Bulletin # 2701 - Week Ending November 27, 2015

This bulletin constitutes the only official notification you will receive from this office concerning any of the following applications.  Any observations you may have are solicited.  Any comments should be in writing to Jorge L. Perez, Banking Commissioner, Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800.  Written comments will be considered only if they are received within ten days from the date of this bulletin.

STATE BANK ACTIVITY

Branch Activity

Section 36a-145 of the Connecticut General Statutes requires certain applications for a branch, or for a limited branch at which loans will be made, address how the establishment of the branch will be consistent with safe and sound banking practices and promote the public convenience and advantage.  Plans are submitted when such applications are filed and are available for public inspection and comment at this Department for a period of 30 days.  Questions concerning branch activity should be directed to the Financial Institutions Division, (860) 240-8180.

CONSUMER CREDIT DIVISION ACTIVITY

Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist and Notice of Intent to Impose Civil Penalty

On November 16, 2015, the Commissioner issued a Temporary Order to Cease and Desist, Order to Make Restitution (“Order to Make Restitution”), Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing (collectively “Notice”) in the Matter of:  Compliance Audit Group (“Respondent”), Beverly Hills and Los Angeles, California.  The Notice was the result of an investigation by the Consumer Credit Division.  The Commissioner alleges that Respondent engaged in debt negotiation in this state without obtaining the required license, in violation of Section 36a-671(b) of the Connecticut General Statutes.  As part of the Order to Make Restitution, Respondent was ordered to repay two identified Connecticut debtors plus interest, and to repay any other Connecticut debtor who entered into an agreement for debt negotiation services with Respondent on or after October 1, 2009, any fees paid by such Connecticut debtor to Respondent plus interest.  The Commissioner also found that public welfare required the issuance of a Temporary Order to Cease and Desist against Respondent.  Respondent was afforded an opportunity to request a hearing with regard to the allegation set forth in the Notice.

Consent Order

On November 16, 2015, the Commissioner entered into a Consent Order with Pullin Law Firm, P.C., Woodbury, Ronkonkoma, Melville, Hauppauge and Islandia, New York, and Allan L. Pullin, Esq. (collectively, “Respondents”).  The Consent Order was based on an investigation by the Consumer Credit Division.  As a result of such investigation, on August 21, 2015, the Commissioner issued a Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing against Respondents.  The Commissioner alleged that Respondents engaged in debt negotiation in this state without obtaining the required license, in violation of Section 36a-671(b) of the Connecticut General Statutes.  As part of the Consent Order Respondents were ordered to repay fees in four installments to an identified Connecticut resident until a total of $4,000 has been paid and to pay a civil penalty of $2,500 in three installments.

Settlement Agreement and Consent Order

On November 19, 2015, the Commissioner, along with the other 49 state mortgage regulators, entered into a Settlement Agreement and Consent Order with Prospect Mortgage, LLC (NMLS # 3296) (“Prospect Mortgage”), Sherman Oaks, California.  The Settlement Agreement and Consent Order was based on a multi-state examination.  The examination conducted by eight states revealed a pattern of charging improperly disclosed and unsupported fees paid to the company’s affiliate, C2C Appraisal Services, LLC.  The Settlement Agreement and Consent Order, among other things, requires Prospect Mortgage to:  pay restitution to every borrower in all participating states, including Connecticut, that was assessed a C2C Settlement Service Fee in the amount of $40 with interest of 10 percent per annum from the date the fee was charged, for an estimated $2.8 million in combined restitution; pay an administrative penalty of approximately $7.4 million to the state mortgage regulators; and revise and submit to the Multi-State Mortgage Committee for review its policy and procedure manuals specifically addressing the areas of mortgage operations, fees, disclosures, requirements for charging consumer credit cards and record retention.  As part of the Settlement Agreement and Consent Order, Prospect Mortgage is to pay administrative penalties in the amount of $140,600 to Connecticut for its roles as a participating state and an examining state.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY

Notice of Intent to Revoke Broker-dealer Registration Issued

On November 23, 2015, the Banking Commissioner issued a Notice of Intent to revoke the broker-dealer registration of Martinez-Ayme Financial Group Incorporated d/b/a Martinez-Ayme Securities.  The firm is located in Miami, Florida.  The basis for the Notice of Intent was a series of sanctions entered by the Financial Industry Regulatory Authority (FINRA), including 1) a September 19, 2013 Acceptance, Waiver and Consent (Case No. 2013037419101) censuring the firm and fining it $25,000 for placing market maker bid quotations and making securities purchases during restricted periods; 2) a March 9, 2015 Acceptance, Waiver and Consent (Case No. 2013035307701) censuring the firm and fining it $25,000 for net capital and related issues; 3) a June 10, 2015 FINRA expulsion based on the firm's failure to pay the fine imposed by Case No. 2013035307701); and 4) a September 14, 2015 additional FINRA expulsion based on the firm's failure to pay the fine imposed in Case No. 2013037419101.  Martinez-Ayme Financial Group Incorporated was afforded an opportunity to request a hearing on the allegations.

