First Command Lawsuit: SEC Settlement, Class Action, LPL Suit

First Command Financial Planning, the Fort Worth firm that sells investment and insurance products primarily to military families, has been the subject of two major legal actions worth $12 million each: a 2004 Securities and Exchange Commission and NASD enforcement settlement over misleading sales of “systematic investment plans,” and a 2009 federal class action settlement brought by servicemember investors covering the same conduct. Smaller matters round out the record, including state regulatory fines, a former employee’s wire fraud conviction, and a 2023 lawsuit First Command itself filed against LPL Financial over advisor poaching.

The 2004 SEC and NASD Settlement

On December 15, 2004, the SEC instituted administrative and cease-and-desist proceedings against First Command, and the NASD (now FINRA) filed a coordinated disciplinary action the same day. First Command agreed to pay $12 million to resolve both, without admitting or denying the findings.¹

The product at the center of the case was a mutual fund “systematic investment plan.” Customers committed to fixed monthly payments, typically $100 to $500, over 15 years. Half of the first 12 payments went to First Command as a front-end sales load. A customer who completed all 180 payments ended up with an effective sales charge of roughly 3.3 percent, but historical data showed about 57 percent of customers never finished, so most paid a far higher effective rate than the pitch implied. Between 1999 and 2004, those front-end loads brought in about $175 million, roughly 70 percent of the firm’s revenue.¹²

The SEC found that from January 1999 through March 2004, First Command willfully violated Section 17(a)(2) of the Securities Act through misleading sales scripts and materials. The firm told prospects that no-load mutual funds attracted only “speculators” and carried high volatility and high long-term costs, when no-load fund costs were substantially lower. It failed to adequately disclose the federal Thrift Savings Plan, which offered similar investment benefits with no sales load. And it defended the 50 percent front-end charge to customers as a necessary “wall” to enforce long-term commitment.²

Of the $12 million, about $4 million went to restitution for roughly 13,000 customers who bought and then terminated plans between January 1999 and December 2004 and paid effective sales charges above 5 percent. The remaining $8 million funded investor education programs for military families through the NASD Investor Education Foundation.³ First Command was censured, ordered to cease and desist from further violations, and required to hire an independent consultant for two years to overhaul its sales scripts, advertising, training, and supervisory procedures. All sales literature had to be pre-filed with the NASD Advertising Regulation Department, and the CEO had to certify within six months that restitution was paid and the consultant’s recommendations implemented.² At the time of the action, First Command’s client base included roughly 40 percent of active-duty general officers and about a third of all commissioned officers.¹

The McPhail Class Action

Shortly after the SEC settlement, military investors filed their own federal class action. McPhail v. First Command Financial Planning, Inc., Case No. 05CV179, was brought in the U.S. District Court for the Southern District of California by two soldiers, their spouses, and two sailors. The complaint alleged that First Command used “affinity marketing” to target military personnel with systematic investment plans built around a standardized sales script known internally as “the track,” misleading charts, and material omissions about the impact of front-end loads, dormant accounts, and lower-cost alternatives like the Thrift Savings Plan.⁴⁵

On July 30, 2007, Judge Irma Elsa Gonzalez certified the class. It covered anyone who made a systematic investment plan payment between January 31, 2000, and December 31, 2004, was charged the 50 percent sales load, and still owned the plan on December 15, 2004. By certification, the case had narrowed to one surviving claim: securities fraud under Section 10(b) of the Securities Exchange Act and Rule 10b-5. Earlier claims under the Investment Advisers Act and Section 12(a)(2) of the Securities Act had been dismissed.⁵

The case settled for $12 million in cash, with final court approval on March 30, 2009.⁶ The settlement was claims-made with no reversion to the defendants. Of 207,412 potential class members, 60,515 filed timely claims, about 29 percent. After attorney fees, litigation costs, administrative expenses, and small reimbursements to the named plaintiffs, the net fund was distributed pro rata based on how much each claimant had paid in sales charges.⁷

The Redonda Russell Wire Fraud Case

A separate criminal case involved a single employee rather than the firm’s sales practices. Former First Command employee Redonda Russell pleaded guilty to wire fraud in August 2014. Between April 2012 and April 2013, she used her access to the firm’s client database to pull personal information on at least 18 clients, eight of them deceased, then forged documents and submitted fraudulent claims to liquidate their accounts. She targeted inactive accounts and accounts using paperless signatures to evade detection, and moved more than $316,000 into her own bank accounts.⁸

