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SYNDICATED CAPITAL, INC. * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-14-7988B-S |
PRELIMINARY STATEMENT
WHEREAS, the Banking Commissioner (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act"), and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act (the "Regulations");
WHEREAS, Syndicated Capital, Inc. ("Syndicated") has been registered as a broker dealer under the Act since January 27, 2000, and maintains its principal office at 1299 Ocean Avenue, Second Floor, Santa Monica, California 90401;
WHEREAS, from April 11, 2002 to June 1, 2006, Syndicated maintained a registered branch office at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut 06812;
WHEREAS, Stephen Burton Blankenship (CRD number 2234577) ("Blankenship") was registered as a broker-dealer agent of Syndicated under the Act from April 11, 2002 to May 18, 2006;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the "Division") of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Syndicated and Blankenship to determine whether they, or any of them, had violated, were violating or were about to violate any provision of the Act or the Regulations thereunder (the "Investigation");
WHEREAS, the Commissioner acknowledges that Syndicated facilitated the Division's Investigation by cooperating with the Division and providing key information to the Division;
WHEREAS, as a result of the Investigation, the Commissioner ascertained that, while associated with Syndicated as a broker-dealer agent, Blankenship was the sole managing member and control person of Deer Hill Financial Group, LLC, a Connecticut limited liability company that purportedly provided tax preparation, financial planning and investment advisory services. Deer Hill Financial Group, LLC maintained its principal office at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut 06810;
WHEREAS, as a result of the Investigation, the Commissioner also ascertained that: 1) Deer Hill Financial Group, LLC violated Section 36b-6(c)(1) of the Act by transacting business as an unregistered investment adviser; 2) Blankenship violated Section 36b-6(c)(1) of the Act by transacting business as an unregistered investment adviser; 3) Blankenship violated Section 36b-6(c)(2) of the Act by transacting business as an unregistered investment adviser agent of Deer Hill Financial Group, LLC; 4) Blankenship violated the antifraud provisions in Section 36b-4(a) of the Act by (a) convincing his brokerage clients at Syndicated to transfer their money to Deer Hill Financial Group, LLC with the promise that Deer Hill Financial Group, LLC would invest client monies in established securities and generate a greater rate of return; (b) subsequently misappropriating at least $600,000 from customers and clients of Syndicated and another broker-dealer with whom Blankenship had been associated; (c) misrepresenting to customers and clients that he invested their funds in established profit-generating securities when, in fact, Blankenship did not make such investments; (d) making unauthorized withdrawals from customer and client funds for Blankenship's personal use and/or to reimburse other customers and clients for unauthorized accounts withdrawals he made; and (e) creating fictitious account statements reflecting incorrect account values, incorrect deposit sources and nonexistent investments, and forwarding those statements to customers and clients; and 5) Blankenship and Deer Hill Financial Group, LLC violated the advisory antifraud provisions in Section 36b-5(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner further ascertained that: 1) while Blankenship was associated with Syndicated, Syndicated failed to maintain or review electronic communications, relayed through Blankenship's Deer Hill Financial Group, LLC e-mail address, between Blankenship and both Syndicated customers and Syndicated personnel; 2) Syndicated failed to enforce an October 7, 2004 directive that its representatives, including Blankenship, use a firm assigned e-mail address; and 3) although Syndicated did conduct internal audits of the 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut branch in 2004 and 2005, those audits were not sufficiently documented or detailed, thus calling into question their ability to detect Blankenship's misappropriation of client funds;
WHEREAS, as a result of the Investigation, on August 31, 2012, the Commissioner entered a Consent Order (Docket No. CO-12-7988-S) with respect to Blankenship and Deer Hill Financial Group, LLC. The Consent Order 1) revoked Blankenship's registration as a broker-dealer agent; and 2) permanently barred both Blankenship and Deer Hill Financial Group, LLC from transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, and from soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut;
WHEREAS, on December 5, 2012, the U.S. District Court for the District of Connecticut sentenced Blankenship to 41 months in prison following a guilty plea to one count of federal mail fraud (18 U.S.C. §1341) and one count of federal securities fraud (15 U.S.C. §78j(b) and 17 C.F.R. §240.10b-5) (United States of America v. Stephen Blankenship, D. Conn., Case No. 3:12CR197 (VLB)). The court also directed Blankenship to pay a $7,500 fine and make restitution in the amount of $607,516.81. The factual charges set forth in the related Information focused on Blankenship's business activities alone and while associated with Deer Hill Financial Group, LLC, Syndicated and another securities brokerage firm;
WHEREAS, the Commissioner now alleges that, in contravention of Section 36b-31-6f of the Regulations and as more fully set forth herein, Syndicated failed to establish, enforce and maintain a system for supervising the activities of its agents, including Blankenship, and its Connecticut office operations reasonably designed to achieve compliance with applicable securities laws and regulations;
