• Gilman Ciocia, Inc. ("G&C"), is an income tax preparation business headquartered in Poughkeepsie, New York. It also offers financial services in New York, New Jersey, Pennsylvania and Florida through its wholly-owned subsidiaries, Prime Capital Services, Inc. ("PCS"), a broker-dealer registered with the Commission, and Asset & Financial Planning, Ltd. ("AFP"), an investment adviser registered with the Commission.
  
• Prime Capital Services, Inc. ("PCS") is a wholly-owned subsidiary of G&C that provides securities brokerage services. A significant percentage of the revenue generated by PCS from 1999 through February 2007 came from sales of variable annuities. PCS operates under a management agreement with G&C under which PCS remits revenues to G&C, and G&C pays various expenses for PCS including personnel compensation, training, and marketing costs associated with free-lunch seminars that are provided by PCS's registered representatives and are used to recruit new customers.  

The Tout

From approximately November 1999 through February 2007 (the "relevant period"), four representatives associated with Respondent PCS who were employed by Respondent G&C (the "registered representatives") offered and sold variable annuities to senior citizen customers in Delray Beach, Boynton Beach, Melbourne and Boca Raton. Most of the registered representatives' customers had attended G&C's free-lunch seminars in south Florida communities, during which the four representatives touted PCS's financial services in general and, during most of the relevant period, variable annuities in particular. The seminar script, which the representatives used during their presentations, had been provided to them by PCS.   

During some or all of the relevant period, the registered representatives induced customers into purchasing variable annuities by means of material misrepresentations and omissions.

For example: the registered representatives sometimes

• told customers that the principal invested in the variable annuity was guaranteed not to lose money, without disclosing that the guarantee was triggered by the death of an annuitant, and without disclosing that until the annuitant's death the value could fluctuate and decline;
  
• promised customers that the customers would receive a guaranteed return on their investment without disclosing that such return would be paid only over the course of the annuitization period if, in the future, the customers elected to annuitize;
  
• told customers they would have access to their invested money whenever they needed it, omitting to tell them about charges for early withdrawals above a certain amount;
  
• failed to disclose to customers the ownership costs of variable annuities, which in some cases were more than three percent annually of the invested amount.

Moreover, certain written disclosures provided to customers, and other records in customers' files, were incomplete and/or inaccurate, and in some cases were altered after the customer signed to make it appear that disclosures had been provided and that the sales were suitable when, in fact, they were not.

Suitability

Many of the variable annuities sold by the registered representatives were unsuitable investments based on the customers' ages, incomes, liquid assets and investment objectives. For example, because of their advanced age, some customers who wanted full access to their money were unlikely to outlive the period during which they would pay surrender fees on their variable annuities, and other customers were induced to invest more than seventy-five percent of their liquid assets in variable annuities with limitations and/or fees on withdrawals. In addition, variable annuities limited access to the invested principal in a way that was expressly contrary to some customers' objectives for their money.  

Compared to other investment products, which generally paid less than three percent in sales commissions, the variable annuities sold by the registered representatives generally paid approximately a six percent gross sales commission to Respondent PCS. As compensation, PCS typically paid out approximately half of the sales commission to three of the registered representatives, and as much as seventy percent of the sales commission to the fourth registered representative. During the relevant period, PCS and three of the registered representatives each earned millions of dollars in sales commissions from variable annuity transactions, and the fourth registered representative earned hundreds of thousands of dollars.

During the relevant period, based on the recommendations of the registered representatives, at least twenty-three customers were induced to buy at least thirty-five variable annuities, investing an aggregate of nearly $5 million.