent the variable annuity

prospectus to the customer.

33. During much of the Relevant Period, the AOE system generated

related transaction forms that the variable annuity customer was required to sign,

including afour-page form entitled, "Important Information Regarding Your

Variable Annuity" (the "Variable Annuity Form").

34. The variable annuity order was then to be submitted in the AOE

system for a suitability review and approval by the OSJ manager or the

manager's designated principal, and then submitted to the carrier. The carrier

then issued the variable annuity contract and sent a bound copy to the registered

-12-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 12 of 42 



   

representative with instructions that he or she deliver the contract to the

customer.

35. The registered representative was then required to obtain a signed

delivery receipt from the customer, send the customer-signed receipt to the

carrier, and preserve copies in the customer file at the Broker Dealer.

F. The Fraudulent Scheme to Sell Variable Annuities

1. Defendants Target Federal Employees With Sizeable TSP Accounts
for Variable Annuity Purchases

36. Contrary to disclosures made to the Broker Dealer concerning the

scope of FEBC's activities, Defendants sold approximately 200 variable

annuities (with a total face value of over approximately $40 million) to

approximately 200 FEBC-prospected federal employees who used funds from

their TSP accounts to purchase these annuities.

37. Hood and Long received commissions on each variable annuity they

sold. Laws and Cooke received a share of the associated commissions earned on

each variable annuity sold by Hood and Long.

38, To identify prospective customers for the sale of variable annuity

products, the Representatives and/or FEBC administrative staff acting at the

-13-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 13 of 42 



   

direction of Laws and Cooke, used various Internet sources and subscribed to

various proprietary databases to obtain personal information about federal

employees.

39. Through mailed surveys, FEBC employees scheduled and

conducted initial "benefits review" sessions with federal employees, which

involved a review of the federal employee's life, health, disability insurance

plans, and, based on salary information provided by the federal employees, their

projected payouts from the federal retirement system.

40. Interested federal employees who were eligible to roll over TSP

account funds to a qualified plan on a tax-free basis were referred to one of the

Representatives for "TSP counseling" services.

41. In the course of the TSP "counseling" sessions, the Representatives

obtained from the federal employee information concerning his or her years of

federal service, planned retirement date, risk tolerance, net worth, and salary.

42. During an online meeting, the federal employee was shown a slide

presentation, based on a template created by Laws, Cooke and Hood, describing

options for federal employees' TSP accounts upon retirement.

~[~

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 14 of 42 



   

43. Laws and Cooke trained Hood and Long on how to conduct the

TSP counseling sessions and what to tell customers during these TSP counseling

sessions to induce them to purchase variable annuities.

44. Furthering the perception that they were affiliated with the federal

government and/or the TSP rather than the Broker Dealer, Hood and Long,

acting under Laws' supervision, knowingly disregarded the Broker Dealer's

Compliance Procedures by conducting securities-related communications with

federal employees via their FEBC's email addresses, rather than through the

Representatives' Broker Dealer email addresses.

45. Contrary to the Broker Dealer's Compliance Procedures, the

Representatives failed to provide the Broker Dealer with their securities-related

emails and paper correspondence with federal employees who were solicited by

FEBC for variable annuity sales.

2. Defendants' Misleading TSP Report

46. After the online meeting, Defendants generated a "TSP Report"

based on a template created primarily by Laws and Cooke with contributions

from Hood. As trained by Laws and Cooke, Hood and Long then sent these TSP

Reports to the targeted federal employees.

-15-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 15 of 42 



   

47. During much of the Relevant Period, approximately three to four

pages of each TSP Report contained personalized information, including the

federal employee's name, age, TSP account value, and TSP account allocation.

The remaining pages were largely the same for each federal employee to whom

they were disseminated.

a. The TSP Report Misleadingly Portrays the Recommended
Investment Option as Related to or Approved by the TSP

48. The TSP Reports routinely recommended an investment option

characterized in the reports as the "TSP-75 Election," "Hybrid Option," and

"TSP-75 Hybrid."

49. The names used in the TSP Reports to describe the recommended

investment option—that is, "TSP-75 Election," "Hybrid Option," and "TSP-75

Hybrid"—were strikingly similar to the official form that federal employees use

for age-based, in-service withdrawals—the Form TSP-75.

