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IN THE MATTER OF: (Collectively "Respondents") * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER |
I. PRELIMINARY STATEMENT
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of the Respondents to determine whether they have violated, were violating or were about to violate provisions of the Act;
WHEREAS, as a result of the investigation, on October 20, 2016, the Commissioner acting pursuant to Sections 36b-15 and 36b-27 of the Act and Section 4-182(c) of the General Statutes of Connecticut, issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Suspend or Revoke Registrations as a Broker-Dealer and an Investment Adviser, Notice of Intent to Suspend or Revoke Registration as a Broker-Dealer Agent, Notice of Intent to Fine and Notice of Right to Hearing (collectively “Notice”) (Docket No. CRSRF-16-8108-S) against Respondents Cantone Research Inc. (“CRI”) and Victor Polakoff (“Polakoff”), which Notice is incorporated by reference herein;
WHEREAS, on October 31, 2016 and November 29, 2016, Respondents requested a hearing on the matters alleged in the Notice;
WHEREAS, on December 12, 2016, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer appointing Attorney Stacey Serrano as Hearing Officer, wherein the Commissioner scheduled the hearing on the matters alleged in the Notice for January 31, 2017 (“Hearing”);
WHEREAS, on January 24, 2017, Hearing Officer Serrano continued the hearing at the mutual request of all parties so that settlement negotiations could continue;
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, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action 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 sections 36b-2 to 36b-34, inclusive”;
WHEREAS, an administrative proceeding initiated under Sections 36b-27 and 36b-15 of the Act would constitute a “contested case” within the meaning of Section 4-166(4) of the General Statutes of Connecticut;
WHEREAS, Section 36b-27(f) of the Act provides, in relevant part, that “[a]ny time after the issuance of an order or notice provided for in subsection (a), (b) or . . . subdivision (1) of subsection (d) of this section, the commissioner may accept an agreement by any respondent named in such order or notice to enter into a written consent order in lieu of an adjudicative hearing”;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, Respondents and the Commissioner now desire to resolve the matters alleged in the Notice without the need for further administrative proceedings;
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;
WHEREAS, Respondents expressly consent to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, on August 25, 2017, Polakoff filed a Form U-5 to withdraw his registration as a broker-dealer agent under the Act;
WHEREAS, through his execution of this Consent Order, Polakoff represents to the Commissioner that, upon effectiveness of his withdrawal from registration, he will not reapply for registration as a broker-dealer agent for eighteen (18) months and shall not engage in any activity that would require registration under the Act;
WHEREAS, Respondents have provided the Division with proof that restitution in the amount of one hundred eighty-five thousand dollars ($185,000) was paid to the Connecticut investor referenced in the Notice;
WHEREAS, on June 13, 2017, the Superior Court of New Jersey, Chancery Division: Gen. Equity, Essex County (“New Jersey”) entered a Consent Order and Final Judgment imposing fines and restitution in the amount of two million four hundred thousand dollars ($2,400,000) against CRI, Anthony J. Cantone, Christine L. Cantone and Cantone Office Center, LLC in an unrelated securities matter brought by the New Jersey Attorney General (Porrino v. Cantone Research, Inc., et al., Docket No. ESX-C-252-15 (June 13, 2017));
WHEREAS, CRI maintains that in anticipation of its having to pay restitution to the Connecticut investor and the aforementioned New Jersey fines and restitution, CRI is and will be financially unable to pay the maximum fine that might have been ordered as a result of the Notice or as a term of this Consent Order pursuant to Section 36b-27(f) of the Act;
AND WHEREAS, Respondents, through their execution of this Consent Order, specifically assure the Commissioner that none of the violations alleged in the Notice shall occur in the future.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Respondents, through their execution of this Consent Order, voluntarily waive the following rights:
| 1. | To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut; |
| 2. | To present evidence and argument and to otherwise avail themselves of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut; |
| 3. | To present their position in a hearing in which they are 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. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, Respondents, through their execution of this Consent Order, acknowledge the allegations of the Commissioner in the Notice, without admitting or denying them, yet admit that, if proven, sufficient evidence exists for the Commissioner to issue: (a) a permanent order to cease and desist against Respondents; (b) an order directing Respondents to make restitution; (c) an order revoking or suspending CRI’s registrations as a broker-dealer and an investment adviser in Connecticut; (d) an order revoking or suspending Polakoff’s registration as a broker-deal agent in Connecticut; and (e) an order imposing upon Respondents a maximum administrative fine of one hundred thousand dollars ($100,000) per violation of the Act, or any regulation, rule or order adopted or issued thereunder;
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Respondents an opportunity for a hearing;
AND WHEREAS, Respondents acknowledge the possible consequences of an administrative hearing and voluntarily agree to consent to the entry of the sanctions described below.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Respondents, through their execution of this Consent Order, consent to the Commissioner’s entry of an order imposing on them the following sanctions:
