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FINDINGS OF FACT, CONCLUSIONS OF LAW ORDER DOCKET NO. CF-16-8301-S |
*Parenthetical references relate to exhibits entered into the hearing record by
the Hearing Officer (“HO Ex.”). Transcript (“Tr.”) pages reflect where an exhibit
was entered into the record or where relevant testimony was given.
INTRODUCTION
The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (“Act”), and Sections 36b 31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Act (“Regulations”).
The above-referenced matter was initiated upon charges brought by the Commissioner to issue an order to cease and desist and an order imposing fine on Gray. On October 20, 2016, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (collectively, “Notice”) against Gray. The Notice was sent by certified mail, return receipt requested. On October 25, 2016, Gray, through counsel, requested a hearing on the Notice.
On November 7, 2016, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer stating that the hearing would be held on December 13, 2016, and appointing Attorney Stacey Serrano as Hearing Officer. After several continuances of the scheduled hearing date, a hearing was held at the Department of Banking (“Department”) on March 8, 2017. Attorney Elizabeth Mullin represented the Department at the hearing and Gray failed to appear at the hearing. The hearing was conducted in accordance with Chapter 54 of the Connecticut General Statutes, the “Uniform Administrative Procedure Act”, and the Department’s contested case regulations, Section 36a-1-19 to 36a-1-57, inclusive, of the Regulations of Connecticut State Agencies.
Section 36a-1-31(b) of the Regulations of Connecticut State Agencies provides, in pertinent part, that:
Section 36a-1-31(b) of the Regulations of Connecticut State Agencies provides, in pertinent part, that:
| When a party fails to appear at a scheduled hearing, the allegations against the party may be deemed admitted. Without further proceedings or notice to the party, the presiding officer shall submit to the commissioner a proposed final decision containing the relief sought in the notice, provided the presiding officer may . . . receive evidence from the department . . . concerning the appropriateness of the amount of any . . . fine . . . sought in the notice. |
Having read the entire record, including testimony of the witnesses and documentary evidence, I make the following findings of fact and conclusions of law based on the preponderance of evidence in the record.
FINDINGS OF FACT
| 1. | Gray is an individual whose address last known to the Commissioner is 6343 Via Desonrisa Sur, Boca Raton, Florida 33433. (HO Ex. 1; Tr. at 6.) |
| 2. | On July 15, 1977, the National Association of Securities Dealers, Inc. (“NASD”) rendered a final decision against Gray permanently barring him from association with any NASD member in any capacity. (HO Ex. 1.) |
| 3. |
On June 8, 1998, the United States District Court for the Southern District of New York entered a default judgment against Gray and permanently enjoined him from violating the antifraud provisions of the Securities Exchange Act of 1934 and various registration, books and records and other provisions of the Investment Advisers Act of 1940. (SEC v. Robert L. Gray, S.D.N.Y., 97 Civ. 5732.) The court also ordered Gray to disgorge $121,654, representing his ill-gotten gains, plus $48,071 in prejudgment interest. The 1998 injunction was the result of a Securities and Exchange Commission civil complaint alleging that from January 1993 through June 1996, Gray, while acting as an unregistered investment adviser: (a) misappropriated over $139,000 from his advisory clients; (b) made material misrepresentations to clients concerning their investments to conceal his misappropriation; (c) engaged in free-riding at the expense of a registered broker-dealer through which client trades were effected; (d) failed to maintain required investment advisory records; (e) failed to furnish clients with required written disclosure statements; (f) entered into advisory contracts that unlawfully provided for performance-based compensation and did not prohibit assignment of the contracts without client consent; (g) failed to adhere to the rules governing treatment of client funds in an adviser’s custody; and (h) failed to disclose his disciplinary history to his clients. (HO Ex. 1.) |
| 4. | In or about 2010, Gray met a Connecticut investor (“Connecticut Investor”) at a social function in Florida. Gray convinced the Connecticut Investor that transferring the Connecticut Investor’s brokerage account to Cantone Research, Inc. (CRD No. 26314) (“CRI”) would allow Gray to directly trade securities in the account through Gray’s “guy”, Victor Polakoff (CRD No. 365011) (“Polakoff”), a broker-dealer agent at CRI. Polakoff is a broker-dealer agent registered under the Act since July 31, 1998. (HO Ex. 1.) |
| 5. |
