Securities And Exchange Commission Files Complaint Against Falmouth Investment Adviser

Cutter Financial Group's office is on the Davis Straits section of Main Street.

The US Securities and Exchange Commission has filed a complaint in federal court against Falmouth investment advisor Jeffery T. Cutter. The commission alleges Mr. Cutter did not sufficiently disclose the commissions he received for products he sold to clients and also made false statements on the applications for those products.

Specifically, the Securities and Exchange Commission claims Mr. Cutter reaped large undisclosed commissions from the sale of annuities. “From 2014 to 2022, Cutter generated at least $9,340,302 in commissions from the sale of 580 annuities to his investment advisory clients,” the complaint states.

The complaint, filed March 17, calls for a jury trial in the United States District Court of Massachusetts in Boston.

Mr. Cutter’s attorney, Ian Roffman of Nutter McClennen & Fish LLP, said Mr. Cutter is fighting the allegations. He said the complaint attempts to hold Mr. Cutter and his firm, Cutter Financial Group, to standards that are beyond current industry regulations on disclosure, and that the allegations are an attempt by the SEC to break into regulating the insurance industry.

“The SEC is flat-out wrong on the facts and the law,” Mr. Roffman said. “Every one of the products mentioned in the SEC complaint has performed well for customers. No one has lost money.”

But in its strongly worded complaint, the SEC offers a harsher view of Mr. Cutter’s actions.

The complaint alleges that Mr. Cutter moved his investment advisory clients into annuity contracts as soon as they became clients of Cutter Financial Group and encouraged them, “to ‘replace’ or ‘switch’ annuity contracts (trade one annuity in for another) wherever possible so that Cutter could receive another 7 percent to 8 percent annuity commission from the clients’ purchase of the replacement annuity.”

Annuities are insurance contracts that an investor pays into and then receives guaranteed income payments from later. “Annuity contributions earn interest that can grow tax-deferred in the accumulation phase,” according to the National Association of Insurance Commissioners They are a low risk, but not especially high-yield, investment tool aimed to provide steady income in retirement.

Cashing out an annuity contract early triggers surrender penalties. The SEC complaint references clients who incurred sizable penalties for switching from one annuity to another, a move the SEC says Mr. Cutter advised without disclosing how the switch benefited him. In one case, the SEC claims that Mr. Cutter advised a married couple to switch five times to new annuity products. When he offered to sell them the sixth annuity, the couple instead terminated their advisory relationship, the complaint alleges.

In a message released to his clients on Tuesday, March 21, Mr. Cutter states, “In each annuity sales situation raised by the SEC, we recommended an updated product that provided a client with better financial benefits than the older product they previously purchased.”

Mr. Cutter told clients, “The SEC does not claim that the annuity products themselves have lost money.” He also pledged to communicate fully and transparently with clients as the case against him develops.

Mr. Cutter receives a standard annual advisory fee ranging between 1.5 percent to 2 percent of the assets he manages for each client, according to the SEC. The SEC complaint states he did not tell his clients about either the amount or the “up-front nature” of the annuity commissions and he allegedly did not compare those profits to the other fees he claimed on other advisory accounts. This was an undisclosed conflict of interest, the SEC said.

Finally, the SEC alleged Mr. Cutter did not accurately represent his clients’ financial positions to insurance companies on applications for the products.

The actions violate federal antifraud provisions under the Investment Advisers Act (1940) and the Advisers Act and Rule, the SEC said.

The SEC is seeking a “permanent injunction … prohibiting [Mr. Cutter] from further violations of the relevant provisions of the federal securities laws,” the complaint states.

The complaint also states it wants Mr. Cutter to give up any profits he made through these actions and pay civil penalties.

Mr. Roffman, Mr. Cutter’s lawyer, said Cutter Financial Group abides by insurance industry standards and best practices regarding commissions, disclosures and insurance products. He said his client will respond with a filing in court in the next few weeks.

Mr. Cutter, who lives in Falmouth, founded the Cutter Financial Group on Davis Straits in 2006. His firm also has offices in Duxbury and Mansfield, according to the company’s website. He has been a financial columnist for the Enterprise since 2013. Following the SEC complaint, the paper indefinitely suspended the column.

The SEC declined to comment on the case beyond what appears in the complaint.