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Equitable Hit with $50 Million Penalty over ‘Misleading’ Fee Statements

Regulatory Compliance

The New York-based firm has agreed to settle alleged fraud charges brought by the Securities and Exchange Commission concerning investor fees. 

According to the SEC’s July 18 order, Equitable agreed to pay $50 million for providing account statements to about 1.4 million variable annuity investors that included “materially misleading statements and omissions” concerning investor fees. Most of the investors who received the account statements are teachers or other employees of public-school districts who invested in Equitable’s proprietary “EQUI-VEST” variable annuities within a 403(b) or 457(b) defined contribution plan.

As described in the order, since at least 2016, Equitable gave investors the false impression that their quarterly account statements listed all fees paid during the period. Equitable presented fees in several sections of its EQUI-VEST variable annuity account statements, including dollar values spread across various columns and rows, but provided no description in the account statements regarding what these fees included or excluded.

Consequently, the SEC’s investigation found that Equitable’s account statements excluded the “most significant fees” that investors paid from the fees listed on the account statements. Instead, the account statements listed as fees only certain types of administrative, transaction and plan operating fees. But because many EQUI-VEST investors incurred these types of fees infrequently—and because those were the only types of fees detailed in the quarterly account statements, the investors often received quarterly account statements with numerous entries stating that the investor paid $0.00 in fees. 

The SEC notes that the account statements contained no clarifying language or reference to the prospectus to explain what these different categories of fees represented or to put the investor on notice that they instead had paid separate account expenses and portfolio operating expenses that could amount to thousands of dollars each year. 

“Though affirmatively presenting an apparently all-inclusive picture of fees and expenses to investors, Equitable’s quarterly account statements actually detailed less than 3% of the revenue that Equitable received from the EQUI-VEST variable annuities,” the order notes. 

As a result, the SEC contends that Equitable violated antifraud provisions Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Without admitting or denying the allegations, Equitable agreed to cease and desist from committing or causing any future violations of these provisions and to pay the penalty that it will distribute to affected investors. Equitable also agreed to revise how it presents fee information in its variable annuity account statements.

And while this case was tied to 403(b) and 457(b) plans, the SEC warns firms to review their disclosures. “When considering how to invest their hard-earned money and save for retirement, it is essential that investors not be misled about the fees they are paying,” SEC Division of Enforcement Director Gurbir Grewal said in a statement. “This case should serve as an important reminder to investment firms to carefully review their statements to ensure fee information is disclosed properly.”

In the meantime, the SEC’s Office of Investor Education and Advocacy issued an updated Investor Bulletin with tips to help teachers make informed investment decisions, including about retirement plans.

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