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SILVER OAK SECURITIES, * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-16-8056-S |
I. PRELIMINARY STATEMENT
WHEREAS, Silver Oak Securities, Incorporated (“Silver Oak”) is a broker-dealer and an investment adviser with its principal office located at 3339 North Highland Avenue, Jackson, Tennessee 38305. Silver Oak has been registered as a broker-dealer under Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), since February 7, 2007. Silver Oak has been registered with the Securities and Exchange Commission (the “SEC”) (SEC No. 801-71178) as an investment adviser since September 28, 2012, and has filed the notice required by Section 36b-6(e) of the Act. Silver Oak maintains a branch office at 100 Great Meadow Road, Suite 502, Wethersfield, Connecticut 06109 (“Wethersfield Branch”). Sharing office space at the Wethersfield location is JB Capital LLC, an SEC-registered investment adviser (CRD No. 171168) since May 9, 2014, whose chief executive officer is Joel Mark Johnson (“Johnson”). Registered Agents of Silver Oak associated with the Wethersfield Branch conduct investment-related activities under the name “Johnson Brunetti”;
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of the Act and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an examination of Silver Oak pursuant to Section 36b-14(d) of the Act and 36b-31-14f of the Regulations, and a related investigation of Silver Oak under Section 36b-26 of the Act to determine whether Silver Oak had violated, was violating or was about to violate any provision of Act or any regulation or order under the Act (the “Investigation and Examination”);
WHEREAS, the Investigation and Examination cited certain irregularities and deficiencies involving, inter alia, Silver Oak’s supervisory system; the use of signature stamps by Silver Oak and its agents, Silver Oak’s employment of an unregistered investment adviser agent from September 2012 to November 2012; and Silver Oak’s books and records relating to the sale of alternative investments;
WHEREAS, as a result of the Investigation and Examination, the Commissioner has reason to believe that the foregoing conduct violates certain provisions of the Act and Regulations, and would support administrative proceedings against Silver Oak under Sections 36b-15 and 36b-27 of the Act;
WHEREAS, the Commissioner acknowledges that Silver Oak has cooperated with the Division during the Investigation and Examination and that Silver Oak has submitted to the Division the remedial Undertakings described in Section IV of this Consent Order, some of which Silver Oak instituted on its own initiative prior to entry of this Consent Order;
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 Silver Oak reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
WHEREAS, Silver Oak 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, Silver Oak, 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, Silver Oak, 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 ALLEGATIONS
WHEREAS, Silver Oak, through its execution of this Consent Order, and without admitting or denying any of the Commissioner’s allegations, acknowledges the following allegations of the Commissioner:
| 1. | Silver Oak violated Section 36b-6(c)(3) of the Act by engaging an unregistered investment adviser agent between September 2012 and November 2012; |
| 2. | Silver Oak violated Section 36b-31-14a of the Regulations by failing to maintain certain books and records relating to the sale of alternative investments occurring form 2009 to 2013, such deficiency prompted Division concerns regarding the suitability and concentration levels of such product sales. |
| 3. | Silver Oak violated Section 36b-31-6f(b) of the Regulations by failing to establish, enforce and maintain a system for supervising the activities of its agents, investment adviser agents and Connecticut office operations that was 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 Silver Oak an opportunity for a hearing;
AND WHEREAS, Silver Oak acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
IV. UNDERTAKINGS AND REPRESENTATIONS
WHEREAS, Silver Oak, through its execution of this Consent Order, makes the following Undertakings and Representations:
| 1. | Silver Oak has implemented supervisory and compliance procedures to prevent violations of the Act and its Regulations, including procedures ensuring that Silver Oak’s agents and investment adviser agents are appropriately registered in all jurisdictions where they transact business; that improper referral payments are not made; that suitability requirements relating to alternative investments are observed; and that the improper use of signature stamps is curtailed; |
| 2. | Silver Oak shall place securities personnel at the Wethersfield Branch on heightened supervision for a period of twelve months, commencing on the date this Consent Order is entered by the Commissioner; |
| 3. | Within ninety days following the entry of this Consent Order by the Commissioner, with the approval of Silver Oak, the Wethersfield Branch shall hire a Series 24 principal (“Branch Principal”) to exercise supervisory responsibility over the Wethersfield Branch and whose responsibilities shall include, without limitation, reviewing and approving all new brokerage accounts at the Wethersfield Branch. At least two principals located at Silver Oak’s principal office shall also review and approve all new brokerage accounts at the Wethersfield Branch. If, at any time following the retention of the Branch Principal and continuing for a two year period following entry of this Consent Order by the Commissioner, the Branch Principal is no longer employed by the Wethersfield Branch, Silver Oak shall oversee and approve the Branch's hiring of a successor Branch Principal. The Branch Principal shall report directly to Silver Oak's principal office; |
