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THE DRATEL GROUP, INC.
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NOTICE OF INTENT TO REVOKE AND NOTICE OF RIGHT TO HEARING DOCKET NO. NR-16-8163-S |
I. PRELIMINARY STATEMENT
| 1. | 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 promulgated under the Act. |
| 2. | The Commissioner brings this administrative action to revoke the registration of Respondent as a broker-dealer in Connecticut pursuant to Section 36b-15 of the Act and Section 4-182(c) of the General Statutes of Connecticut. |
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| 3. | Respondent is a New York corporation whose address last known to the Commissioner is 53345 Route 25, Building 10, #3, Southold, New York 11971. |
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| 4. | From November 17, 1980 to the present, Respondent has been registered as a broker-dealer under the Act. |
| 5. | The Financial Industry Regulatory Authority (“FINRA”) is a self-regulatory organization registered with the Securities and Exchange Commission (“SEC”) pursuant to Section 15A of the Securities Exchange Act of 1934 (“Exchange Act”). |
| 6. | On May 11, 2010, FINRA issued a complaint against Respondent (Disciplinary Proceeding No. 2008012925001) alleging, among other things, that Respondent executed a fraudulent trade allocation scheme known as “cherry-picking”. Cherry-picking is a practice in which a securities professional allocates profitable trades to a preferred account (like its own) and less profitable or unprofitable trades to a non-preferred account (like that of a customer). FINRA also alleged that, in furtherance of the cherry-picking scheme, Respondent falsified and backdated order tickets. |
| 7. | On September 28, 2012, a FINRA extended hearing panel found Respondent liable for the alleged violations, barred Respondent from day trading and fined Respondent $185,000 (Extended Hearing Panel Decision, No. 2008012925001, FINRA Office of Hearing Officers) (“FINRA Panel Decision”). |
| 8. | Respondent appealed the FINRA Panel Decision to FINRA’s National Adjudicatory Council (“NAC”). |
| 9. | On May 2, 2014, the NAC affirmed the FINRA Panel Decision of violations and modified the sanctions imposed on Respondent. The NAC increased the sanction against Respondent from a day-trading bar to a full expulsion from membership (“NAC Decision”). |
| 10. | On May 12, 2014, Respondent appealed the NAC Decision to the SEC. |
| 11. | On March 17, 2016, the SEC rendered a decision (Admin Proc. File No. 3-15869) (“SEC Decision”) based upon an independent review of the record, which found that: (a) Respondent engaged in an unlawful cherry-picking scheme; (b) the cherry-picking scheme violated the anti-fraud provisions of the securities laws; and (c) Respondent violated the recordkeeping provisions of Exchange Act Section 17(a)(1) including the provisions of Exchange Act Rule 17a-3(a)(6) and (7). |
| 12. | The SEC Decision sustained FINRA’s findings that Respondent violated Section 10(b) of the Exchange Act, Exchange Act Rule l0b-5 and NASD Rule 2120 by engaging in an unlawful cherry-picking scheme. |
| 13. | The SEC Decision concluded that Respondent violated Exchange Act Section 10(b), Rule l0b-5, and NASD Rule 2120 because Respondent’s cherry picking was a deceptive “device, scheme [and] artifice to defraud” and a deceptive act, practice, and course of business which operated as a “fraud or deceit” on Respondent’s customers and sustained the FINRA Panel Decision to expel Respondent from membership. |
| 14. | On March 21, 2016, FINRA also expelled Respondent from FINRA membership pursuant to FINRA Rule 8320 for failing to pay the fine and/or costs imposed in FINRA Case No. 2009016317701. The FINRA fine and costs were imposed on Respondent based in part upon Respondent’s failing to make timely amendments to Respondent’s Form BD, failing to create and preserve books and records, executing municipal securities transactions without being registered with the Municipal Securities Rulemaking Board, failing to report municipal securities trades and failing to have a registered municipal securities principal supervise municipal securities activities. |
| 15. | On May 3, 2016, the securities administrator of the State of New Jersey ordered that Respondent’s broker-dealer registration in that state be revoked based, in part, on Respondent having been expelled from FINRA membership and Respondent’s conduct constituting dishonest or unethical practices in the securities business. |
