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Bernard McGee Barred for Fraudulent Annuity Sales, Lying About Surrendering Elderly Client's VA for Charitable Gift Annuity

FINRA barred broker Bernard Gregory McGee of Independent Financial Group for his role in advising an elderly client to surrender four variable annuity (VA) policies—incurring over $37k in surrender charges, taxes & fees—and use the proceeds to purchase a charitable gift annuity through 54Freedom Services, Inc., a purported insurance company that turned out to be a fraudulent enterprise that earned McGee nearly $50,000 in commissions that he "willfully failed" to disclose to the 71-year-old client.

In addition to the bar, the National Adjudicatory Council also ordered McGee pay over $237,000 in restitution to his former client.

NAC Complaint #2012034389202

According to the decision, McGee made an unsuitable VA liquidation recommendation and engaged in undisclosed and unauthorized outside business activities when he failed to inform his then-firm Cadaret, Grant & Co., Inc. of his involvement with 54Freedom Services—Cadaret, Grant & Co. eventually filed an "employment separation after allegations" disclosure event when they permitted McGee to resign over the undisclosed outside business activity.

The investigation characterized McGee's elderly customer as an unsophisticated investor who was "unfamiliar with financial matters" and specified her risk tolerance as "moderate" with a "long term growth" investment objective.

According to the report, broker McGee recommended she purchase four variable annuities—two with The Hartford and two with Pacific Life Insurance Company—while he, without disclosing to his firm, moved his business operations to 54Freedom's premises as McGee entered into a business relationship with 54Freedom Founder and CEO James Griffin, who himself was later arrested on charges of mail fraud and wire fraud.

The findings indicate that as his business involvement with 54Freedom increased, McGee decided to use the senior customer's investment as a "case study" to see whether 54Freedom's charitable gift annuity program "really worked," noting that if it indeed "worked," that McGee would incorporate 54Freedom's product into more of his customers' portfolios.

The investigation states that when the elderly customer surrendered the four VAs pursuant to McGee's unsuitable advisement, she received $454,998.75 from Hartford and Pacific Life, but also incurred surrender charges of $36,202.50 and administrative fees & taxes of $1,440.75.

When McGee then directed his client to write a $454,998.75 check payable to 54Freedom, he purportedly met her at her house, left with her check and did not provide her with any documentation related to the transaction, subsequently calculating that his compensation for the sale would be $49,264, or 10 percent of the actual value of his elderly client's VAs prior to the deduction of the surrender charges; he allegedly did not inform his client of this commission and when Cadaret Grant began to investigate the alleged fraud, McGee characterized the nearly-$50k compensation as a "referral fee" not related to any specific transaction.

FINRA concluded that McGee acted with scienter in making a material omission (willfully failing to inform his client of his business relationship with and compensation from 54Freedom), and in doing so committed a fraud when he received a commission payment for the transactions he had recommended.

If you have invested with Bernard Gregory McGee or with any broker or financial adviser in a charitable gift annuity with 54Freedom Services, or with any broker who has unsuitably recommended that you surrender your variable annuity or other securities, resulting in financially damaging surrender charges, taxes, or fees, or whose failure to disclose a key conflict of interest—such as a receipt of large commissions for such an investment—has led to fiscally unwise or harmful transactions, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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