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DAVID LERNER ASSOCIATES, INC. * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-16-8184-S |
I. PRELIMINARY STATEMENT
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
WHEREAS, David Lerner Associates, Inc. (“DLA”) is a broker-dealer with its principal office located at 477 Jericho Turnpike, Syosset, New York 11791-9006. DLA has been registered as a broker-dealer under the Act since October 19, 1982. DLA maintains a branch office at 1221 Post Road, Westport, Connecticut 06880;
WHEREAS, Michael Thomas Lombardo (CRD No. 4091665) (“Lombardo”) was registered as an agent of DLA from October 21, 2002 until March 13, 2014 when his registration with the firm was terminated;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation of DLA under Section 36b-26 of the Act to determine whether DLA had violated, was violating or was about to violate any provision of Act or any regulation or order under the Act (“Investigation”);
WHEREAS, the Financial Industry Regulatory Authority (“FINRA”) is a self-regulatory organization registered with the Securities and Exchange Commission (“SEC”) pursuant to Section 15A of the Securities Exchange Act of 1934;
WHEREAS, as a result of the Investigation, the Division ascertained that, on April 3, 2014, FINRA accepted a Letter of Acceptance, Waiver and Consent (No. 2014040513601) (“AWC”) from former DLA agent Lombardo. The AWC was executed by Lombardo on March 31, 2014 in resolution of FINRA claims that Lombardo, while associated with DLA, violated FINRA Rules 2150(a) and 2010 by misappropriating funds from a DLA customer by forging the customer’s signature on an Individual Retirement Account (“IRA”) distribution request form; taking delivery of the IRA disbursement check; forging the customer’s signature on the disbursement check; converting the funds to Lombardo’s own use; and also converting additional funds from other DLA customers;
WHEREAS, the AWC barred Lombardo from association with any FINRA member firm in any capacity;
WHEREAS, on September 11, 2014, Lombardo pled guilty in the United States District Court for the District of Connecticut to one count of violating 18 U.S.C. Section 1343 (Wire Fraud) (United States v. Lombardo, Case No. 3:14-cr-00189-AVC);
WHEREAS, in connection with his guilty plea, Lombardo admitted, inter alia, that he defrauded more than twenty clients of DLA by diverting a total of over $190,000 from their individual accounts for his personal use. Lombardo admitted that, as part of this scheme, he submitted fraudulent requests to disburse a portion of the retirement account of a DLA client. Lombardo admitted that he requested that disbursement checks be sent from the client’s account to him at DLA’s Westport, Connecticut office, forged the client’s signature on the back of the checks, and then caused the checks to be deposited into his personal bank account where he would subsequently use the funds for his personal benefit;
WHEREAS, in connection with his guilty plea, Lombardo was sentenced to a term of incarceration of twelve months and a day, and was ordered to be on supervised release for a total term of three years upon his release from imprisonment. The court also ordered Lombardo to pay $191,068.73 in restitution;
WHEREAS, on January 23, 2015, in a related proceeding based on the guilty plea (Admin Proc. File No. 3-16355), the SEC accepted Lombardo’s Offer of Settlement, and barred Lombardo from (1) association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and (2) participating in any offering of a penny stock, including acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock;
WHEREAS, as a result of the Investigation, the Division ascertained that, as evidenced by the misconduct of DLA’s then agent Lombardo, DLA failed to follow and enforce its written supervisory procedures set forth in its written supervisory and procedures manual with respect to the review of incoming correspondence and the transmittal of checks between customers and DLA agents;
WHEREAS, as a result of the Investigation, the Commissioner has reason to believe that the foregoing conduct violates certain provisions of the Regulations, and would support administrative proceedings against DLA under Sections 36b-15 and 36b-27 of the Act;
WHEREAS, the Commissioner acknowledges that DLA has cooperated with the Division during the Investigation, immediately terminated Lombardo when it was alerted of Lombardo’s misconduct, notified FINRA and local law enforcement, and that DLA, on its own initiative, contacted every client whose funds were misappropriated by Lombardo and offered them a full refund plus interest of the amounts misappropriated, and further acknowledges that DLA since enhanced its procedures for processing client disbursement;
WHEREAS, Section 36b-31(a) of the Act provides, in relevant part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, an administrative proceeding initiated under Sections 36b-15 and 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(4) of the General Statutes of Connecticut, as amended by Public Act 15-61;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, without holding a hearing and without trial or adjudication of any issue of fact or law, and prior to the initiation of any formal proceeding, the Commissioner and DLA reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
