MANHATTAN (CN) – A New York-based brokerage and its representatives earned millions of dollars in sales commissions by luring unsuspecting senior citizens into buying “highly unsuitable variable annuities” with the promise of a free lunch, the SEC claims in an enforcement action.
Prime Capital Services and parent company Gilman Ciocia allegedly recruited the elderly investors to seminars in south Florida by offering free lunches, where they were then invited to set up a private meeting with a company representative. The sales pitches concealed high costs, lock-in costs and made “material misrepresentations and omissions,” the SEC says.
Gilman Ciocia allegedly arranged the seminars and provided a steady stream of investors by indentifying prospective customers and sending invitations featuring the free meal as an incentive.
“They use the free lunches as the low-tech bait for their high-tech scheme,” said SEC Enforcement Director Robert Khuzami. “These con men lured elderly and retired investors into purchasing highly unsuitable variable annuities, enriching themselves with commissions while ignoring the financial goals of their victims.”
The seminars, arranged in Boca Raton, Delray Beach, Boynton Beach and Melbourne, featured representatives who touted the variable annuities, which are generally considered to be long-term investments that are “unsuitable” for elderly investors who need ready access to their money.
Matthew J. Collins, Kevin J. Walsh and Mark W. Wells, all Florida residents, allegedly told customers they would be able to tap into their money whenever they needed it, but failed to mention early withdrawal charges.
Some senior investors who wanted full access to their money were unlikely to outlive the period during which they would pay surrender fees, according to the SEC’s order.
Some disclosures provided to customers and records in their files were inaccurate or incomplete, the SEC said. And in other cases, paperwork signed by customers was allegedly altered later, making it appear that disclosures were made.
“Fraud against the elderly is especially egregious because they often never recover financially from ill-advised investments that devastate their retirement savings,” said James Clarkson, acting director of the SEC’s New York office.
New York attorney Robert Heim, who represents Prime Capital and several individual defendants, called the alleged scheme “very old,” and said that a settlement had already been reached with what is now the Financial Industry Regulatory Authority.
The two companies, Collins, Walsh and Wells were named in the SEC’s action. They worked for Gilman Ciocia at the time of the alleged misconduct. Seven other employees were named, including Prime Capital president and Gilman Ciocia CEO Michael P. Ryan.
Prime Capital, a registered broker-dealer, is an arm of Gilman Ciocia, an income tax preparation business based in Poughkeepsie, N.Y.
An administrative law judge will now determine whether the allegations are true and whether the defendants should be barred from future violations.