Principal on the hook for up to $5M related to alleged churning

investmentnews.com:

Principal Securities Inc. is again facing ugly allegations about a financial advisor’s handling of a client’s account in the Midwest, this time in Minnesota.

According to a recent filing with the Securities and Exchange Commission, Principal Securities has recently been hit with a lawsuit and Financial Industry Regulatory Authority Inc. arbitration claims stemming from a former registered representative who’s in violation of Minnesota law.

The broker is not named in the filing, the firm’s annual Focus report, which was filed with the SEC on February 28.

The claim appears to center on the unnamed ex-broker’s alleged churning of variable annuities, an expensive and often misunderstood investment product.

The plaintiff suing the firm is the Legacy of Angels Foundation, a customer of the former Principal Securities broker. The foundation’s complaint alleges “negligent supervision, forfeiture and disgorgement of fees and commissions regarding unsuitable recommendations by a former registered representative to purchase variable annuities and continued churning of the annuities.”

The complaint also alleges fraud and other charges. Principal Securities estimates losses from the matter to be in the range of $3 million to $5 million.

A spokesperson for Principal Financial Group, which owns Principal Securities, did not return a call Friday morning to comment. A message was left on Friday with Legacy of Angels Foundation, but no one responded. The foundation has $30.5 million in assets and is based in Rosemount, Minnesota, according to guidestar.org, a website and database of nonprofit organizations.

It’s not the first time in recent history a Principal financial advisor in the Midwest has caused headaches for the home