Deluge of Lawsuits From Brokers Over Commissions Likely to Hit Ohio National
Plaintiff lawyers last week filed another proposed class action lawsuit against Ohio National Financial Services and three affiliated companies following their decision to terminate variable annuities selling agreements with broker-dealers and stop paying trailing commissions.
Veritas Independent Partners, a Conway, Ark.-based broker-dealer, is the named plaintiff in the most recent lawsuit. JB Hadden of the Columbus, Ohio-based firm Murray Murphy Moul & Basil, who represents Veritas, didn’t return a call or reply to an email from FA-IQ requesting comments for this story.
Earlier in the month, an LPL Financial broker filed a class action suit against Ohio National companies based on similar allegations and claims. That suit showed that while some broker-dealer groups may be suffering heavy losses in annuities trailing commissions, Morgan Stanley continues to get preferential treatment from Ohio National, as reported.
An Ohio National spokesperson declined to comment on the latest lawsuit, stating the company doesn’t comment to the press about pending litigation.
Brad Bennett, the former chief of enforcement at Finra, who is now a partner at law firm Baker Botts in Washington, D.C., suggests a scenario where this second lawsuit may signal the start of a deluge. Bennett is not representing any of the participants in the litigation.
“The complaint alleges that Ohio National entered into 1,000 similar selling agreements. If the class is certified, I would expect plaintiff lawyers to follow suit on behalf of any other similarly situated registered representatives. I doubt any of the registered representatives affected will give up their trailing commissions without a fight,” Bennett says.
In the Veritas complaint filed before the U.S. District Court of the Southern District of Ohio, the broker-dealer alleges that Ohio National sought to “skirt” its obligations to pay commissions on annuity contracts and “devised a scheme” to save money by refusing to pay owed commissions. Ohio National also hoped to pass on to the proposed class members the ongoing costs of transferring clients to other products to replace the annuity coverage, the Veritas complaint alleges.
As with the previous lawsuit with an LPL Financial broker as the plaintiff, the Veritas complaint alleges Ohio National sent a letter to broker-dealer firms saying it was terminating its variable annuities selling agreements with them and that it would no longer pay trailing commissions stemming from annuities already in existence.
In both class action lawsuits, the plaintiffs are seeking injunctive relief to prevent Ohio National from terminating its obligations to advisors who acted as its representatives.
Dennis Concilla, Columbus, Ohio-based leader of Carlile, Patchen & Murphy’s securities litigation and regulation practice group, who represents the LPL Financial broker in the earlier lawsuit, previously told FA-IQ that Ohio National issued billions of dollars worth of variable annuity policies with guaranteed income benefit riders. According to Ohio National’s 2017 annual report to policyholders, the firm had $24.9 billion in annuity assets as of last year.
At least one other lawsuit has been brought against the same defendants in this case. Commonwealth Equity Services filed its complaint before the U.S. District Court District of Massachusetts in early November, even before the LPL Financial broker-led class action lawsuit. Among other things, that complaint is seeking a declaration that Ohio National is obligated to pay the annuities trailing commissions.