WHEREAS, if proven, the alleged violations of Section 36b-31-6f of the Regulations by Syndicated would constitute a basis for issuing an order suspending or revoking Syndicated's registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(K) of the Act, as well as a basis for imposing a fine pursuant to Section 36b-27(d) of the Act;
WHEREAS, an administrative proceeding initiated under Sections 36b-15 or 36b-27 of the Act would constitute a "contested case" within the meaning of Section 4-166(2) of the Connecticut General Statutes;
WHEREAS, Section 4-177(c) of the Connecticut General Statutes provides, in relevant part, that "[u]nless precluded by law, a contested case may be resolved by . . . 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, Syndicated and the Commissioner now desire to resolve the foregoing allegations without the need for administrative proceedings, and agree to the language in this Consent Order;
WHEREAS, the Commissioner acknowledges that Syndicated and another securities brokerage firm reimbursed affected investors ("Affected Investors") for 100% of the financial losses they incurred as a result of Blankenship's misconduct;
WHEREAS, Syndicated has represented to the Division that it has repaid Affected Investors $303,758.20;
WHEREAS, the Commissioner finds that the entry 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;
CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Syndicated, through its execution of this Consent Order, voluntarily waives the following rights:
| 1. | To be afforded an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27(d)(2) of the Act, and Section 4-177(a) of the Connecticut General Statutes; |
| 2. | To present evidence and argument and to otherwise avail itself of Sections 36b-15(f) and 36b-27(d)(2) of the Act, and Section 4-177c(a) of the Connecticut General Statutes; |
| 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. |
ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, Syndicated, through its execution of this Consent Order, without admitting or denying any of the allegations or findings herein and solely for the purpose of obviating the need for formal administrative proceedings on the matters described herein, acknowledges the following allegations of the Commissioner:
| In contravention of Section 36b-31-6f of the Regulations, and based upon the activities of Stephen Burton Blankenship and/or Deer Hill Financial Group, LLC, Syndicated failed to establish, enforce and maintain a system for supervising the activities of its agents and its Connecticut office operations reasonably designed to achieve compliance with applicable securities laws. Such conduct, if proven, would constitute a basis for an order suspending or revoking Syndicated's registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(K) of the Act and an order imposing a fine pursuant to Section 36b-27(d) of the Act; |
WHEREAS, if the foregoing allegations were proven, the Commissioner would have the authority to enter findings after granting Syndicated an opportunity for a hearing;
WHEREAS, Syndicated acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below;
WHEREAS, through its execution of this Consent Order, Syndicated represents to, and specifically assures the Commissioner that none of the violations alleged herein shall occur in the future;
CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Syndicated, through its execution of this Consent Order, consents to the Commissioner's entry of a Consent Order imposing on it the following sanctions:
| 1. | No later than the date this Consent Order is entered by the Commissioner, Syndicated shall pay via check payable to "Treasurer, State of Connecticut" an administrative penalty of ten thousand dollars ($10,000); and |
| 2. | Syndicated, its officers, representatives, agents, employees, affiliates, and successors in interest shall refrain from engaging, directly or indirectly, in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, including failing to establish, enforce and maintain a system for supervising the activities of its agents and its Connecticut office operations reasonably designed to achieve compliance with applicable securities laws. |
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 Syndicated based upon its 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; if any representations made herein by Syndicated are subsequently discovered to be untrue; or if Syndicated fails to make payment to any Affected Investor in accordance with this Consent Order; |
| 3. | Syndicated shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding in this Consent Order or creating the impression that this Consent Order is without factual basis. Nothing in this paragraph affects Syndicated's (i) testimonial obligations, or (ii) right to take legal or factual positions in defense or prosecution of litigation of other legal proceedings to which the Department is not a party; and |
| 4. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut | _______/s/_________ | |
| this 14th day of July, 2014. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Faith Lee, state on behalf of Syndicated Capital, 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 Syndicated Capital, Inc.; that Syndicated Capital, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Syndicated Capital, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
| Syndicated Capital, Inc. | |
| By | ___/s/______________ |
| Faith Lee | |
| President |
[California Acknowledgment]
| ____/s/_________________________ |
| Notary Public |
| My Commission Expires Jan. 31, 2017 |