Consent Order Entered

On November 23, 2015, the Banking Commissioner entered a Consent Order (Docket No. CF-15-8113-S) with respect to Southridge Real Estate Partners, Limited Partnership (the "Fund"), a private investment fund focusing on real estate; Ridgebury Partners, LLC, general partner of the Fund; Douglas R. Esposito; and Stephen Murray Hicks.  The Fund maintains or has maintained an office in Danbury, Connecticut. The respondents had been the subject of a July 10, 2015 Order to Cease and Desist and Notice of Intent to Fine alleging that 1) the Fund violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered limited partnership interests; 2) the Fund employed Esposito and Hicks as unregistered agents of issuer in contravention of Section 36b-6(b) of the Act; 3) Esposito and Hicks transacted business as unregistered agents of issuer in violation of Section 36b-6(a) of the Act; 4) the Fund's general partner transacted business as an unregistered investment adviser in violation of Section 36b-6(c)(1) of the Act and engaged Esposito and Hicks as unregistered investment adviser agents; and 5) Esposito and Hicks, in turn, violated Section 36b-6(c)(2) of the Act by transacting business as unregistered investment adviser agents.

In resolution of the matter and without admitting or denying the Commissioner's allegations, the respondents agreed to cease and desist from regulatory violations and to remit $9,440, jointly and severally, to the department.  Of that amount, $7,500 constituted an administrative fine and $1,940 would be applied to reimburse the agency for past due registration fees.

Broker-dealer Agent and Investment Adviser Agent Registrations Suspended

On November 23, 2015, the Banking Commissioner entered a Consent Order (No. CO-15-8158) with respect to John William Rafal, a Connecticut-registered broker-dealer agent and investment adviser agent of Essex Financial Services, Inc.  Rafal also served as the President and Chief Executive Officer of Essex Financial Services, Inc. from April 2003 through July 2013, and was a director of the firm on November 23, 2015.  The Consent Order alleged that Rafal engaged in dishonest or unethical practices in the securities business within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Connecticut Uniform Securities Act and Section 36b-31-15d of the Regulations thereunder by 1) knowingly authorizing the payment of referral fees by the firm to an individual attorney who Rafal knew was not registered as an investment adviser agent of Essex Financial Services, Inc. in Connecticut; and 2) requesting that the unregistered attorney provide the firm with an itemized invoice for the first quarter of 2012 mischaracterizing the services that the individual performed for the firm. 

The Consent Order suspended Rafal's Connecticut broker-dealer agent and investment adviser agent registration for fifteen business days commencing on the date the Consent Order was entered by the Commissioner.  In addition, the Consent Order fined Rafal $25,000 and directed that he cease and desist from regulatory violations.

Consent Order Entered

On November 23, 2015, the Banking Commissioner entered a Consent Order (No. CO-15-8158-S) with respect to Essex Financial Services, Inc. a Connecticut-registered broker-dealer located in Essex, Connecticut.  The firm is also an investment adviser registered with the Securities and Exchange Commission. The Consent Order alleged that the firm 1) violated Section 36b-6(c)(3) of the Connecticut Uniform Securities Act by engaging an attorney to whom referral fees were paid as an unregistered investment adviser agent; 2) violated Section 36b-31-14a(a) of the Regulations under the Act by failing to keep SEC required records, notably ledgers and supporting documents, true and accurate; and 3) contravened Section 36b-31-6f(b) of the Regulations under the Act 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   The Consent Order recited that the firm had since restructured its reporting structure to address potential compliance problems.

The Consent Order fined the firm $25,000 and directed that it cease and desist from regulatory violations.

Consent Order Entered

On November 24, 2015, the Banking Commissioner entered a Consent Order (No. CO-15-8264-S) with respect to Cooper Capital, Inc., a Connecticut-registered investment adviser located in Arlington, Virginia.  The firm previously maintained an address in Westport, Connecticut.  Also named in the Consent Order was Sara Katherine Cooper, vice president of the firm and a registered investment adviser agent.

The Consent Order alleged that the firm 1) engaged in dishonest or unethical business practices in the securities business within the meaning of Section 36b-15(a)(2)(H) of the Connecticut Uniform Securities Act; 2) engaged in conduct described in Section 36b-31-15c(a)(10) of the Regulations under the Act by failing to disclose to a client in writing before any advice is rendered any material conflict of interest relating to the investment adviser or any of its investment adviser agents which could reasonably be expected to impair the rendering of unbiased and objective advice; 3) violated Section 206(3) of the Investment Advisers Act of 1940 by, while acting as a principal for its own account, knowingly selling any security to or purchasing any security from a client without disclosing to such client in writing before the completion of such transaction the capacity in which the firm was acting and obtaining the consent of the client to such transaction; 4) violated Section 36b-31-14e(a) of the Regulations by filing with the Commissioner a Form ADV application and amendment that inaccurately stated that neither the firm nor Sara Cooper, its related person, had a proprietary interest in client transactions; 5) violated Section 36b-31-14e(a) of the Regulations by filing with the Commissioner a Form ADV Part 2A containing the inaccurate statement that the firm did not participate in principal transactions; and 6) violated Section 36b-23 of the Act by filing with the Commissioner a Form ADV and amendments stating that the firm did not participate in principal transactions when such was not the case.  The Consent Order also alleged that Sara Cooper 1) engaged in dishonest or unethical practices in the securities business within the meaning of Section 36b-15(a)(2)(H) of the Act and Section 36b-31-15d(a)(2) of the Regulations by failing to disclose to clients in writing before any advice was rendered any conflict of interest relating to the investment adviser agent which could reasonably be expected to impair the rendering of unbiased advice; and 2) violated Section 36b-23 of the Act by representing and certifying through her signature on the firm’s Form ADV filings with the Commissioner that the information and statements made in such ADV filings were true and correct when that was not the case.

The Consent Order directed Cooper Capital, Inc. and Sara Katherine Cooper to cease and desist from regulatory violations, and fined them $10,000, jointly and severally.