50. During much of the Relevant Period, the TSP Reports contained

multiple diagrams that misleadingly depicted the so-called "TSP-75 Election,"

"Hybrid Option," or "TSP-75 Hybrid" as related or comparable to the TSP's life

annuity.

-16-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 16 of 42 



   

51. The TSP Reports did not explain that the recommended investment

was actually a variable annuity. Indeed, the phrase "variable annuity" does not

appear at all in the TSP Reports that Defendants generated and sent to multiple

customers.

52. In comparing the features of the TSP's life annuity with the

recommended "TSP-75 Election," "Hybrid Option," or "TSP-75 Hybrid," the

TSP Report identified the carrier for each option, but did not reveal that the

carrier for the recommended investment had not been selected or specifically

vetted by the TSP or the federal government.

53. Additionally, the TSP Reports fostered the misleading impression

that FEBC and the Representatives were employed by, contracted by, specifically

vetted by, or especially approved by the federal government to advise federal

employees on the TSP.

54. Specifically, the TSP Reports described FEBC as a "national

consulting group dedicated to educating federal employees," and stated that

FEBC's counselors "receive extensive training in ...all the alternative benefit

programs available to federal employees." The TSP Reports also depicted an

-17-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 17 of 42 



   

eagle-encircled insignia in red, white and blue colors, similar to the federal seal

used by several federal agencies.

b. The TSP Report Misleads as to the Costs of the
Recommended Investment

55. The TSP Reports also made misleading statements regarding the

additional benefits associated with the recommended "TSP-75 Election,"

"Hybrid Option" or "TSP-75 Election" as compared to the TSP's life annuity,

without disclosing the significantly higher costs associated with these additional

benefits.

56. Specifically, the TSP Reports depicted the "TSP-75 Election,"

"Hybrid Option" or "TSP-75 Election" as having "features" not included in the

TSP's life annuity, such as liquidity, investment flexibility, and longevity

protection.

57. The TSP Reports failed, however, to disclose that these additional

features came at considerable additional costs as compared to the life annuity

from the TSP's annuity vendor or the federal employee's taking monthly

payments from his or her TSP account upon retirement.

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 18 of 42 



   

58. These undisclosed additional costs include mortality, expense, and

administration fees of 1.3 percent annually, a rider fee of 1.25 to 1.5 percent

annually, and asurrender-fee schedule requiring the customer to surrender up to

8.5 percent of any funds withdrawn from the investment during the first seven

years (thereby, limiting the "liquidity" feature touted therein).

c. The TSP Report Misleadin lg~y Depicts the Value of the
Variable Annuity

59. The TSP Reports also contained charts that misleadingly obscured

the relationship between the underlying "account value" of the variable annuity

and the "benefit-base value" or the "income-base value" of that investment.

60. The "account value" of a variable annuity is the actual value of the

variable annuity subaccounts, which is where the money is actually invested, and

grows on a tax deferred basis. The account value fluctuates with corresponding

gains and losses in the subaccount investments, and could be lower than the

initial investment.

61. The so-called "TSP-75 Election," "Hybrid Election" or "TSP-75

Hybrid" offered and sold by Defendants involved an investment in a variable

annuity with a rider providing the following features: a guaranteed minimum

-19-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 19 of 42 



   

withdrawal benefit, guaranteed lifetime income, a guaranteed annual seven-

percent "bonus," and annual step-ups.

62. In this context, the "benefit-base value" or the "income-base value"

is the accounting entry used to calculate the minimum guaranteed amount the

annuitant can withdraw as income each year. The benefit-base/income-base

value has no cash value and, thus, is not what customers receive if they cash out

of their variable annuity.

63. The rider associated with the "TSP-75 Election," "Hybrid Election"

or "TSP-75 Hybrid" guaranteed that the benefit-base value would grow seven

percent annually, regardless of the market performance of the subaccounts

comprising the account value.

64. The charts in the TSP Reports failed to depict clearly that during the

first seven years of the investment (that is, the surrender period), the investor was

not entitled to the benefit-base value (guaranteed to grow seven-percent

annually), but was only entitled to the account value minus a surrender fee. The

account value could have decreased significantly from the initial amount

invested.

