June 30 (Bloomberg) -- The U.S. Securities and Exchange Commission accused a New York brokerage of fraudulently selling unsuitable variable annuities to retirees lured to so-called free-lunch seminars at restaurants in Florida.

Representatives from Prime Capital Services, the brokerage arm of a Poughkeepsie, New York-based tax-preparation company, persuaded elderly clients to buy annuities with early withdrawal fees that were inappropriate given their age, the SEC said in a civil complaint today. One 80-year-old customer put more than three quarters of his liquid assets into an instrument that limited access for eight years, the agency said. His broker reaped $6,000 in commissions.

“They used free lunches as the low-tech bait for their high-scale scheme,” SEC enforcement chief Robert Khuzami said in a statement. “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.”

U.S. regulators are cracking down on free-lunch enticements and sales of variable annuities, an investment product that typically doles out payments over years. The instruments, intended for long-term investors, may be inappropriate for elderly investors who need ready access to their money.

Hotels, Golf Courses

The SEC’s civil complaint also names Prime Capital’s parent company, Gilman Ciocia Inc., and seven current and former supervisors and brokers. Gilman Ciocia aided and abetted the fraud by arranging the lunches, the SEC said.

The firms “will vigorously contest the charges at the hearing, and we’re confident that we will prevail,” said their New York attorney, Robert Heim. “The conduct at issue is very old and occurred in the late 1990s and early 2000s,” he said. The firm “reacted very quickly” when it learned of problems, and has “corrected all of the issues.”

Regulators including the SEC warned elderly investors in 2007 against lunchtime seminars, often held in restaurants, hotels, retirement communities and golf courses. A study found exaggerated claims were made at roughly half the meetings hosted by 110 securities firms, the agency said at the time.

Prime Capital’s lunches took place in Florida locations including Boca Raton, Delray Beach, Boynton Beach and Melbourne, the SEC said today. Later, in one-on-one meetings, Prime Capital representatives told some customers they would have access to money whenever they needed it, without explaining fees for early withdrawals, the agency said.

Some disclosures to customers and records in their files were inaccurate or incomplete, the SEC said. In some cases, records signed by customers were 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,” James Clarkson, acting director of the SEC’s New York office said.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

Last Updated: June 30, 2009 17:12 EDT