Scott Silver Speaks After Nonprofit Wins $7.3M Arbitration Against Principal Securities

The Rosenau Family Research Foundation, a nonprofit that funds medical research, has alleged that Principal Securities engaged in misuse of variable annuities, as well as churning and selling away while handling the Foundation’s investments.

In an interview with Investment News, Silver Law Group’s managing partner Scott Silver stated, “There’s a lack understanding around these products, variable annuities, and they are rarely the best option for investors. It has been and still is a massive problem for investors. And the insurance companies and broker-dealers that focus on annuities are trying to punch holes in new standards, like Regulation Best Interest, that protect investors.”

In its FINRA arbitration claim, the Rosenau Foundation alleged that Principal:

1. “Failed to reasonably supervise its registered representative”
2. Recommended to the Foundation that it “invest a majority of its assets in unsuitable variable annuities and variable life insurance policies”

Principal also allegedly failed to notify the Foundation of the investment costs involved in these transactions. The broker, who was not named, was noted as “now deceased” in the arbitration, engaged in churning of the Foundation’s funds. Principal, they alleged, failed to properly supervise the broker.

The Foundation’s attorney said in a statement that the lack of supervision allowed the broker to continually surrender and purchase the annuities far faster than intended. This created the churning that generated excessive fees and commissions that ran counter to the Foundation’s more conservative investment objective, adding “The evidence further reflected a pattern of churning, when these variable annuities were surrendered and then, 30-days later, a new variable annuity was purchased. We maintained and proved that these surrenders and purchases were done to generate fees and commissions, and resulted in lost growth of the foundation’s principal in the millions.”

We previously blogged about a separate lawsuit involving the Foundation against Principal, as well as one of their brokers who engaged in selling away.

The Rosenau Family Research Foundation is a nonprofit founded by Paul and Susan Rosenau. After winning the PowerBall in 2008, they decided to create a foundation to fund and further research for Krabbe Disease and for Cystic Fibrosis. Their inspiration came after losing their two-year old granddaughter to Krabbe, a rare genetic disorder. Because at the time, babies born with Krabbe didn’t live long, they originally named it The Legacy of Angels Foundation. The Foundation has increased funding for research for treatments and therapies where little existed before. Since then, testing of infants has led to better treatment and longer lives for those diagnosed.

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