-20-

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 20 of 423. Defendants' Misleading TSP-75 Election Form

65. After a customer elected the so-called "TSP-75 Election," "Hybrid

Option," or "TSP-75 Hybrid" upon Defendants' recommendation, Defendants

assisted with the related mechanics of transfemng funds from the customers'

TSP accounts to purchase the variable annuity and, unbeknownst to at least five

customers, open accounts at the Broker Dealer to effectuate the purchase of the

variable annuity.

66. To accomplish these feats, Defendants had the customers complete

a form that Defendants created, the "TSP-75 Election Form." While the

"Elections Forms" given to customers varied to some degree depending on the

Representative who sent them, these forms included pages from the official Form

TSP-75 (to facilitate the in-service, age-based withdrawal from the TSP)

combined with pages from Broker Dealer-specific forms (to open tracking

accounts at the Broker Dealer), or combined with a page that was graphically

similar to pages from the official Form TSP-75 and requested information

needed to open a tracking account at the Broker Dealer in the customers' names.

67. Laws and Cooke trained and/or instructed Long and Hood on which

pages of the Form TSP-75 and Broker Dealer-specific forms the Representatives

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were "required" to send federal employees to effectuate the variable annuity

purchase.

68. The participant signature page of the official Form TSP-75, which

was included in the "Election Forms," indicates that the form must be notarized

by a notary public.

69. Laws improperly notarized the signature of at least one customer

without (1) personally witnessing the customer sign the relevant pages of the

Form TSP-75, (2) confirming with the customer via telephone or email

communication that he/she had indeed signed these pages, or (3) obtaining

copies of agovernment-issued identification from the customer to compare the

signature affixed thereon to the signatures on the relevant pages of the Form

TSP-75.

a. Lon~'s Election Forms

70. The "TSP-75 Election Form" that Long sent to certain federal

employees consisted of five pages excerpted from the official Form TSP-75 and

three pages excerpted from the Broker Dealer's Account Application.

71. Longs "TSP-75 Election Forms" included a cover page similar in

appearance to that of the official Form TSP-75, including the TSP insignia

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 22 of 42 



   

printed to the left of the words "Thrift Savings Plan." But the words "Age-Based

In-Service Withdrawal Request" that appeared on cover page of the official Form

TSP-75 were replaced with the words "Election Forms."

72. Longs Election Forms omitted the instruction pages that were

included in the official Form TSP-75. In addition, these Election Forms omitted

the page of the official Form TSP-75 directing the completed form to be sent

directly to the TSP, and replaced it with a graphically similar-looking page

instructing that the completed form instead be sent directly to FEBC.

73. None of the pages included in these Election Forms disclosed that

the customer would be opening an account at the Broker Dealer (and not with the

TSP or the carrier of the annuity).

b. Hood's Election Forms

74. Hood sent a slightly different version of a so-called "TSP-75

Election Form" to several federal employees. This form included a cover page

similar in appearance to the cover page of the official Form TSP-75, including

the TSP insignia printed to the left of the words "Thrift Savings Plan." But the

words "Age-Based In-Service Withdrawal Request" on the cover page of the

official Form TSP-75 were replaced with the words "Election Form."

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 23 of 42 



   

75. Following the cover page, the "Election Form" sent by Hood to

multiple customers included three information-requesting pages taken from the

official Form TSP-75, including section headings numbered I through IX. But

this "Election Form" also included an additional page designed to appear

indistinguishable from, and as a continuation of, the three pages taken from the

official Form TSP-75.

76. For example, the first information-requesting section of the

additional page in the election form sent by Hood was numbered X, thereby

appearing as a continuation of section IX from the official Form TSP-75. The

additional page also used the same font types and sizes, page borders, page

header, and date-edition designation in the footer as the prior three pages that

were taken from the official Form TSP-75.

77. The additional page in the election form sent to multiple customers

by Hood requested the type of personal information requested in the Broker

Dealer's Account Application, including, for example, driver's license number,

beneficiary designations, and employer's address. None of this information was

requested on any pages of the TSP's official Form TSP-75 in effect during the

Relevant Period.