Pursuant to an unwritten agreement, Gray would share in the gains earned as a result of the recommendations, and Gray would reimburse the Connecticut Investor for losses incurred as a result of the recommended trades. (HO Ex. 1.) |
| 6. | At no time prior to the start of or during the relationship with the Connecticut Investor did Gray disclose his disciplinary history to the Connecticut Investor. (HO Ex. 1.) |
| 7. | At Gray’s recommendation and believing in Gray’s purported investment expertise, the Connecticut Investor transferred his brokerage account to CRI in or about May 2010. The Connecticut Investor’s newly opened discretionary account at CRI was to be handled by Polakoff. (HO Ex. 1.) |
| 8. | Although Polakoff had discretion over the account, Gray selected the trades. In connection with the Securities and Business Investments Division’s investigation into Gray’s activities, the Division obtained on-the-record testimony from Polakoff stating, “I never solicited any of them [the trades]. They were all given to me to trade from Rob Gray, and I used my discretion to enter the trades”. (HO Ex. 1.) |
| 9. | Due to his past disciplinary history and the NASD bar, Gray was unable to obtain appropriate registration as an investment adviser or as an agent of any member firm. Therefore, Gray was unable to enter trades on his own for the Connecticut Investor’s account. Gray, aided by CRI and Polakoff, effected trades using Polakoff in order to allow him to trade absent registration and to circumvent the bar placed on him by the NASD. With Polakoff executing the trades, Gray was able to continue to be active in the securities industry without detection. (HO Ex. 1.) |
| 10. | From May through September 2010, Polakoff and CRI permitted Gray to direct trading in the Connecticut Investor’s account. No signed authorization from the Connecticut Investor was on file with CRI or Polakoff giving Gray permission to direct trading in the account. In addition, Polakoff disseminated account information to Gray, again without written documentation from the Connecticut Investor evidencing the Connecticut Investor’s acquiescence to this arrangement. (HO Ex. 1.) |
| 11. | The Connecticut Investor lost approximately $200,000 as a result of the trades directed by Gray and effected through CRI and Polakoff. (HO Ex. 1.) |
| 12. | The Department requested that a fine of $200,000 be imposed upon Gray. (Tr. at 12.) |
CONCLUSIONS OF LAW
| 1. | Pursuant to Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, the allegations made in the Notice against Gray are deemed admitted. |
| 2. | Gray transacted business as an investment adviser in Connecticut absent registration, in violation of Section 36b-6(c)(1) of the Act, which forms a basis for an order to cease and desist to be issued against Gray under Section 36b-27(a) of the Act and for the imposition of a fine upon Gray pursuant to Section 36b-27(d) of the Act. |
| 3. | Gray, in connection with directly or indirectly receiving compensation or other remuneration for advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, engaged in a dishonest or unethical practice in connection with the rendering of such advice, in violation of Section 36b-5(f) of the Act, which forms a basis for an order to cease and desist to be issued against Gray under Section 36b-27(a) of the Act and for the imposition of a fine upon Gray pursuant to Section 36b-27(d) of the Act. |
| 4. | The issuance of an order to cease and desist and order imposing a fine is necessary and appropriate in the public interest and 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, of the Act. |
| 5. | The Commissioner complied with Sections 36b-31(b), 36b-27(a) and 36b-27(d) of the Act and Section 4-177 of the Connecticut General Statutes. |
ORDER
Having read the record, I hereby ORDER that:
| 1. | Pursuant to Section 36b-27(a) of the Act, the Order to Cease and Desist issued against Robert Lawrence Gray on October 20, 2016, be made PERMANENT with respect to violations of Sections 36b-6(c)(1) and 36b-5(f) of the Act; |
| 2. | Pursuant to Section 36b-27(d) of the Act, a FINE of Two Hundred Thousand Dollars ($200,000) be imposed upon Robert Lawrence Gray, to be remitted to the Department of Banking by wire transfer, cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than forty-five (45) days from the date this Order is mailed; and |
| 3. | This Order shall become effective when mailed. |
| Dated at Hartford, Connecticut, | _____/s/____________ | |
| this 13th day of July 2017. | Jorge L. Perez | |
| Banking Commissioner |
This Order was sent by certified mail, return receipt requested, to Robert Lawrence Gray and Richard Slavin, Esq., Cohen and Wolf, P.C.; and hand delivered to Elizabeth Mullin, Esq., on July 13, 2017.
| Robert Lawrence Gray |
| 6343 Via Desonrisa Sur |
| Boca Raton, FL 33433 |
| Certified Mail No. 7012 3050 0000 6997 5998 |
| Richard Slavin, Esq. |
| Cohen and Wolf, P.C. |
| 320 Post Road West |
| Westport, CT 06824 |
| Certified Mail No. 7012 3050 0000 6997 6001 |