| 16. | Section 36b-15(a) of the Act provides, in pertinent part, that “[t]he commissioner may, by order . . . revoke any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant . . . (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years: (i) An order issued by the securities administrator of any other state or by the Securities and Exchange Commission or the Commodity Futures Trading Commission denying, suspending or revoking registration as a broker-dealer, agent, investment adviser, investment adviser agent or a person required to be registered under the Commodity Exchange Act, 7 USC 1 et seq., as from time to time amended, and the rules and regulations thereunder, or the substantial equivalent of those terms, as defined in sections 36b-2 to 36b-34, inclusive . . . (iii) a suspension, expulsion or other sanction issued by a national securities exchange or other self-regulatory organization registered under federal laws administered by the Securities and Exchange Commission . . . if the effect of the sanction has not been stayed or overturned by appeal or otherwise[.]” |
| 17. | On July 13, 2016, the Commissioner, through the Securities and Business Investments Division of the Department of Banking, provided Respondent with written notice pursuant to Section 4-182(c) of the General Statutes of Connecticut that a basis existed under Section 36b-15(a)(2)(F) of the Act to revoke Respondent’s registration as a broker-dealer in Connecticut. The written notice gave Respondent an opportunity to show compliance with all lawful requirements for the retention of its Connecticut broker-dealer registration. The Commissioner requested a written response from the Respondent by July 29, 2016. To date, Respondent has failed to respond to the July 13, 2016 notice. |
IV. STATUTORY BASIS FOR REVOCATION
OF REGISTRATION AS A BROKER-DEALER
a. Respondent Subject to Sanctions by FINRA
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Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
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The FINRA sanctions of Respondent, including the expulsion of Respondent by FINRA, as more fully described in paragraphs 5 through 15, inclusive, form a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(F)(iii) of the Act.
b. Respondent Subject to an Order Issued by
the Securities Administrator of the State of New Jersey
| 20. | Paragraphs 1 through 19, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 21. | The revocation order issued against Respondent by the securities administrator of the State of New Jersey, as more fully set forth in paragraph 15, constitutes a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(F)(i) of the Act. |
V. NOTICE OF INTENT TO REVOKE REGISTRATION AS A BROKER-DEALER
AND NOTICE OF RIGHT TO HEARING
WHEREAS, the Commissioner has reason to believe that grounds exist to revoke Respondent’s registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(F)(iii) and 36b-15(a)(2)(F)(i) of the Act;
WHEREAS, Section 36b-15(f) of the Act provides, in pertinent part, that “[n]o order may be entered under this section except as provided in subsection (c) of this section without (1) appropriate prior notice to the . . . registrant . . . (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”;
AND WHEREAS, the Commissioner believes that the issuance of an order revoking Respondent’s registration as a broker-dealer in Connecticut would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act.
NOW THEREFORE, notice is hereby given to Respondent that Respondent’s registration as a broker-dealer shall be revoked, subject to Respondent’s right to request a hearing on the allegations set forth above.
THE COMMISSIONER ORDERS THAT, pursuant to Section 36b-15(f) of the Act, Respondent will be afforded an opportunity for a hearing on the allegations set forth above if a written request for a hearing is received by the Department of Banking, Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following Respondent’s receipt of this Notice. To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. If a hearing is requested, the hearing will be held on October 27, 2016, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If Respondent fails to request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein will be deemed admitted, and the Commissioner shall issue an order revoking Respondent’s registration as a broker-dealer in Connecticut.
| Dated at Hartford, Connecticut, | _____/s/____________ | |
| this 19th day of September 2016. | Jorge L. Perez | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 19th day of September 2016, I caused to be mailed by certified mail, return receipt requested, the foregoing Notice of Intent to Revoke Registration as a Broker-dealer and Notice of Right to Hearing to The Dratel Group, Inc., at 53345 Route 25, Building 10, #3, Southold, New York 11971, certified mail no. 7012 3050 0000 6997 6247; and P.O. Box 1026, Southold, New York 11971, certified mail no. 7012 3050 0000 6997 6254.
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W. C. Hall
Paralegal