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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-18-8430-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 (“Regulations”) promulgated under the Act. |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Voya Financial Advisors, Inc. (“Voya”) to determine if Voya has violated, is violating or is about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Voya has violated Section 36b-31-6f of the Regulations. |
| 4. | As a result of the Investigation, the Commissioner has reason to believe that a basis exists to issue a cease and desist order against Voya as authorized by Section 36b-27(a) of the 2018 Supplement to the General Statutes (“2018 Supplement”). |
| 5. |
As a result of the Investigation, the Commissioner has reason believe that a basis exists to order that Voya make restitution as authorized by Section 36b-27(b) of the 2018 Supplement. |
| 6. | As a result of the Investigation, the Commissioner has reason to believe that a basis exists to impose a fine upon Voya as authorized by Section 36b-27(d) of the 2018 Supplement. |
II. VOYA
| 7. |
Voya has been registered as a broker-dealer under the Act since at least September 29, 1983. Prior to September 4, 2014, Voya was known as ING Financial Partners, Inc. Voya has also been an investment adviser registered with the Securities and Exchange Commission (SEC No. 801-46585) since July 11, 1994, and has filed with the Division the notice required by Section 36b-6(e) of the 2018 Supplement since June 1, 1999. |
III. IMPROPER SELLING AWAY BY VOYA’S
BROKER-DEALER AGENT DALE QUESNEL
| 8. |
Dale Joseph Quesnel, Sr. (“Quesnel”) (CRD No. 2231152) was registered as a broker-dealer agent of Voya under the Act from January 1, 2004 to January 14, 2011. During the time he was a broker-dealer agent of Voya, Quesnel was supervised from the Voya office located at 12 Grafton Common, Grafton, Massachusetts 01519 (“Grafton Branch”). From July 1992 through August 2011, Quesnel did business as Insurance and Investment Services LLC, a Connecticut limited liability company with its principal place of business at 50 Freshwater Boulevard, P.O. Box 615, Enfield, Connecticut 06083. |
| 9. | On June 22, 2015, the Commissioner entered an Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine (Docket No. CRF-15-8110-S) against Quesnel (“Notice”), which Notice is incorporated herein. Also named as Respondents in the Notice were: Overtime Marketing, LLC; Overtime Sports Southeast, LLC; Overtime Sports Southwest, LLC (collectively, the “Overtime Entities”); Kenneth Hansmire; and Floridel, LLC (“Floridel”). Among other things, the Notice alleged that, without written notice to Voya, Quesnel sold approximately $1.9 million of securities issued by the Overtime Entities and approximately $250,000 of securities issued by Floridel to investors in Connecticut and other states (many of whom were Quesnel’s Voya clients); and engaged in fraud by failing to provide investors with any offering document or risk disclosure document for either the Overtime Entities or Floridel securities. Quesnel was a broker-dealer agent of Voya for a majority of the time these investments were offered and sold by Quesnel. |
| 10. | On October 20, 2015, a hearing on the Notice was held at the Department of Banking, but Quesnel did not appear. On March 3, 2016, the Commissioner issued Findings of Fact, Conclusions of Law and Order (Docket No. CRF-15-8110-S) (“Order”), wherein all of the allegations in the Notice were deemed admitted, the Order to Cease and Desist and Order to Make Restitution were made permanent and Quesnel was fined $600,000. |
| 11. | Quesnel failed to pay either the restitution ordered or the administrative fine imposed by the Commissioner in the Order. On September 1, 2016, the Office of the Attorney General of the State of Connecticut initiated a civil action in the Superior Court, Judicial District of Hartford, to enforce the Order (Docket No. HHD-CV16-6071291-S). On December 22, 2017, the Superior Court issued an order that, among other things, directed Quesnel to make full restitution to the investors within thirty days from the court’s order and to pay the Commissioner the civil penalty of $600,000 within sixty days from the court’s order. To date, Quesnel has not complied with the court’s order. |
IV. VOYA’S SUPERVISORY SYSTEM FAILED TO DETECT QUESNEL’S SELLING AWAY
DESPITE MULTIPLE RED FLAGS
| 12. |
Voya had an ongoing duty to supervise Quesnel. |
| 13. | Quesnel was able to sell away the unregistered Overtime and Floridel offerings because Voya ignored multiple red flags that became apparent to Voya at different times during Quesnel’s association with Voya. These red flags should have put Voya on notice that Quesnel might be violating state securities laws. |
