Gilman Ciocia CEO Ordered to Pay $65,000 Penalty

An SEC administrative law judge has issued an initial opinion ordering Gilman Ciocia CEO Michael P. Ryan and chief compliance officer Rose M. Rudden to each pay a civil monetary penalty of $65,000 after one of the firm’s units misrepresented the variable annuities marketed to senior citizens in South Florida.

Judge Carol Foelak also prohibited Ryan and Rudden on June 25 from serving in a supervisory capacity with any broker, dealer or investment advisor, with the right to reapply after one year. In addition, Foelak ordered that two former and two current employees of the firm disgorge the commissions they earned and pay civil money penalties. In addition, the judge ordered that each of the employees be barred from association with any broker, dealer or investment advisor.

The SEC censured Gilman Ciocia in March for the variable annuity sales (see SEC Censures Gilman Ciocia for Annuity Sales to Seniors). The problems involved the tax prep firm’s Prime Capital Services broker-dealer unit, which it acquired in 1999. The SEC found that from approximately November 1999 through February 2007, PCS offered and sold variable annuities that were unsuitable investments for elderly customers due to the customers’ ages, liquidity and investment objectives. Broker-dealers are paid a commission by an insurance company for selling variable annuities.

The SEC found that Gilman Ciocia aided and abetted the broker-dealer’s fraud by arranging and marketing free-lunch seminars in the South Florida area at which registered representatives recruited elderly customers whom they later induced to buy variable annuities. The SEC further found that PCS failed to implement the firm’s supervisory procedures in a way that reasonably could be expected to detect and prevent the registered representatives’ violations of federal securities laws.

The SEC charged Ryan and Rudden last year with failing to reasonably supervise employees Eric J. Brown, Matthew J. Collins, Kevin J. Walsh and Mark W. Wells to prevent and detect violations of federal securities laws. The SEC alleged that PCS and Ryan’s supervisory system was inadequate because it lacked a system to implement PCS’s written supervisory procedures and failed to implement systems that could reasonably be expected to detect and prevent violations of the securities laws, including systems for review and follow-up of branch exams, supervisory review and approval of variable annuity transactions, responding to customer complaints, and compliance with state regulatory orders.

In addition, the SEC alleged that Ryan and Rudden failed to reasonably respond to red flags of wrongdoing in the employees’ variable annuity sales practices, and that Rudden inadequately investigated customer complaints.