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78. As with the so-called "Election Forms" sent by Long, the "Election

Forms" sent by Hood omitted the instruction pages included in the official Form

TSP-75.

79. Hood instructed federal employees to sign and return the so-called

TSP-75 Election Form to FEBC, rather than directly to the TSP, in order to

effectuate their so-called TSP-75 election.

4. Additional Actions Masking the Distinctions between De endant
and their Recommended Investment versus the TSP and Its Life
Annui

a. Surreptitiously Opening Tracking Accounts

80. Hood and Long opened tracking accounts at the Broker Dealer for

at least five customers without those customers' knowledge or consent.

81. To open these accounts, Hood and Long used the information they

obtained from the customers, either from oral communications or from the

Election Forms that the customers completed.

82. For multiple customers, Long, or others at FEBC acting on his

behalf, combined the signature page of the Broker Dealer's Application Form

that was included in Long's "Election Forms" that these customers signed with

the other pages an Application Form that these customers never received.

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83. For multiple customers, Hood, or others at FEBC acting on his

behalf, copied and pasted the signatures of certain customers from pages they

actually signed onto the signature page of an Account Application that these

customers never received.

84. By opening the tracking accounts in these customers' names

without these customers' prior knowledge or consent, Hood and Long reduced

the possibility that these customers would discover that they and FEBC were

affiliated with a broker dealer, were not affiliated with or specifically approved

by the federal government, and the investment option these customers had

selected was a variable annuity issued by a private insurance company that was

not specifically selected by, vetted by, or in any way affiliated with the TSP.

b. Failure to Timely Provide Customers with Prospectuses or
the Complete Variable Annuity Form

85. Pursuant to the Broker Dealer's Compliance Procedures, before

submitting a variable annuity order in the Broker Dealer's AOE system for

review and approval, a registered representative was required to send the

customer a product prospectus and obtain the customer's signature on the Broker

Dealer's Variable Annuity Form.

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 26 of 42 



   

86. Contrary to these procedures, Hood and Long did not send a

prospectus to multiple customers.

87. Instead, Hood and Long falsely reported in the Broker Dealer's

AOE system that they had sent theses customers a prospectus on dates occurring

before these customers' TSP account funds were sent to the carver.

88. For multiple customers, Hood did not send, or obtain the valid

signatures and initials on, the Broker Dealer's Variable Annuity Form before

submitting these customers' variable annuity orders in the Broker Dealer's AOE

system for review and approval.

89. Instead, Hood, or others at FEBC acting on his behalf, copied and

pasted the signature of at least one customer from other forms this customer had

signed earlier onto the Broker Dealer's Variable Annuity Form, which this

customer had never received.

90. Long did not obtain the initials and signatures of multiple other

customers on the Broker Dealer's Variable Annuity Form before submitting their

respective variable annuity orders in the Broker Dealer's AOE system for review

and approval. Rather, Long, or others at FEBC acting on his behalf, sent these

customers only two pages of the four-page Broker Dealer's Variable Annuity

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 27 of 42 



   

Form—the two pages requiring the customer's initials and the signature—after

their TSP accounts funds had already been sent to the annuity carrier and an

annuity "contract" was generated in their respective names. Long never sent

these customers the pages of this Variable Annuity Form that listed the full name

of the variable annuity product, delineated the associated fees and surrender-fee

schedule, and set forth the date on which the customer was purportedly provided

the prospectus.

91. Through these actions, Hood and Long were able to facilitate the

suitability review and approval of these transactions by the designated principal

assigned to the Alpharetta OSJ.

92. After the variable annuity carrier had approved a variable annuity

purchase facilitated by Defendants, the carver mailed a bound copy of the

customer's annuity contract along with a delivery receipt and, if applicable, a

client acknowledgement form, to one of the registered representatives of record

for the transaction with instructions that the registered representative send the

contract packet to the customer.

93. Defendants did not send the bound contract to multiple variable

annuity customers.

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 28 of 42 



   

94. By failing to provide multiple customers with prospectuses, the

complete version of the Broker Dealer's Variable Annuity Form, and the annuity

contract, Defendants reduced the possibility that these customers would discover

that the investment option they had selected was a variable annuity issued by a

private insurance company that was not specifically selected by, vetted by, or in

any way affiliated with the TSP.