| 4. | During the two-year period following entry of this Consent Order by the Commissioner, should the Wethersfield Branch sever its relationship with the Branch Principal, Silver Oak shall apprise the Division Director in writing of the reasons for such severance within thirty (30) days following such severance, and shall identify the successor Branch Principal engaged to perform the services described in paragraph (3) of Section IV of this Consent Order; |
| 5. | Within ninety days following the entry of this Consent Order by the Commissioner, Silver Oak shall hire an independent consultant to perform a compliance review of the Wethersfield Branch’s securities and advisory operations and develop recommendations to ensure that supervisory and compliance policies and procedures employed by the Wethersfield Branch are adequate to prevent and detect violations of applicable state, federal, or self regulatory organization securities-related rules and requirements; |
| 6. | Within one hundred twenty days following the entry of this Consent Order by the Commissioner, Silver Oak will hold a branch compliance conference for Wethersfield Branch securities personnel, which conference shall provide training on Silver Oak’s updated policies and procedures as well as compliance and regulatory issues; |
| 7. | For two years following the entry of this Consent Order by the Commissioner, Silver Oak will conduct annual audits of the Wethersfield Branch; and |
| 8. | Silver Oak represents and undertakes that, upon request by the Commissioner, Silver Oak shall provide all documentation and information reasonably necessary for the Commissioner to verify compliance with the obligations, representations and undertakings of Silver Oak set forth in this Consent Order. |
V. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Silver Oak, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | Silver Oak, 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, (i) employing unregistered investment adviser agents, (ii) failing to keep and maintain true, accurate and current books and records; and (iii) failing to enforce and maintain adequate supervisory procedures that are reasonably designed to achieve compliance with applicable securities laws and regulations; |
| 2. | No later than the date this Consent Order is entered by the Commissioner, Silver Oak 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 thirty-five thousand dollars ($35,000) as an administrative fine; and |
| 3. | Silver Oak shall comply with the Undertakings set forth in Section IV of this Consent Order. |
VI. 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 Silver Oak 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 with the terms herein [sic]; |
| 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 Silver Oak based upon the allegations set forth herein; however, nothing in this Consent Order shall be construed as limiting the Commissioner’s ability to take enforcement action against Silver Oak 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.] | Silver Oak 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 Silver Oak’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; |
| [5.] | The entry of this Consent Order by the Commissioner is not intended to give rise to disqualifications under Rule 505(b)(iii) of federal Regulation D, Rule 506(d)(1) of federal Regulation D, 17 C.F.R. Section 230.506(d)(1) or Rule 262(a) of federal Regulation A, 17 C.F.R. Section 230.262(a); |
| [6.] | For purposes of Section 15(b)(4)(H)(ii) of the Securities Exchange Act of 1934 (“Exchange Act”) the entry of this Consent Order by the Commissioner is not intended to give rise to disqualification under Section 15(b)(4)(H)(ii) of the Exchange Act; |
| [7.] | For purposes of the Investment Advisers Act of 1940 (“Advisers Act”) the entry of this Consent Order by the Commissioner is not intended to give rise to disqualification under Section 203(e)(9)(B) of the Advisers Act; and |
| [8.] | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut, | _____/s/____________ | |
| this 3rd day of August 2016. | Jorge L. Perez | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, William E. Hopkins, II, state on behalf of Silver Oak Securities, Incorporated, 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 Silver Oak Securities, Incorporated; that Silver Oak Securities, Incorporated agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Silver Oak Securities, Incorporated consents to the entry of this Consent Order.
| Silver Oak Securities, Incorporated | |
| By: | _______/s/___________________ |
| William E. Hopkins, II | |
| President |
State of: Tennessee
County of: Madison
On this the 26 day of July 2016, before me, the undersigned officer, personally appeared William E. Hopkins, II, who acknowledged himself to be the President of Silver Oak Securities, Incorporated, and that he, as such President, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as President.
In witness whereof I hereunto set my hand.
| ____/s/_______________________ |
| Charlotte Gaines |
| Notary Public |
| Date Commission Expires: 11-21-17 |