Bulletin # 2739 - Week Ending August 19, 2016

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

Consent Order

On August 11, 2016, the Commissioner entered into a Consent Order with USN Mortgage Inc (NMLS # 258494) (“USN Mortgage”), Hicksville, New York.  The Consent Order was based on an investigation by the Consumer Credit Division.  As a result of such investigation, on June 21, 2016, the Commissioner issued a Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing against USN Mortgage.  The Commissioner alleged that USN Mortgage failed to timely file certain annual information required by mortgage call reports, in violation of Section 36a 534b(c)(3) of the Connecticut General Statutes.  As part of the Consent Order, USN Mortgage paid $2,500 as a civil penalty.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY

Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued

On August 17, 2016, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-16-8169-S) against Omniview Capital Advisors, LLC of Norwalk, Connecticut.  Also named in the action was Abraxas J. (“AJ”) Discala, Chief Executive Officer and principal of the firm.  Omniview Capital Advisors, LLC marketed itself as a merchant bank that sought to create partnerships with entities that were fundamentally sound in order to provide required capital and strategic advice. 

The action alleged that Omniview Capital Advisors, LLC transacted business as an unregistered broker-dealer in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act and that Discala transacted business as an unregistered broker-dealer agent.  Specifically, Respondents Omniview Capital Advisors, LLC and Discala had been retained by Crackpot Inc., a Nevada entity, and Scanbuy, Inc., a Delaware corporation, to raise funds for those issuers on a compensated basis.  According to the action, Omniview Capital Advisors, LLC and Discala sold shares of Crackpot Inc. and Scanbuy, Inc. to Connecticut investors in 2014.  The securities sold were not registered in contravention of Section 36b-16 of the Act.  In addition, the action alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to disclose to the investors the risks associated with the Crackpot Inc. and Scanbuy, Inc. investments; financial information relating to the investments; the registration status of the shares; and the fact that neither OmniView Capital Advisors, LLC nor Discala were registered under the Act.  The action acknowledged that the Scanbuy, Inc. investors had received a $7,500 partial refund from respondent Omniview Capital Advisors, LLC.

The respondents were provided with an opportunity to request a hearing on the allegations.

Order to Cease and Desist, Notice of Intent to Revoke Registration and Notice of Intent to Fine Issued

On August 19, 2016, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as a Broker-dealer Agent, Notice of Intent to Revoke Registration as an Investment Adviser Agent, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-16-8312-S) against John William Rafal.  Rafal was the founder, President and Chief Executive Officer of Essex Financial Services, Inc. (“EFS”).   Rafal had been the subject of a November 23, 2015 Consent Order (No. CO-15-8158) alleging that Rafal engaged in dishonest or unethical practices in the securities business by 1) improperly and knowingly authorizing the payment of advisory referral fees by EFS to a third party attorney whom Rafal knew was not registered as an investment adviser agent of EFS under the Connecticut Uniform Securities Act; and 2) requesting that the attorney provide EFS with an itemized invoice mischaracterizing the services the attorney would perform for EFS.  The August 19, 2016 action alleged that, at all times prior to the entry of the Consent Order, Rafal represented and led the Commissioner to believe that the third party attorney was no longer in possession of any money or compensation relating to advisory referrals.

The August 19, 2016 action was based on new evidence, undisclosed to the agency by Rafal, and obtained from the Securities and Exchange Commission.  That evidence indicated that, in April 2013, and notwithstanding EFS’ instruction that the attorney not receive advisory referral fees while unregistered, Rafal took it upon himself to personally pay the attorney the referral fees.  The attorney deposited the payments which included reimbursement for the referral fee refund the attorney previously made to EFS.

The attorney’s receipt of the payments stood in stark contrast to Rafal’s prior representations to the Commissioner, representations that had led the Commissioner to believe the attorney no longer possessed any referral-based money or compensation.  Consequently, the August 19, 2016 action alleged that Rafal violated Section 36b-23 of the Connecticut Uniform Securities Act by making materially misleading statements or omissions.  The action also alleged that Rafal engaged in dishonest or unethical practices in the securities business.  Rafal was provided with an opportunity to request a hearing on the allegations.

Order to Cease and Desist, Order to Provide Disgorgement and Notice of Intent to Fine Issued

On August 19, 2016, the Banking Commissioner issued an Order to Cease and Desist, Order to Provide Disgorgement, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CDF-16-8313-S) against Peter David Hershman, an attorney located in Branford, Connecticut.  Hershman had had a business relationship with Essex Financial Services, Inc. (“EFS”) (CRD No. 127549) and John William Rafal (CRD No. 809031), founder of the firm.  Hershman had been the subject of a June 26, 2015 Consent Order (No. CO-15-8222) alleging that Hershman, with the express or implied authorization of EFS, solicited at least one investment advisory client on behalf of EFS on a compensated basis, and, in so doing, transacted business as an unregistered investment adviser agent in violation of Section 36b-6(c) of the Connecticut Uniform Securities Act.  The August 19, 2016 action alleged that, at all times prior to the entry of the Consent Order, Hershman led the Commissioner to believe that Hershman was no longer in possession of any money or compensation relating to advisory referrals.

The August 19, 2016 action was based on new evidence, undisclosed to the agency by Hershman, and obtained from the Securities and Exchange Commission.  That evidence indicated that, in April 2013, on the same day that Hershman issued a referral fee refund to EFS, Rafal issued a check in the same amount to Hershman’s law firm, a check that Hershman deposited into an account he controlled.  Taking it upon himself to pay Hershman, Rafal also issued to Hershman a check for a billed amount that EFS had not paid; Hershman also deposited that check.

Despite Hershman’s receipt of the payments, Hershman allegedly did nothing to dispel the Commissioner’s impression that Hershman was no longer in possession of any referral-based money or compensation.   Accordingly, the August 19, 2016 action alleged that Hershman violated Section 36b-23 of the Connecticut Uniform Securities Act by making materially misleading statements or omissions, and that Hershman engaged in dishonest or unethical practices in the securities business.  Hershman was provided with an opportunity to request a hearing on the allegations.