| 1. | CRI shall cease and desist from (a) engaging in dishonest or unethical practices in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations; and (b) directly or indirectly violating the provisions of the Act and the Regulations, including, without limitation engaging in any activity in or from Connecticut that violates Sections 36b-4(b) or 36b-16 of the Act, materially aids in the violation of 36b-6(c)(1) of the Act or violates Sections 36b-31-14a(a) or 36b-31-6f of the Regulations; | ||||||||||||
| 2. | Polakoff shall cease and desist from (a) engaging in dishonest or unethical practices in the securities business within the meaning of Section 36b-31-15b(c) of the Regulations; and (b) directly or indirectly violating the provisions of the Act and the Regulations, including, without limitation, engaging in any activity in or from Connecticut that violates Sections 36b-4(b) or 36b-16 of the Act or materially aids in the violation of Section 36b-6(c)(1) of the Act; | ||||||||||||
| 3. | No later than the date this Consent Order is entered by the Commissioner, Respondents shall jointly and severally remit to the Department, by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut,” the sum of twenty thousand dollars ($20,000) as an administrative fine; | ||||||||||||
| 4. | Retention of Independent Consultant by CRI: | ||||||||||||
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| 5. | For a period of eighteen (18) months from the day this Consent Order becomes final, the securities business of CRI in Connecticut shall be exclusively limited to the purchase, sale and redemption of securities issued by investment companies regulated under the Investment Company Act of 1940; securities issued or guaranteed by the United States government, any state, any political subdivision of a state, or any agency or corporate or other instrumentality of the foregoing; exchange-listed options; and securities listed on the New York Stock Exchange LLC, the NASDAQ Stock Market and the NYSE MKT LLC. CRI shall not offer or sell in or from Connecticut private placements or securities listed or traded on the OTC Bulletin Board, OTCQB marketplace or the OTC Pink marketplace; provided, however, that this restriction shall not preclude CRI from effecting liquidating sales transaction of securities in such markets for existing Connecticut accounts; and | ||||||||||||
| 6. | For a period of three (3) years from the day this Consent Order becomes final, prior to the offer and/or sale of securities in or from this state, CRI shall (a) retain legal counsel experienced in the area of state securities regulation under the Act and not unacceptable to the Division Director to provide advice on compliance with the securities laws of Connecticut and other jurisdictions (“Retained Counsel”); and (b) direct Retained Counsel to prepare and submit all required filings and fees to the Commissioner and provide the Division Director with a signed opinion of counsel setting forth the basis for any claim of exemption or covered security status under Section 36b-21 of the Act, at least thirty (30) days prior to the commencement of the offering. |
V. CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Sanctions set forth above be and are hereby entered; |
| 2. | Polakoff’s withdrawal of his broker-dealer agent registration under the Act shall become effective upon the entry of this Consent Order; |
| 3. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against Respondents based upon a 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 or if any representation made by Respondents and reflected herein is subsequently determined to be untrue or misleading; |
| 4. | Nothing in this Consent Order shall be construed as limiting the Commissioner’s ability to take enforcement action against Respondents based upon evidence of which the Division was unaware on the date hereof relating to a violation of the Act or any regulation or order under the Act; |
| 5. | Respondents shall not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation referenced in this Consent Order or create the impression that this Consent Order is without factual basis; |
| 6. | Respondents shall not take any position in any proceeding brought by or on behalf of the Commissioner, or to which the Commissioner is a party, that is inconsistent with any part of this Consent Order. However, nothing in this Consent Order affects Respondents’ testimonial obligations or right to take any legal or factual position in litigation, arbitration, or other legal proceedings in which the Commissioner is not a party; |
| 7. | As long as CRI and Polakoff comply with this Consent Order, this Consent Order is not intended by the Commissioner to subject CRI or Polakoff to any disqualifications under the laws of the United States, any state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands, including, without limitation, any disqualification from relying upon state or federal registration exemptions or safe harbor provisions; and |
| 8. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut, | ____/s/_____________ | |
| this 28th day of August 2017. | Jorge L. Perez | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Christine Cantone, state on behalf of Cantone Research, 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 Cantone Research, Inc.; that Cantone Research, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Cantone Research, Inc. consents to the entry of this Consent Order.
| Cantone Research, Inc. | ||
| _____/s/_____________ | ||
| By: | Christine Cantone | |
| Vice President |
State of: New Jersey
County of: Monmouth
On this the 23 day of August 2017, before me, the undersigned officer, personally appeared Christine Cantone, who acknowledged herself to be the Vice President of Cantone Research, Inc., and that she, as such Vice President, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by herself as Vice President.
In witness whereof I hereunto set my hand.
| ____/s/______________________________ |
| Notary Public |
| Date Commission Expires: February 25, 2018 |
CONSENT TO ENTRY OF ORDER
I, Victor Polakoff, state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I consent to the entry of this Consent Order.
| _____/s/______ | |
| Victor Polakoff |
State of: New Jersey
County of: Monmouth
On this the 23 day of August 2017, before me, the undersigned officer, personally appeared Victor Polakoff, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.
In witness whereof I hereunto set my hand.
| ____/s/______________________________ |
| Notary Public |
| Date Commission Expires: February 25, 2018 |