Roger Salvatore Zullo, of Boston, Massachusetts, a stockbroker formerly registered with LPL Financial, LLC, was charged along with LPL Financial, LLC, in a Compliant by the Enforcement Section of Massachusetts Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts, which contained allegations that, inter alia, Zullo defrauded LPL Financial LLC’s customers in reference to variable annuity sales. Roger Salvatore Zullo, et al., Docket No. E-2016-0039 (Dec. 1, 2016).
According to the Complaint, suitability profiles for several customers of LPL Financial, LLC, which included information concerning customers’ liquid net worth and ages, had been fabricated via Zullo to enable him to effect sales of variable annuities to customers, and generate excessive commissions as a result. The annuities at issue were reportedly illiquid and unsuitable, as the transactions were effected without consideration of the customers’ income needs, net worth, liquidity requirements, and age.
Additionally, the Complaint stated that customers’ existing annuities had been switched by Zullo in premature fashion, causing customers to sustain losses by way of surrender penalties. Zullo purportedly placed the customers’ assets into annuities which were identical with annuities that customers previously held.
The Complaint further stated that LPL Financial, LLC, and Zullo accumulated variable annuity commissions totaling at least $1,825,000.00, where the Polaris Platinum III annuity sales generated an estimated ninety-eight percent of the total. The Complaint alleged that fraudulent practices which Zullo engaged in had been rewarded via LPL Financial LLC. Particularly, Zullo received praise by being the firm’s top annuity producer, all while the firm allegedly failed to account for the red flags associated with Zullo’s sales practices. The Enforcement Division indicated that the firm even denied attempts by supervisory staff to address the ongoing concerns with Zullo’s activities, and downplayed a senior customer’s complaint referencing the fraud which Zullo purportedly engaged in.
In one example that the Complaint provided, Zullo was cognizant of a customer’s need for income and reliance upon Zullo. Zullo apparently switched the customer’s existing annuity, which the customer relied upon for purposes of immediate income production, with an identical product. Yet, the annuity which Zullo effected the purchase of provided the customer no benefit; but rather, caused the customer to suffer from a surrender penalty upon switching, a longer surrender penalty period with the new annuity, and the inability for the customer to retrieve income for a period of two years.
Further, the application which Zullo completed on the customer’s behalf allegedly misrepresented the customer as having a liquid net worth that was ten times what the customer actually had, and with the customer’s age having been ten years younger than the customer’s actual age. The Enforcement Section indicated that other customers had been exposed to Zullo’s misrepresentations and fraudulent practices.
The Enforcement Section also took aim at LPL Financial LLC’s alleged lack of supervision concerning Zullo’s activities. Specifically, the firm apparently received inconsistent data from Zullo concerning the same customers but failed to take action accordingly. The firm allegedly did not scrutinize the explanations provided by Zullo in cases where the explanations lacked rationality, such as when ages and net worth information had conflicted with information that the firm housed on separate records. In another case, sales of two separate annuity transactions to a customer which took place in close proximity had been approved by a supervisor even though the customer’s suitability information was not consistent.
The Complaint also alleged that LPL Financial, LLC was cognizant that the same annuity had been sold by Zullo to every customer. Additionally, LPL apparently knew about the surrender penalties that customers would incur on annuities which had been previously sold by Zullo to enable Zullo to earn substantial commissions, where the same funds would be utilized to purchase new annuities via Zullo. The pattern of Zullo’s switching of customers’ annuities had been reportedly detected by LPL’s supervisory personnel, but the firm did not take action other than speak with Zullo about the supervisor’s concerns.
The Enforcement Section ultimately alleged that that Zullo violated Sections 101, 102 and 204(a)(2)(G) of the Massachusetts Uniform Securities Act. Further, LPL was alleged to have failed to supervise Zullo, which was conduct violative of Sections 203 and 204(a)(2)(J) of the Massachusetts Uniform Securities Act. LPL Financial terminated Zullo on December 2, 2016, which happened to be one day after the Complaint had been lodged against Zullo and the firm.
Financial Industry Regulatory Authority (FINRA) Public Disclosure reveals that Zullo has been named in a customer initiated investment related written complaint on January 9, 2017, based upon allegations that Zullo charged the customer with excessive commissions and effected the purchase of a variable annuity which was unsuitable for the customer.
Additionally, on January 25, 2017, a customer filed an investment related written complaint regarding Zullo’s activities, in which the customer requested $95,165.00 in damages based upon allegations that Zullo made misrepresentations to the customer concerning a variable annuity, and omitted information concerning a rider attached to the variable annuity which led the customer to sustain retirement income losses.
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