A. Voya’s Annual Inspections of Quesnel Missed Red Flags,
Including the Funneling of Outside Business Activity Money
into Quesnel’s Bank Account
| 14. |
When Quesnel was hired by Voya, Voya required that its agents make their checking account records available to Voya during Voya’s annual compliance review of its agents. Although Quesnel disclosed to Voya that he held checking accounts at BNY Mellon (Mellon Trust of New England, N.A.) (“Mellon Account”) and Rockville Bank (“Rockville Account”), he failed to disclose to Voya the existence of a checking account at Webster Bank (“Webster Account”). Quesnel deposited the funds he received from his selling away activity into his Webster Account. |
| 15. | In August 2009 and October 2010, Voya performed announced annual inspections of Quesnel’s office operations. The inspection reports indicated that Voya had access to and reviewed the Mellon Account and Rockville Account bank statements. |
| 16. | From June 2009 to January 2011, Quesnel deposited approximately twenty-seven checks from his Webster Account into his Rockville Account. Even a cursory look at the face of the twenty-seven checks deposited into the Rockville Account would have revealed that Quesnel had a third checking account at Webster Bank. However, despite undertaking a review of the Rockville Account, Voya failed to perform even the most basic due diligence and consequently did not detect the Webster Account. |
| 17. | The commissions Quesnel earned at Voya were deposited into Quesnel’s Mellon Account. In 2009, Quesnel’s commission production declined significantly. At the same time, Quesnel’s Rockville Account saw an influx of deposited checks from the Webster Account. For example, in 2009, Quesnel only earned a fraction of the commissions he earned in 2008, yet he deposited significantly more money than he earned in commissions into his Rockville Account. The deposits made in the Rockville Account, when contrasted to Quesnel’s commissions, should have put Voya on notice that Quesnel was potentially generating money from another source. Quesnel’s Rockville and Mellon checking account activity in 2009 should have put Voya on notice that Quesnel needed to be questioned about the source of the monies he was depositing into his Rockville Account. However, despite having access to Quesnel’s 2009 statements from Rockville and Mellon, Voya did not take any steps to question or further assess Quesnel’s activities. |
| 18. | Voya’s lack of meaningful supervision allowed Quesnel to continue to engage in the sale of unregistered securities for an extended period of time. |
B. Quesnel’s Form U4 Disclosures Raised Red Flags
Concerning Ongoing Financial Difficulties
| 19. |
Quesnel’s Uniform Application for Securities Industry Registration or Transfer (“Form U4”) had multiple disclosures that should have put Voya on notice that Quesnel’s financial situation warranted closer supervision of his agent activities. For example:
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| 20. | The above disclosable items should have put Voya on notice that Quesnel was having personal financial problems. However, Voya did nothing to scrutinize or implement enhanced supervision over Quesnel’s broker-dealer agent activities. Such additional steps might have detected that Quesnel was improperly engaging in additional outside business activities involving securities to generate money to supplement the commissions Quesnel earned at Voya. |
C. Voya’s Delayed and Insufficient Response to Red Flags
| 21. |
In 2009, Voya became aware of several persistent patterns involving Quesnel. First, Voya became aware that Quesnel failed to disclose multiple disclosure occurrences to Voya. Second, Voya became aware that Quesnel was the subject of multiple tax liens and bankruptcies. | |||||||||||||||
| 22. | In April 2009, the Voya Compliance Department (“Compliance”) sent a letter to the Grafton Branch, inquiring whether the Grafton Branch knew whether Quesnel’s Civil Judgment and IRS Lien had been satisfied. The letter stated that “[u]ntil he satisfies these liens, we’ll continue to monitor and will ask for a new credit report every 6 to 12 months. He does not show any other red flags at this point.” (emphasis added) | |||||||||||||||
| 23. | On June 29, 2009, Compliance ordered a Trans Union credit report (“Credit Report”) on Quesnel. The Credit Report reflected five items that Quesnel had not previously disclosed to Voya:
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| 24. | In July 2009, after receiving and reviewing the Credit Report, Voya asked Quesnel to explain why he failed to disclose the 2009 $4,745 federal tax lien, the 2003 Chapter 13 bankruptcy filing and the 2003 $1,257 Connecticut state tax lien, and required him to disclose these items on his Form U4. In addition on January 13, 2010, Voya sent Quesnel a Letter of Warning, which included a $250 monetary fine, reminding Quesnel of the importance of updating one’s Form U4 in a timely manner. | |||||||||||||||