S. Oral Misrepresentations and Omissions Made By Hood and Long

95. Hood and Long made oral misrepresentations and omissions to

multiple customers in connection with the sale of variable annuities.

96. Hood and Long tailored their oral representations to these

customers based on those customers' financial sophistication and the specific

questions they asked, making the minimal disclosures necessary to attain each

particular customer's assent to the subject investment.

97. For example, Hood told at least one customer that he was a

counselor with the TSP.

98. Long told at least one customer that roughly one third of

government employees go into the so-called "TSP-75 Election."

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99. Hood and Long did not orally clarify to multiple customers the

misleading statements and omissions in the TSP Reports concerning the

recommended investment's lack of government affiliation or specific selection

and the Representatives' lack of government affiliation.

100. For example, although one customer repeatedly told Long that she

could not believe that the government offered the so-called "TSP-75 Election"

depicted in the TSP Report, Long never clarified that the investment was not

being offered by the federal government.

101. These misrepresentations and omissions by Hood and Long further

contributed to the belief by certain customers that the recommended investment

was offered, vetted, or specifically selected by the TSP and that the

Representatives and FEBC were employed by, contracted by, vetted by, or

specifically approved by the federal government.

102. Hood and Long told multiple customers that the recommended

investment guaranteed aseven-percent annual return. But they failed to explain

to these customers that this guarantee applied only to the benefit-base value of

the recommended investment and that their actual account value would fluctuate

with the stock market.

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103. Hood and Long each misrepresented the annual fees associated with

the recommended investment to at least one customer.

104. For example, although the total annual fees for the variable annuity

purchased by one such customer included a mortality, expense, and

administration fees of 1.3 percent and a rider fee of 1.25 to 1.5 percent, Long told

this customer that the total fee was under one percent and a tiny bit more than the

TSP.

105. And Hood told at least one other customer that the annual fees

associated with the recommended investment were only 1.5 percent.

106. Moreover, Hood and Long misled multiple customers about the

seven-year surrender-fee schedule associated with the recommended investment.

107. For example, Long told at least one customer that there was a

seven-year period of marginal and acceptable penalties for early withdrawal, but

he failed to disclose to this customer that such penalties included up to 8.5

percent of the invested amount.

108. And Hood told at least one customer that her investment was

guaranteed to grow seven-percent annually as long as she did not touch the

money in the first four years.

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109. As a result of Hood's and Long's omissions and misrepresentations,

at least five customers did not understand the true nature of their investment,

including the significant fees, until after their TSP account funds had been

liquidated and sent to the variable annuity carver.

("ni1NT T
(All Defendants)

Violations of Section 17(a)(1) of the Securities Act
[15 U.S.C. § 77q(a)(1)]

110. The Commission realleges paragraphs 1 through 109 above.

111. Between approximately March 2012 and November 2014,

Defendants in the offer and sale of the securities described herein, by the use of

means and instruments of transportation and communication in interstate

commerce and by use of the mails, directly and indirectly, employed devices,

schemes and artifices to defraud purchasers of such securities, all as more

particularly described above.

112. Defendants knowingly, intentionally, and/or recklessly engaged in

the aforementioned devices, schemes and artifices to defraud.

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113. While engaging in the course of conduct described above,

Defendants acted with scienter, that is, with an intent to deceive, manipulate or

defraud or with a severe reckless disregard for the truth.

114. By reason of the foregoing, Defendants indirectly, have violated

and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities

Act [15 U.S.C. § 77q(a)(1)].

COUNT II
(FEBC, Hood, and Long)

Violations of Section 17(a)(2) and (a)(3) of the Securities Act
[15 U.S.C. § 77q(a)(2) and (a)(3)]

115. Paragraphs 1 through 109 are hereby realleged and are

incorporated by reference.

