According to FINRA, Gary Goldberg & Co., LLC (formerly Bruderman Brothers LLC) was ordered to pay $500,000 in partial restitution to customers for failing to adequately supervise the suitability of variable annuity sales to customers who held both brokerage and advisory accounts. The firm also conducted securities business while failing to maintain required minimum net capital.

The firm provided no training, procedures, or guidance regarding when it was appropriate to recommend purchasing a variable annuity in a brokerage account versus an advisory account, or regarding the availability of lower cost advisory-class products. The firm had no system to identify when representatives caused customers to pay both brokerage commissions and advisory fees for the same investment. Several representatives recommended that customers with advisory accounts purchase B-shares of variable annuities in their brokerage accounts even though advisory shares were available at lower cost and without surrender periods. The representatives then recommended transferring the B-shares to the advisory account, usually within one business day. As a result, customers paid annual advisory fees of 1.875 percent plus annual fees 0.95 percent higher than advisory shares, and were subject to seven-year surrender fees. Customers collectively paid approximately $966,000 in unnecessary fees.

Additionally, the firm guaranteed an $11 million loan for an affiliated entity but failed to include it when calculating aggregate indebtedness and net capital, causing inaccurate calculations and FOCUS reports for over seven years until a lender filed an action to enforce the guarantee.

This case demonstrates how inadequate supervision can lead to unsuitable recommendations that enrich the firm while harming customers through excessive fees and inappropriate product structures.