| 25. | Voya did not take any apparent action to address with Quesnel the two earlier federal tax liens, which were part of Quesnel’s unsettled financial history. | |||||||||||||||
| 26. | Despite learning in June 2009 that Quesnel failed to disclose these five events to Voya, including a second bankruptcy and multiple tax liens, Voya did not send Quesnel the Letter of Warning until January 13, 2010. Moreover, subsequent to the Letter of Warning, Voya failed to take any additional supervisory action or surveillance measures with respect to Quesnel. Even after learning that Quesnel filed for bankruptcy twice and was subject to a grand total of five tax liens, Voya did not question Quesnel regarding the circumstances surrounding these events or their current status. |
D. Voya Failed to Detect Additional Red Flags Involving Quesnel
1. Quesnel’s Real Property was in Foreclosure
| 27. |
Voya failed to detect and Quesnel failed to disclose to Voya the following:
|
2. Voya Failed to Address Quesnel’s Use of an Unauthorized E-mail Address
| 28. |
Section 5.7 of the Voya (then ING) “Office of Supervisory Jurisdiction Manual” (“Supervisory Manual”) provides, in pertinent part:
| |||
| 29. | While associated with Voya, Quesnel violated Section 5.7 of Voya’s Supervisory Manual by using a non-Voya e-mail address for Voya business correspondence, including e-mails sent to his supervisor at the Grafton Branch and other Voya supervisory personnel. In fact, Quesnel’s supervisor at the Grafton Branch e-mailed Quesnel at the non-Voya approved e-mail address multiple times throughout Quesnel’s association with the firm. | |||
| 30. | Notwithstanding its own supervisory procedures, Voya failed to question Quesnel’s use of this non-Voya e-mail address although it was readily apparent from the face of the e-mails sent by Quesnel. As a result, Voya was not able to review and/or archive all of Quesnel’s e-mail and adequately supervise him. |
V. VOYA FAILED TO SUPERVISE ADDITIONAL VOYA AGENTS
A. Texas Agent Daniel Tapia
| 31. |
Daniel Enrique Tapia (CRD No. 2219749) (“Tapia”), a resident of Texas, is an individual who is not registered in any capacity under the Act. Tapia was registered as a broker-dealer agent of Voya under the Texas Securities Act from December 8, 2004 to August 26, 2016, and as an investment adviser agent of Voya from January 4, 2005 to August 26, 2016. Tapia did business as Rembrandt Financial Group, LLC (“Rembrandt”). Like Quesnel, Tapia was supervised remotely by the out-of-state Grafton Branch. |
| 32. | The Division has reason to believe that Tapia and Quesnel met each other at a Voya sponsored event. |
| 33. | As part of his business, Tapia created and distributed a newsletter to his clients that included securities research. On December 30, 2009, Quesnel submitted to Voya an Outside Business Activity Form seeking permission to be the Director of Research at Rembrandt, where Quesnel would perform due diligence and analysis of securities for Rembrandt in exchange for Tapia and/or Rembrandt paying Quesnel a $4,000 per month salary. On March 9, 2010, this request was denied by Voya because Quesnel failed to provide additional information to Voya about the proposed outside business activity. |
| 34. | Despite Voya’s denial of the request, Quesnel and Tapia surreptitiously entered into the arrangement without Voya’s approval. From approximately January 2010 to approximately November 2010, Tapia through Rembrandt sent Quesnel two checks a month of approximately $1,800 each in exchange for securities research. The checks from Rembrandt to Quesnel totaled approximately $35,000. |
| 35. | Voya, as part of its supervision of Tapia, had access to Tapia d/b/a Rembrandt’s bank account (“Tapia Account”). For approximately eleven months, Tapia wrote checks out of the Tapia Account to pay Quesnel for securities research. Although Voya had access to the Tapia Account and performed annual inspections of Tapia’s business, including an inspection that took place on October 22, 2010, Voya failed to notice and/or follow up on the bi-monthly checks being written by Tapia d/b/a Rembrandt to Quesnel. The checks from Tapia d/b/a Rembrandt to Quesnel were deposited into Quesnel’s Webster Account. |
| 36. |
Despite supervisory responsibility over both Voya agents, Voya failed to implement and enforce a system to identify or detect this arrangement. Quesnel and Tapia were easily able to circumvent the entire Voya supervisory system for eleven months without any detection or monitoring by Voya. |
B. Florida Agent Stephen Ruff