116. Between approximately March 2012 and November 2014,

Defendants FEBC, Hood, and Long, in the offer and sale of securities

described herein, by use of means and instruments of transportation and

communication in interstate commerce and by use of the mails, directly and

indirectly:

a. obtained money and property by means of untrue statements

of material fact and omissions to state material facts necessary in

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 33 of 42 



   

order to make the statements made, in light of the circumstances

under which they were made, not misleading; and

b. engaged in transactions, practices and courses of business

which would and did operate as a fraud and deceit upon the

purchasers of such securities, all as more particularly described

above.

117. Defendants FEBC, Hood, and Long, directly and indirectly, have

violated and, unless enjoined, will continue to violate Sections 17(a)(2) and

17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)].

~niTNT ni
(Laws and Cooke)

Violations of Section 17(a)(3) of the Securities Act
[15 U.S.C. § 77q(a)(3)]

118. Paragraphs 1 through 109 are hereby realleged and are

incorporated by reference.

119. Between approximately March 2012 and November 2014,

Defendants Laws and Cooke in the offer and sale of the securities described

herein, by use of means and instruments of transportation and communication in

interstate commerce and by use of the mails, directly and indirectly, engaged in

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 34 of 42 



   

transactions, practices and courses of business which would and did operate as

a fraud and deceit upon the purchasers of such securities, all as more

particularly described above.

120. By reason of the foregoing, Defendants Laws and Cooke directly

and indirectly, have violated and, unless enjoined, will continue to violate

Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)].

(:'ni1NT TV

(FEBC, Hood, and Long)

Violations of Section 10(b) and Rule lOb-5 of the Exchange Act
[15 U.S.C. § 78j(b) & 17 C.F.R. § 240.1Ob-5]

121. The Commission realleges paragraphs 1 through 109 above.

122. Between approximately March 2012 and November 2014,

Defendants FEBC, Hood and Long, in connection with the purchase and sale of

securities described herein, by the use of the means and instrumentalities of

interstate commerce and by use of the mails, directly and indirectly:

a. employed devices, schemes, and artifices to defraud;

b. made untrue statements of material facts and omitted to state

material facts necessary in order to make the statements made, in

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 35 of 42 



   

light of the circumstances under which they were made, not

misleading; and

c. engaged in acts, practices, and courses of business which

would and did operate as a fraud and deceit upon the purchasers of

such securities,

all as more particularly described above.

123. Defendants FEBC, Hood, and Long knowingly, intentionally,

and/or recklessly engaged in the aforementioned devices, schemes and artifices

to defraud, made untrue statements of material facts and omitted to state material

facts, and engaged in fraudulent acts, practices and courses of business. In

engaging in such conduct, Defendants FEBC, Hood, and Long acted with

scienter, that is, with an intent to deceive, manipulate or defraud or with a severe

reckless disregard for the truth.

124. By reason of the foregoing, Defendants FEBC, Hood, and Long,

directly and indirectly, have violated and, unless enjoined, will continue to

violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)~ and Rule lOb-5

thereunder [17 C.F.R. § 240.1Ob-5].

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 36 of 42 



   

COUNT V
(Laws and Cooke)

Violations of Section 10(b) and Rule lOb-5(a) and (c) of the Exchange Act
[15 U.S.C. § 78j(b) & 17 C.F.R. § 240.1Ob-5(a) and (c)]

125. The Commission realleges paragraphs 1 through 109 above.

126. Between approximately March 2012 and November 2014,

Defendants Laws and Cooke, in connection with the purchase and sale of

securities described herein, by the use of the means and instrumentalities of

interstate commerce and by use of the mails, directly and indirectly:

a. employed devices, schemes, and artifices to defraud; and

b. engaged in acts, practices, and courses of business which would and

did operate as a fraud and deceit upon the purchasers of such

securities,

all as more particularly described above.

127. Defendants Laws and Cooke knowingly, intentionally, and/or

recklessly engaged in the aforementioned devices, schemes and artifices to

defraud, made untrue statements of material facts and omitted to state material

facts, and engaged in fraudulent acts, practices and courses of business. In

engaging in such conduct, Defendants Laws and Cooke acted with scienter, that

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 37 of 42 



   

is, with an intent to deceive, manipulate or defraud or with a severe reckless

disregard for the truth.

