On Monday, July 18, 2022, the U.S. Securities and Exchange Commission (“SEC”) announced fraud charges against Equitable Financial Life Insurance Company (“Equitable”), a wholly owned subsidiary of Equitable Holdings, Inc. (“EH”), for providing account statements to about 1.4 million investors that (as stated in a July 18, 2022, SEC Press Release) "included materially misleading misstatements and omissions concerning investor fees." That Press Release also notes that most of the affected investors “are public school teachers and staff members.”

Equitable and its affiliated businesses (including a 64% interest in investment adviser AllianceBernstein Holding, L.P., which as of Dec. 31, 2021, had $779 billion in assets under management), all owned by EH, comprise one of America’s largest financial and insurance companies. Equitable was founded in 1859 by Henry Baldwin Hyde in New York City. In 1870, it opened its newly built headquarters building on lower Broadway in the City’s financial district. After that building was destroyed by fire in 1912, Equitable rebuilt on the same site, erecting its famous headquarters structure at 120 Broadway. [The author cannot help noting that his father got his first job in America as an electrician in the Equitable Building, after arriving from Scotland in 1929.] Equitable was originally organized under New York law as a mutual company but decided (as did several other insurers and mutual savings institutions at that time) to demutualize in December 1990 to have greater access to the capital markets. In July 1991, amidst concerns about Equitable’s solvency, it sold a 49% interest to AXA S.A.(“AXA”), a leading French insurance company, for $1 billion. In 2018, AXA, responding to tougher European Union solvency laws, decided to spin-off its holdings in Equitable and its affiliates. The spin-off was accomplished in a series of three public offerings that yielded AXA something approaching $10 billion. In January 2020, those Equitable businesses were rebranded as EH.

The SEC enforcement action was implemented by a July 18, 2022, Order Instituting Cease-And-Desist Proceedings (the “Order”), to which Equitable consented. The SEC found that since at least 2016, Equitable had marketed and sold variable annuity products (called EQUI-VEST products), primarily to kindergarten-through-twelfth grade public school teachers and other school employees, as retirement plans under Sections 403(b) or 457(b) of Federal retirement law, which cover deferred contribution retirement plans. The prospectuses used to sell EQUI-VEST products spelled out the fees that investors would incur by investing in the products.

Each investor in an EQUI-VEST product received quarterly account statements that had on their front pages certain line items including (according to the Order) the following: “Net Investment Portfolio Results,” “Total Account Value,” and “Fees and Expenses.” As charged in the Order, “nothing in the account statement clarified that the prominently displayed “Fees and Expenses” … did not include all fees and expenses.” In addition, due to timing issues, the account statements “most often reported “Fees and Expenses” on the front page as $0.00 for the quarter, or for both the quarter and year.”

The Order notes that “[i]nvestors reviewed their Equitable account statements in order to assess the impact that fees were having on their investment and to make decisions concerning their ongoing investments, including whether to make additional investments in EQUI-VEST variable annuities.” The account statements had “numerous entries that the investor paid $0.00 in fees… [when] instead [they] had paid significant … [fees] that … [could have amounted] to thousands of dollars each year.” The statements “actually detailed less than three percent of the revenue that Equitable received” from those fees. The Order further notes that investors had the ongoing ability to decide whether to continue investing in EQUI-VEST products “and whether to start, stop, increase, or decrease their periodic investment amount.” In fact, Equitable actively “encouraged investors to increase their investments,” noting (when accurate) “Contribution limits are going up,” and promoted “Equitable to the investor as an ‘Annuity Service Award Winner.’”

In May of 2017, Equitable met with an advisory committee to the school district “with which Equitable did the most business in terms of both assets invested and number of investors.” The committee chair told Equitable that the fee disclosures on the account statements were unclear and probably inaccurate. In May 2019 that same committee “specifically asked … Equitable … to list annuity fees on the front page of … account statements going forward.” Equitable agreed and began fee disclosure from April 20, 2021, through Dec. 31, 2021, for the investors in that school district, but NOT for any other EQUI-VEST investors.

The SEC found that Equitable violated Section 17 of the Securities Act of 1933, as amended (the “’33 Act”), which prohibits any person from obtaining money or property from the offer or sale of securities using any untrue statement of material fact or any omission of material facts needed to make statements not misleading, and from engaging in business practices that operate as a fraud or deceit on the security purchaser. It is not necessary for the Commission to prove scienter to sustain a case for violating the ’33 Act.

Equitable agreed to settle the matter by:

1. Paying a civil penalty of $50 million, which would be paid into a “Fair Fund” to reimburse EQUI-VEST persons who are or were investors between Jan. 1, 2016, and July 18, 2022, with the amount payable to each investor determined in part by how long he or she had the investment and by the amount of undisclosed fees paid from his or her account. Equitable is to administer the Fair Fund and make all required payments, with detailed records to be submitted to the Commission.

2. Sending each current and former investor a copy of the Order together with a cover letter satisfactory to the Commission.

3.  Immediately changing its EQUI-VEST quarterly account statements beginning with statements for the quarter from April 1, 2022, June 30, 2022, in a manner satisfactory to the Commission, which changes must disclose in detail all fees charged to that investor’s account during each quarter. Equitable must certify compliance to the Commission in a detailed narrative with supporting exhibits.

4. Ceasing-and–desisting from committing or causing any future ’33 Act violations.

This case not only shows the name “Equitable” is a lie, it also fairly raises the question, how could sophisticated financial people who spelled out all the possible fees in the EQUI-VEST prospectuses ignore the ongoing obligation to disclose the fees on the quarterly account statements? Additionally, how could that non-disclosure continue after Equitable had been called to account by the advisory committee of one school district (and thereafter provided appropriate fee disclosure to the investors IN THAT DISTRICT)? Was this simply a case of administrative sloth? Or was it some notion that public school teachers did not really need to know how much of their invested money was being siphoned off as fees? In any event, one hopes that $50 million serves as adequate “tuition” for the “schooling” of Equitable and its employees.