Bulletin # 2748 - Week Ending October 21, 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.

CONSUMER CREDIT DIVISION ACTIVITY

Consent Order

On October 11, 2016, the Commissioner entered into a Consent Order with Lightning Mortgage Inc. (NMLS # 111621) (“Lightning Mortgage”), Jersey City, New Jersey.  The Consent Order was based on an investigation by the Consumer Credit Division.  As a result of such investigation, on June 27, 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 Lightning Mortgage.  The Commissioner alleged that Lightning 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 and of an order of the Commissioner.  As part of the Consent Order, Lightning Mortgage paid $4,500 as a civil penalty.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY

Order to Cease and Desist and Notice of Intent to Fine Issued

On October 20, 2016, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-16-8301-S) against Robert Lawrence Gray of Boca Raton, Florida.  The action noted that respondent Gray had been the subject of a July 15, 1977 permanent bar by the NASD and a June 8, 1998 civil injunction procured by the Securities and Exchange Commission based on securities fraud violations.

In the current action, the Commissioner alleged that respondent Gray persuaded a Connecticut investor to transfer the investor's brokerage account to Cantone Research Inc. where Gray had an arrangement with agent Victor Polakoff to direct trading in the account.  Respondent Gray also had an arrangement with the investor to share in the gains earned as a result of Gray's investment recommendations, and that Gray would reimburse the investor for losses incurred as a result of the recommended trades.  The action alleged that the arrangement with Cantone Research, Inc. allowed respondent Gray to circumvent the bar and continue to be active in the securities industry without detection.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.

The action alleged that respondent Gray violated Section 36b-6(c)(1) of the Connecticut Uniform Securities Act by transacting business as an unregistered investment adviser, and that Gray also engaged in dishonest or unethical conduct in conjunction with the rendering of investment advice.

The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Suspend or Revoke Registrations and Notice of Intent to Fine

On October 20, 2016, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Suspend or Revoke Registrations as a Broker-dealer, an Investment Adviser and a Broker-dealer Agent and a Notice of Intent to Fine (Docket No. CRSRF-16-8108-S) against Cantone Research Inc. and its broker-dealer agent Victor Polakoff.  The firm, which is registered as a broker-dealer and an investment adviser under the Connecticut Uniform Securities Act, maintains its principal office in Tinton Falls, New Jersey.  In addition to being an agent of the firm, respondent Polakoff was a control person of the firm as well as its Executive Vice President and Supervisor of the firm's main office.

The action alleged that the firm and respondent Polakoff permitted one Robert Lawrence Gray, an individual barred from the securities industry, to direct trading in the account of a Connecticut investor at a time when there was no written firm record evidencing the investor's acquiescence to the arrangement.  The action alleged that the respondents materially aided Gray's transacting business as an unregistered investment adviser, and that both respondents engaged in dishonest or unethical practices in the securities business.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.

As a separate matter, the action alleged that 1) the respondents violated Section 36b-16 of the Act by selling unregistered shares of XenaCare Holdings, Inc.; 2) the firm failed to keep books and records that accurately characterized certain trades as solicited or unsolicited; 3) respondent Polakoff engaged in outside business activity with a client (the spouse of Robert Gray) without providing notice to the firm; and 4) the firm failed to enforce and maintain adequate supervisory procedures.

The respondents were afforded an opportunity to request a hearing on the allegations in the action.