WHEREAS, DLA expressly consents to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, the Commissioner finds that the issuance of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, DLA, through its execution of this Consent Order, specifically represents and agrees that none of the violations alleged in this Consent Order shall occur in the future.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, DLA, through its execution of this Consent Order, voluntarily waives the following rights:
| 1. | To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut; |
| 2. | To present evidence and argument and to otherwise avail itself of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut; |
| 3. | To present its position in a hearing in which it is represented by counsel; |
| 4. | To have a written record of the hearing made and a written decision issued by a hearing officer; and |
| 5. | To seek judicial review of, or otherwise challenge or contest, the matters described herein, including the validity of this Consent Order. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATION
WHEREAS, DLA, through its execution of this Consent Order, and without admitting or denying the Commissioner’s allegation, acknowledges the following allegation of the Commissioner:
| DLA violated Section 36b-31-6f(b) of the Regulations by failing to follow and enforce DLA’s system for supervising the activities of its agents with respect to the processing of client IRA distributions in DLA’s Connecticut office operations in a manner reasonably designed to achieve compliance with applicable securities laws and regulations. |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting DLA an opportunity for a hearing;
AND WHEREAS, DLA acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, DLA, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | DLA, its representatives, agents, employees, affiliates, assigns, or successors in interest shall cease and desist from engaging in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, either directly or through any person, organization or other device; including without limitation, failing to follow and enforce adequate supervisory procedures with respect to the processing of client IRA distributions in a manner reasonably designed to achieve compliance with applicable securities laws and regulations; and |
| 2. | No later than the date this Consent Order is entered by the Commissioner, DLA shall remit to the Department of Banking by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut”, or by wire transfer, the sum of five thousand dollars ($5,000) as an administrative fine. |
VI. [sic] CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Sanctions set forth above be and are hereby entered; |
| 2. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against DLA based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance with the terms herein is not being observed; |
| 3. | Upon entry of this Consent Order by the Commissioner, this matter will be resolved and the Commissioner will not take any future enforcement action against DLA based upon the alleged supervisory deficiencies relating to former agent Lombardo; however, nothing in this Consent Order shall be construed as limiting the Commissioner’s ability to take enforcement action against DLA and/or its affiliates and successors in interest based upon evidence of which the Division was unaware on the date hereof relating to a violation of the Act or any regulation or order under the Act; |
| 4. | DLA shall not take any action or make or permit to be made any public statement, including in regulatory filings, any proceeding in any forum or otherwise, denying, directly or indirectly, any allegation referenced in this Consent Order or create the impression that this Consent Order is without factual basis; |
| 5. | DLA shall not take any position in any proceeding brought by or on behalf of the Commissioner, or to which the Commissioner is a party, that is inconsistent with any part of this Consent Order. Nothing in this provision affects DLA’s (i) testimonial obligations or (ii) right to take a legal or factual position in litigation, arbitration, or other legal proceeding in which the Commissioner is not a party; and |
| 6. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut, | _____/s/____________ | |
| this 26th day of October 2016. | Jorge L. Perez | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Joseph Pickard, state on behalf of David Lerner Associates, Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of David Lerner Associates, Inc.; that David Lerner Associates, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that David Lerner Associates, Inc. consents to the entry of this Consent Order.
| David Lerner Associates, Inc. | |
| By: | ____/s/_________________ |
| Joseph Pickard | |
| General Counsel |
State of: New York
County of: Nassau
On this the 18th day of October 2016, before me, the undersigned officer, personally appeared Joseph Pickard, who acknowledged himself to be the General Counsel of David Lerner Associates, Inc., and that he, as such General Counsel, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as General Counsel.
In witness whereof I hereunto set my hand.
| ____/s/___________________________ |
| Notary Public |
| Date Commission Expires: Sept. 30 2018 |