| 37. |
Stephen Mark Ruff (CRD No. 1527170) (“Ruff”), a resident of Florida, is an individual who is not registered in any capacity under the Act. Ruff was registered as a broker-dealer agent of Voya under the Florida Securities Investor Protection Act from January 1, 2004 to January 29, 2007, and from May 8, 2007 to July 1, 2009. Like Quesnel and Tapia, Ruff was supervised remotely from the out of state Grafton Branch. Ruff had a history of selling securities without firm approval, having been terminated from a prior firm in 1999 for selling a private placement absent firm approval (FINRA Occurrence No. 368371). |
1. Ruff’s Involvement with Floridel, LLC and Connection to Quesnel
| 38. |
On March 8, 2007, Ruff and two other individuals as managing members formed Redevcorp. LLC as a Florida limited liability company. Redevcorp, LLC’s predecessor was Redevcorp. Inc., a Florida corporation which converted to a limited liability company on January 23, 2007. Redevcorp LLC changed its name from Redevcorp. LLC to Floridel, LLC (“Floridel”) on May 4, 2007. |
| 39. | Ruff terminated his association with Voya on or about January 29, 2007. In April 2007, Ruff sought to reregister with Voya as a broker-dealer agent in Florida and other jurisdictions, excluding Connecticut. As a precondition to Voya reregistering Ruff, Voya required Ruff to, among other things, resign as an officer of Floridel and agree to limit his involvement to that of an investor. Ruff became registered as a broker-dealer agent of Voya in Florida on April 27, 2007. |
| 40. | On June 24, 2009, based on a press release listing Ruff as the President of Floridel, Voya sent Ruff a letter inquiring whether he was still involved in Floridel. On June 26, 2009, Ruff represented to Voya that he had no relationship with Floridel. Notwithstanding the condition placed on Ruff’s reregistration when he was an agent, Ruff did not completely sever his ties with Floridel. In fact, following his 2009 termination with Voya, Ruff served as managing member of Floridel from at least April 27, 2010 to August 20, 2012, and, together with Quesnel, devised a plan to sell unregistered securities issued by Floridel to investors in Connecticut and other states. Ultimately, Quesnel sold approximately $250,000 of unregistered Floridel securities to investors. |
| 41. | Ruff’s involvement with Floridel was not an outside business activity approved by Voya. Despite this fact and despite Ruff’s history of outside business activity at a prior firm, Voya failed to implement adequate supervisory measures to ensure that Ruff was abiding by his agreement to curtail his involvement with Floridel. Even more striking, a supervisor at Voya’s Grafton Branch personally invested in Floridel and at least three of Quesnel’s Voya clients invested in Floridel without Voya’s knowledge. |
2. Ruff’s Involvement with the Overtime Entities
| 42. |
Ruff and Quesnel became acquainted and discussed doing business together. In 2008, Ruff and Quesnel attended an NFL football showcase in Texas, where Ruff introduced Quesnel to Kenneth Hansmire, owner of the Overtime Entities referenced in paragraph 9 above. The meeting of Ruff, Quesnel and Hansmire culminated in Quesnel working with Hansmire in offering and selling $1.9 million of securities in the Overtime Entities. |
| 43. | Voya failed to exercise adequate supervisory controls over Ruff’s involvement with the Overtime Entities and the fraud ultimately perpetrated by Quesnel. |
C. Connecticut Agent Eric Olojugba
| 44. |
Eric Olojugba (CRD No. 2925026) (“Olojugba”) was registered as a broker-dealer agent of Voya under the Act from September 27, 2006 to November 30, 2012, and as an investment adviser agent of Voya under the Act from February 26, 2007 to November 30, 2012. Like Quesnel, Tapia and Ruff, Olojugba was supervised remotely from the out-of-state Grafton Branch. |
| 45. | In December 2010, the Division sent a letter to Olojugba requesting that Olojugba explain to the Division why he failed to disclose certain outside business activities on his Form U4. The Division subsequently discovered that Olojugba also failed to update his Form U-4 with his then-current address. |
| 46. | Prior to the Division’s December 2010 inquiry regarding Olojugba, Voya was not aware that Olojugba had potentially engaged in outside business activities or that Olojugba’s Form U4 did not reflect his current address. It was only after Voya became aware of the Division’s inquiry, that Voya began an Internal Review of Olojugba. |
| 47. | On November 30, 2012, the Commissioner entered a Permanent Order to Cease and Desist and Order Imposing Fine against Olojugba in the amount of $25,000. The Commissioner found that Olojugba committed one violation of Section 36b-31-14e(a) of the Regulations for his failure to update the Commissioner regarding his outside business activities and his residential address. |