128. By reason of the foregoing, Defendants Laws and Cooke directly

and indirectly, have violated and, unless enjoined, will continue to violate

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5(a) and

(c) thereunder [17 C.F.R. § 240.1Ob-5(a) & (c)].

rnTTNT VT
(Laws and Cooke)

Aiding and Abetting Violations of Section 17(a) of the Securities Act and
Section 10(b) of the Exchange Act and Rule lOb-5 thereunder

129. Paragraphs 1 through 109 are hereby re-alleged and are

incorporated herein by reference.

130. Between approximately March 2012 and November 2014,

Defendants Laws and Cooke knowingly or recklessly provided substantial

assistance to Defendants FEBC, Hood and Long's violations of Section 17(a)

of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange

Act [15 U.S.C. § 78j(b)] and Rule lOb-5 thereunder [17 C.F.R. §§ 240.1Ob-5],

and therefore are liable as aiders and abettors.

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 38 of 42 



   

131. Unless restrained and enjoined, Defendants Laws and Cooke will

continue to aid and abet FEBC, Hood, and Long's violations of Section 17(a)

of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange

Act [15 U.S.C. § 78j(b)] and Rule lOb-5 thereunder [17 C.F.R. § 240.1Ob-5].

COUNT VII
(Laws and Cooke)

Liability under Section 20(a) of the Exchange Act for Violations of Section
10(b) of the Exchange Act and Rule lOb-5 thereunder

X15 U.S.C. ~~ 78t(a)1

132. Paragraphs 1 through 109 are hereby re-alleged and are

incorporated herein by reference.

133. Pursuant to Section 20(a) of the Exchange Act, Defendants Laws

and Cooke by, directly or indirectly, controlling Defendants FEBC, Hood and

Long, are liable for their violations of Section 10(b) of the Exchange Act and

Rule lOb-5 thereunder.

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 39 of 42 



   

COUNT VIII
(Laws, Cooke, Hood, and Long)

Aiding and Abetting Violations of Section 17(a) of the Exchange Act and
Rule 17a-4(b)(4) thereunder

134. Paragraphs 1 through 109 are hereby re-alleged and are

incorporated herein by reference.

135. Between approximately March 2012 and November 2014,

Defendants Laws, Cooke, Hood, and Long knowingly or recklessly provided

substantial assistance to the Broker Dealer's violations of Section 17(a) of the

Exchange Act [15 U.S.C. § 78q(a)] and Rule 17a-4(b)(4) thereunder [17

C.F.R. § 240.17a-4(b)(4)], and therefore are liable as aiders and abettors.

136. Unless restrained and enjoined, Defendants Laws, Cooke, Hood,

and Long will continue to aid and abet the Broker Dealer's violations of

Section 17(a) of the Exchange Act [15 U.S.C. § 78q(a)] and Rule 17a-4(b)(4)

thereunder [17 C.F.R. § 240.17a-4(b)(4)].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully prays for:

.~

Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 40 of 42I.

Findings of fact and conclusions of law pursuant to Rule 52 of the Federal

Rules of Civil Procedure, finding that the Defendants named herein committed

the violations alleged herein.

II.

Permanent injunctions enjoining Defendants from violating, directly or

indirectly, or aiding and abetting violations of the laws and rules alleged in this

complaint.

III.

An order requiring the disgorgement by Defendants of all ill-gotten gains

or unjust enrichment with prejudgment interest, to effect the remedial purposes

of the federal securities laws.

IV.

An order pursuant to Section 20(d) of the Securities Act [15 U.S.C.

§ 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]

imposing civil penalties against Defendants.

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 41 of 42 



   

V.

Such other and further relief as this Court may deem just, equitable, and

appropriate in connection with the enforcement of the federal securities laws and

for the protection of investors.

JURY TRIAL DEMAND

The Commission hereby demands a jury trial as to all issues so triable.

This 31 day of July, 2017.

/s/M. Graham Loomis
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
loomism(a~sec.gov

Kristin W. Murnahan
Senior Trial Counsel
Georgia Bar No. 759054
murnahank(a~sec.gov

United States Securities &Exchange Commission
950 E. Paces Ferry Road NE
Suite 900
Atlanta, GA 30326
404-842-7600

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Case 1:17-mi-99999-UNA Document 1972 Filed 07/31/17 Page 42 of 42