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Mass Mutual Agrees to Pay $1.6 Million SEC Fine and Whistleblower Receives $400,000 of the $1.6 Million Fine

A lot of people lost money in the recent economic downturn. Stocks plummeted, 401K accounts shrank overnight, and for most people, there was nothing that could have been done to prevent it. In some instances, though, an investor’s loss was a direct result of negligence or fraud on the part of the company that was supposed to be protecting their money.

According to the Securities and Exchange Commission (S.E.C.) that is exactly what allegedly happened to investors who trusted their money to MassMutual Financial Group, an insurance company based in Springfield, Massachusetts. Bill Lloyd worked for MassMutual for 22 years and allegedly had a reputation for being a straight arrow. Unlike the stereotypical agent who is interested only in making money for himself, Lloyd truly cared about his customers. As a result, when he encountered a situation in which his customers were allegedly getting ripped off, Lloyd could not let it slide.

In 2007, when money was gushing into variable annuities, MassMutual added two income guarantees: Guaranteed Income Benefit Plus 6 and Guaranteed Income Benefit Plus 5. The idea behind these products was that they would guarantee that the annuity income stream would grow to a predetermined cap regardless of how the investment itself performed.

When the investors retired, they could take six percent (or five percent, depending on which product they bought) of the cap for as long as they wanted or until it ran out of money, and still be able to annuitize it at some point. In theory, the money would never run out, and that is how agents like Lloyd were allegedly told to sell the product to customers. Before long, investors had put $2.5 billion into these products.

In 2008 it allegedly became evident that the products did not work they way customers had been told they would work. As a result of the market’s fall, it was according to Lloyd all but certain that thousands of customers were going to run through their income stream within seven or eight years of withdrawing the money.

Initially, Lloyd allegedly brought the matter to the attention of others at MassMutual and did everything he could to address the matter internally. At first, it looked like he was going to be successful that way, but then someone stole the files he had put together on the issue and turned them over to the Financial Industry Regulatory Authority, the industry’s self-regulatory body. When the regulatory authority failed to act on the matter, Lloyd’s attorney informed Lloyd of the whistle-blower provision in the Dodd-Frank law. According to the law, businesses are forbidden from retaliating against those who alert the S.E.C. to possible fraud (whistleblowers).

Unfortunately, the law can only do so much to protect whistleblowers. According to Lloyd, “People started treating my like a leper. … They would see me coming and turn around and walk in the other direction.” Lloyd became convinced that MassMutual was getting ready to fire him, so he quit his position with the company in 2011. He has since found employment with another financial institution.

Part of the Dodd-Frank law assures whistleblowers a 25% cut of any fine over $1 million. As a result, when MassMutual agreed to pay a $1.6 million fine to the S.E.C., Lloyd’s cut was $400,000. More importantly, the company agreed to lift the cap on the annuity income stream that according to Lloyd was causing investors to run out of money.   MassMutual denied all of Lloyd’s allegations and claimed it did not do anything wrong. 

The consumer and tax payer rights law firm of DiTommaso Lubin Austermuehle represents whistleblowers who are pursing qui tam lawsuits at any level of government or for violations of the securities laws and IRS code, including claims under the Illinois Whistleblower Act, the Chicago whistleblower ordinance, the Dodd-Frank Act and the federal False Claims Act. Based in Chicago and Oak Brook, Ill., our Joliet and Schaumburg area qui tam and False Claims Act lawyers stand ready to represent whistleblowers throughout the United States — regardless of whether prosecutors have decided to join the lawsuit. If you know about fraud against a government agency and you’re ready to speak up, you can learn more about whistleblower lawsuits at a free, confidential consultation. To set one up, please contact DiTommaso Lubin Austermuehle online or call 1-877-990-4990 today.