It’s no secret that many of the brightest, most ambitious securities attorneys in the country use a coveted stint at the Securities and Exchange Commission to bolster their sphere of influence, career options and earnings potential. But the recent appointment of former TIAA Managing Director and General Counsel Paul G. Cellupica at a time when TIAA is the focus of a N.Y. State Attorney General investigation and a pending SEC whistleblower complaint is raising eyebrows among investor attorneys.
“There is so much that needs to be done in terms of investor protection at the SEC and across the industry. Now is not the time to appoint someone like Cellupica to this type of position,” Marnie C. Lambert, outgoing president of the Public Investors Arbitration Bar Association (PIABA) told Financial Advisor magazine. “We don’t know what Cellupica will do, but if the sales and supervision methods that MetLife and then TIAA used under his guidance in the last 13 years are any indicator, this does not bode well for investors,” added Lambert, of The Lambert Law Firm.
Before serving as general counsel at TIAA, Cellupica was chief counsel for the Americas at MetLife Inc., where he had responsibility for legal support of MetLife's financial services businesses in the U.S. and Latin America. This will be Cellupica’s second stint at the SEC. He served as Assistant Director in the Investment Management Division and in various other capacities from 1997 to 2004.
For years, Cellupica’s former employers TIAA and MetLife have vigorously fought fiduciary and best-interest standards that would require brokers to put customer interests before their own. The standards, which have been on the SEC’s to-do list for more than a decade, are hotly-debated and under legal challenge from broker and variable annuities groups, who are working to roll back the Department of Labor’s application of fiduciary rules to retirement accounts for the first time.
For its part, TIAA is the subject of an ongoing N.Y. State Attorney General investigation into questionable mutual fund and annuity sales practices. The N.Y. investigation was triggered by a whistleblower complaint filed by TIAA with the SEC this fall outlining abusive sales practices the company and its brokers allegedly perpetuated on public school teachers investing for retirement.
The whistle blower complaint, which was obtained by the New York Times earlier this month, alleges that TIAA systemically began conducting a fraudulent scheme in 2011 by paying brokers to transfer “unsuspecting retirement plan clients from low-fee, self-managed accounts to TIAA-CREF-managed accounts.” The accounts were more expensive and had demonstrably inferior performance to the accounts being replaced, the whistleblower complaint contends. TIAA brokers were incentivized with higher commissions and sales mandates to sell the TIAA products, despite knowing the products -- mutual funds and variable annuities -- were not in customers’ best interests, the whistleblower complaint alleges.
“All the sales materials used by brokers at both Cellupica’s former employers were presumably vetted and approved by counsel,” said Lambert, a veteran securities attorney who represents aggrieved investors, some of them teachers who have or had TIAA funds in their retirement plans.