Principal Securities Sued Over Broker’s Churning

Minnesota-based broker-dealer Principal Securities has been sued by a local nonprofit over allegations of churning in variable annuities by one of its former registered representatives. The company disclosed this information in its recently filed annual focus report with the SEC. Principal Securities is also the subject of a separate FINRA arbitration claim based on the actions of the same representative.

The plaintiff in this case is the Legacy of Angels Foundation, a 501 (c)(3) nonprofit and private family foundation with the mission, “To improve the lives of children by working to promote the expansion of newborn screening, and to further education, awareness, and research for Krabbe disease and Cystic Fibrosis to provide a better treatment and a cure.”  In June 2023, the nonprofit became known as the Rosenau Family Research Foundation.

In the lawsuit, the plaintiff alleges that Principal Securities made unsuitable recommendations, failed to supervise, and forfeiture of fees and commissions collected by the representative. The representative was not named in the report. The company expects losses in this case to be between $3 million and $5 million. The report was filed with the SEC on February 28, 2024.

Previously, Principal Securities faced similar allegations from another representative who engaged in “selling away,” or selling products not vetted or approved by the firm. John Krohn, an Iowa-based advisor, sold non-firm products to clients in 2021. Principle Securities eventually settled claims of over $4 million.

Variable Annuity Fraud

Variable annuities can offer tax benefits, but they are also complex, and the fees and early withdrawal penalties can be substantial. If a broker or financial advisor does not disclose vital information about an annuity, it may be considered fraud.

Churning, or excessively selling and buying variable annuities to create a commission for the broker and their brokerage firm, is a common type of variable annuity fraud. Investors frequently incur significant costs each time a variable annuity is sold, so churning variable annuities can cause large losses.

Variable annuities can involve high risk, and they are not suitable for every investor. Brokers are required to understand their client’s goals and risk tolerance and only sell them suitable investments. Sometimes brokers push variable annuities on their clients even when they’re not suitable.

Did You Invest With Principal Securities?

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.