SEC Awards $400K to Whistleblower; Investors Protected, MassMutual Fined $1.6M

You have probably never heard of 56-year-old Bill Lloyd. He’s a regular guy with a regular job. Lloyd worked for MassMutual Financial Group in Springfield, MA, for most of his adult life. He enjoyed working for the company and did well; he really cared about his customers and always did his very best by them. So, when he realized his company was trying to take advantage of his loyal customers, he told his supervisors. Nothing was done and Lloyd knew he couldn’t sit idly by and let it happen.

At least not without a fight.

Fast forward to the end of the story, Lloyd won his battle and was awarded more than $400,000 after blowing the whistle on fraud being committed by MassMutual. He is one of only 13 individuals who have received money under the SEC’s Dodd-Frank Act, after alerting the U.S. Securities and Exchange Commission about the fraud.

Whistleblowers who bring credible information to the SEC in an effort to expose fraud are protected; the SEC must protect their confidentiality. However, Lloyd was happy to tell his story to the New York Times.

In a nutshell, here is what happened. MassMutual saw that everyone was getting into variable annuities back in September 2007, and it added two income guarantees to incentivize potential investors to choose its products over competing financial firms. “The Guaranteed Income Benefit Plus 6 and Guaranteed Income Benefit Plus 5…guaranteed that the annuity income stream would grow to a predetermined cap regardless of how the investment itself performed,” the New York Times article explained.

When investors retired, they were supposed to be able to take a certain percentage of the cap “for as long as they wanted or until it ran out of money, and still be able, at some point, to annuitize it.” Investors were told the money was not supposed to run out, according to the prospectus. Lloyd and his fellow salesman were told to make that fact clear to potential investors in an effort to push those annuities. It worked and people invested $2.5 billion into those funds.

A year later, when the economy tanked, Lloyd and some of his co-workers realized there was no way the guarantee was going to work. “…it was a near-certainty that thousands of customers were going to run through the income stream within seven or eight years of withdrawing money,” the NYT story revealed.

Lloyd blew the whistle on MassMutual when the company refused to do anything to protect those customers. He wound up resigning because working at the company became increasingly uncomfortable. He found other employment.

MassMutual agreed to pay a $1.6 million fine. Perhaps more importantly, however, MassMutual agreed to lift the cap and protect investors who believed the company when it made those guarantees.

Whistleblower awards generally range from 10 to 30 percent of the money collected in a case by the SEC. Lloyd’s $400K amounts to 25 percent of the $1.6 million fine.

According to a press release put out by the SEC: “The whistleblower did everything feasible to correct the issue internally.  When it became apparent that the company would not address the issue, the whistleblower came to the SEC in a final effort to correct the fraud and prevent investors from being harmed,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.  “This award recognizes the significance of the information that the whistleblower provided us and the balanced efforts made by the whistleblower to protect investors and report the violation internally.”

If you believe you have information that could expose fraud against the government, contact the experienced qui tam lawyers at Begelman & Orlow, P. C.. We specialize in whistleblower cases and will listen to your story and help determine if you have a case.

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