Russell was sentenced on December 22, 2014, to 12 months and one day in federal prison and three years of supervised release, with $316,000 in restitution ordered. The court directed the U.S. Marshals to seize about $169,000 in her retirement funds toward the restitution and declined to impose a fine, finding she could not pay one. In March 2015, the SEC issued a separate order permanently barring her from associating with any broker, dealer, or investment adviser.⁹¹⁰

First Command’s 2023 Suit Against LPL Financial

In May 2023, First Command Advisory Services was the plaintiff, not the defendant. It filed a federal lawsuit against LPL Financial, one of the largest independent broker-dealers in the country, alleging civil conspiracy and tortious interference in the recruitment of three First Command advisors. The complaint claimed LPL encouraged the advisors to breach two-year non-solicitation agreements, misappropriate trade secrets, and skip required 30-day resignation notices. The three former advisors were not named as defendants. First Command sought unspecified monetary damages.¹¹

Smaller Regulatory Fines and Advisor Arbitrations

First Command’s FINRA BrokerCheck record includes several smaller matters:

Colorado, 2022: First Command self-reported to the Colorado Division of Securities that it had used unlicensed sales representatives in the state and paid a $63,232 fine.¹²
Puerto Rico, 2022: The firm paid $25,000 to settle with Puerto Rico’s Office of the Commissioner of Financial Institutions for executing brokerage transactions before being properly registered in the territory.¹²
Maryland, 2013: A $5,000 fine after advisor registrations lapsed due to unpaid administrative fees.¹²
Deferred compensation arbitrations: In a 2013 FINRA arbitration, a panel awarded a team of eight departing First Command advisors $1.1 million after the firm withheld more than $1 million in deferred pay, arguing the advisors had improperly retained company materials. A Texas state court dismissed First Command’s appeal in 2014.¹³

What Changed for Military Investors After the Case

The First Command enforcement action fed into broader scrutiny of financial products sold on military bases. A 2005 Government Accountability Office report found that regulators had been largely unaware of problematic sales to servicemembers because the Department of Defense rarely forwarded complaints to financial regulators. Only 10 to 43 percent of military purchasers of contractual plans completed them, the GAO reported, and it recommended that Congress consider banning contractual plans and set specific suitability standards for products sold to military personnel.¹⁴ The SEC endorsed the recommendation in congressional testimony in November 2005. By then, First Command and the other firms involved had already voluntarily discontinued contractual plan sales as part of their settlements.¹⁵

In 2004, the House passed HR 5011 by a 396-to-2 vote to ban contractual plan sales on military bases and set up a DoD-wide registry of insurance agents.¹⁶ In 2006, Congress passed the Military Lending Act as part of the National Defense Authorization Act, capping the Military Annual Percentage Rate at 36 percent on covered credit products. The same legislation drove the reissuance of DoD Instruction 1344.07, which updated rules for commercial solicitation on military installations, including procedures for pulling solicitation privileges from companies and agents, a ban on soliciting recruits in group settings, and a cooling-off period for junior enlisted personnel buying life insurance.¹⁷

1
SEC.gov. SEC, NASD Settle Charges Against First Command Financial Planning
2
SEC.gov. Admin. Proc. File No. 3-11770, Release No. 33-8513
3
Stars and Stripes. Military Update: First Command Investors Eligible for Restitution
4
FedWeek. First Command Lawsuit Ruled Class Action
5
CaseMine. McPhail v. First Command Financial Planning, Inc.
6
Stanford Law School Securities Class Action Clearinghouse. First Command Financial Planning Securities Litigation
7
GovInfo. McPhail v. First Command Financial Planning, Final Approval Order
8
FBI. Former Executive at First Command Financial Services Pleads Guilty
9
SEC.gov. SEC Administrative Order Barring Redonda Russell
10
Agency Checklists. Agent Serves a Year and a Day After Criminal Proceeding
11
AdvisorHub. Texas B-D First Command Sues LPL in Non-Solicit Spat
12
FINRA BrokerCheck. First Command Brokerage Services Detailed Report
13
Financial Advisor Magazine. First Command, Former Advisor Battle Over Pay
14
GAO. Financial Product Sales: Actions Needed to Better Protect Military Members
15
SEC.gov. Testimony Concerning Financial Literacy and Financial Product Sales to Military Members
16
AM Best. Legislation on Military Insurance Sales Advances
17
Department of Defense. DoD Instruction 1344.07, Personal Commercial Solicitation on DoD Installations