VI. REGULATORY BASIS FOR ORDER TO CEASE AND DESIST,
ORDER TO MAKE RESTITUTION, AND ORDER IMPOSING FINE
a. Violations of Section 36b-31-6f of the Regulations by Voya –
Failure to Establish, Enforce and Maintain Adequate Supervisory Procedures
| 48. | Paragraphs 1 through 47, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 49. |
Voya’s failure to establish, enforce and maintain a system for supervising the activities of its agents that was reasonably designed to achieve compliance with applicable securities laws and regulations, as more fully described above, constitutes a violation of Section 36b-31-6f of the Regulations, which forms a basis for an order to cease and desist to be issued against Voya under Section 36b-27(a) of the 2018 Supplement, an order of restitution to be issued against Voya under section 36b-27(b) of the 2018 Supplement, and the imposition of a fine upon Voya pursuant to Section 36b-27(d) of the 2018 Supplement. |
VII. ORDER
NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Voya has committed at least four violations of 36b-31-6f of the Regulations;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist against Voya, an Order to Make Restitution against Voya, and the imposition of a fine upon Voya is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;
WHEREAS, notice is hereby given to Voya that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation upon Voya;
WHEREAS, the Commissioner ORDERS that VOYA CEASE AND DESIST from directly or indirectly violating, or materially aiding any other person in violating, the provisions of the Regulations, including without limitation, failing to establish, enforce and maintain adequate supervisory procedures that are reasonably designed to achieve compliance with applicable securities laws and regulations.
WHEREAS, the Commissioner ORDERS that VOYA MAKE RESTITUTION of any sums obtained as a result of Voya’s violations of 36b-31-6f of the Regulations, plus interest at the legal rate set forth in Section 37-1 of the General Statutes of Connecticut. Specifically, the Commissioner ORDERS that:
| 1. | Within thirty (30) days from the date this Order to Make Restitution becomes permanent, Voya shall provide the Division with a written disclosure which contains (a) the name and address of each investor who purchased Overtime and Floridel securities while Quesnel was associated with Voya, (b) the amount of the investments, and (d) [sic] the amount of any refund of each investor’s monies to date; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Voya shall reimburse each investor the amount of his/her investment in Overtime and Floridel securities plus interest, less the amount of any refund returned to the investor to date. Such restitution shall be made by certified check, and shall be sent by certified mail, return receipt requested, to each affected investor; and |
| 3. | Within ninety days (90) days from the date this Order to Make Restitution becomes permanent, Voya shall provide the Division with proof in the form of copies of the certified checks and the return receipts required by paragraph 2 above, that Voya has reimbursed each investor the amounts set forth in paragraph 2 of this Section. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to Section 36b-27 of the 2018 Supplement Voya 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 Voya’s receipt of this Order. To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form to the above address. If Voya will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Forma as “pro se”. If a hearing is requested, the hearing will be held on June 26, 2018, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, Voya 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 Voya does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein against Voya will be deemed admitted. Accordingly, the Order to Cease and Desist and Order to Make Restitution shall remain in effect and become permanent against Voya, and the Commissioner may order that the maximum fine be imposed upon Voya.
| Dated at Hartford, Connecticut, | ____/s/_____________ | |
| this 23rd day of April 2018. | Jorge L. Perez | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 23rd day of April 2018, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing to: Voya Financial Advisors, Inc., f/k/a ING Financial Partners, Inc., 699 Walnut Street, Suite 1000, Des Moines, Iowa 50309, certified mail no. 7012 3050 0000 6997 6865; and Luigi Spadafora, Esq., Winget, Spadafora & Schwartzberg, LLP, 77 Broad Street, 10th Floor, Stamford, Connecticut 06901, certified mail no. 7012 3050 0000 6997 6872.
| ___/s/____ |
| W. C. Hall |
| Paralegal |