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VANDERBILT SECURITIES, LLC * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-14-7988A-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, Vanderbilt Securities, LLC ("Vanderbilt") has been registered as a broker-dealer under the Act since April 22, 2002, and maintains its principal office at 125 Froehlich Farm Boulevard, Woodbury, New York 11797;
WHEREAS, from June 26, 2006 to November 10, 2011, Vanderbilt 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 Vanderbilt under the Act from May 16, 2006 to November 10, 2011 when Vanderbilt filed a Form U-5 (Uniform Termination Notice for Securities Industry Registration) terminating Blankenship's registration with the firm. The Form U-5 stated that Blankenship "violated company procedures, engaged in improper activities through an unaffiliated entity, and is [sic] interfering with company's [sic] investigation";
WHEREAS, the Commissioner acknowledges that, upon ascertaining that Blankenship engaged in improprieties, Vanderbilt immediately notified affected regulatory bodies, including the Securities and Business Investments Division (the "Division") of the Department of Banking;
WHEREAS, the Commissioner, through the Division conducted a related investigation pursuant to Section 36b-26(a) of the Act into the activities of Vanderbilt 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 Vanderbilt facilitated the Division's Investigation by cooperating with the Division and voluntarily providing key information to the Division;
WHEREAS, as a result of the Investigation, the Commissioner ascertained that, while associated with Vanderbilt 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 Vanderbilt 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 Vanderbilt 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 [sic] 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 associated with Vanderbilt, Blankenship was permitted to sign his own name to client check request forms and IRA distribution request forms which were used to send funds from client brokerage accounts at Vanderbilt to client bank accounts. Blankenship then directed affected clients to make investment payments by check to Deer Hill Financial Group, LLC, and Blankenship then used the monies to make lulling payments to earlier investors and to pay Blankenship's personal expenses; 2) while Blankenship was associated with Vanderbilt, Vanderbilt did not maintain or review electronic communications, relayed through Blankenship's Deer Hill Financial Group, LLC e-mail address, between Blankenship and both Vanderbilt customers and Vanderbilt operations personnel; and 3) although Vanderbilt was aware of Blankenship's outside business activity through Deer Hill Financial Group, LLC, Vanderbilt did not take additional monitoring steps that might have prevented Blankenship's misappropriation of client funds;
WHEREAS, Vanderbilt maintains that 1) Blankenship was permitted to sign his own name on behalf of clients for check request forms; 2) that such forms were used to send funds from client brokerage accounts at Vanderbilt only to client bank accounts of record at the firm; and 3) the firm received no customer complaints regarding this practice until a customer's daughter called in with an inquiry which triggered the investigation resulting in Blankenship's immediate termination;
WHEREAS, Vanderbilt also maintains that, upon discovery of Blankenship's alleged activity, Vanderbilt immediately contacted several agencies to seek assistance and guidance, including the State of Connecticut Office of the Attorney General (through which Vanderbilt was directed to the Securities and Business Investments Division of the Department of Banking), the Financial Industry Regulatory Authority (FINRA), the United States Securities and Exchange Commission (SEC), the Danbury Police Department, the Federal Bureau of Investigation (FBI) and the Financial Crimes Enforcement Network (FinCEN), a department of the United States Treasury;
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, Vanderbilt and another securities brokerage firm;
WHEREAS, the Commissioner now alleges that, as more fully set forth herein, Vanderbilt violated Section 36b-31-6f of the Regulations;
WHEREAS, if proven, the alleged violations of Section 36b-31-6f of the Regulations by Vanderbilt would support the initiation of administrative proceedings to suspend or revoke Vanderbilt'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, Vanderbilt 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 Vanderbilt and another securities brokerage firm reimbursed affected investors for 100% of the financial losses they incurred as a result of Blankenship's misconduct;
WHEREAS, Vanderbilt 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, Vanderbilt, 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, Vanderbilt, 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, Vanderbilt 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 Vanderbilt'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 Vanderbilt an opportunity for a hearing;
WHEREAS, Vanderbilt 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, Vanderbilt 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, Vanderbilt, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing on it the following sanctions:
| 1. | Vanderbilt, 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; and |
| 2. | Within sixty (60) days from the date this Consent Order is entered by the Commissioner, Vanderbilt shall hire a consultant, not unacceptable to the Division Director, to review Vanderbilt's supervisory and compliance procedures and make written recommendations concerning implementing such additional procedures as are necessary to ensure compliance with all applicable securities laws, regulations and administrative orders. The review shall focus on the adequacy and effective implementation of safeguards to prevent recurrence of the conduct described in this Consent Order. No later than ninety (90) days following the Commissioner's entry of this Consent Order, Vanderbilt will provide the Division Director with (a) the completed consultant's report; (b) a summary of the recommendations therein contained; (c) the date(s) each recommendation will be implemented and (d) if any recommendations are not to be implemented, the reasons therefor. The Division will return the report to Vanderbilt within forty-five (45) days after the Division receives it. The Division reserves the right to request that the report be resubmitted at a later date, in which case Vanderbilt shall immediately abide by such request. |
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 Vanderbilt 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 Vanderbilt are subsequently discovered to be untrue; or if Vanderbilt fails to make payment to any Affected Investor in accordance with this Consent Order; |
| 3. | Vanderbilt shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any allegation in this Consent Order or creating the impression that this Consent Order is without factual basis. Nothing in this paragraph affects Vanderbilt'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 8th day of October, 2014. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Stephen A. Distante, state on behalf of Vanderbilt Securities, LLC 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 Vanderbilt Securities, LLC; that Vanderbilt Securities, LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Vanderbilt Securities, LLC voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
| Vanderbilt Securities, LLC | |
| By | _______/s/_____________ |
| Stephen A. Distante | |
| Chief Executive Officer |
On this 30th day of September 2014, personally appeared Stephen A. Distante, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Vanderbilt Securities, LLC, a limited liability company, and acknowledged the same to be his free act and deed, before me.
| ____/s/_______________________ |
| Notary Public |
| My Commission Expires: 11/03/16 |