Securities and Business Investments Division
Securities Bulletin
Vol. XXX No. 3 - Fall 2016
Features
Enforcement and Other Highlights
DIVISION NEWS
New Director Appointed
Lynn McKenna-Krumins was recently appointed Director of the Securities and Business Investments Division, succeeding Eric Wilder who retired in May, 2016. Ms. McKenna-Krumins was previously employed by Prudential Annuities Distributors, Inc. for the past seventeen years. Her prior position focused on operational risk management. Ms. McKenna-Krumins has over 20 years of experience in the financial services industry as well as experience in building successful teams, talent development and change management. Born and raised in Connecticut, Ms. McKenna-Krumins earned her Bachelor’s degree in Business Administration with a concentration in Finance from the University of Connecticut.
Connecticut Staffers Appointed to NASAA Project Groups
The North American Securities Administrators Association, Inc. recently released its Committee and Project Group appointments for the 2016-2017 year. The following Department of Banking employees will be serving on NASAA Project Groups and Committees during the upcoming year:
Lynn McKenna-Krumins - Member, Broker-dealer Section Variable Annuities Project Group
Jack Horne - Member, CRD/IARD Forms and Process Committee
Klem Klementon - Co-Chair, Broker-dealer Section Operations Project Group
Kelly Lent - Member, Investment Adviser Section Investment Adviser Training Project Group
Kathleen Titsworth - Member, Investor Education Section Elder Outreach Project Group
John W. Evans and Bonnie A. Evans – Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued
On September 22, 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-16-8209-S) against John W. Evans and Bonnie A. Evans of Sharon, Connecticut. John W. Evans did business under the name Evans Technology Holding Company. According to the action, John W. Evans held himself out as having rights to certain intellectual property, including cooling system related patents, and that Evans Technology Holding Company, an unincorporated entity controlled by John Evans, was purportedly organized for the purpose of holding the intellectual property. Evans Technology Holding Company was variously described by John Evans as a limited liability company to be formed and as a general partnership.
The action alleged that the respondents, through two individuals, since deceased, offered and sold percentage interests in Evans Technology Holding Company to investors located in Connecticut and other states, and raised a total of $141,000. The investors had no special expertise in the Evans intellectual property and were passive and totally dependent on respondents in achieving an investment return. The action alleged that the respondents violated 1) Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered securities; 2) the antifraud provisions in Section 36b-4 of the Act by, among other things, failing to disclose to investors the investment’s risks, the registration status of the securities and the basis for income projections; and 3) Section 36b-6(b) of the Act by employing unregistered agents of issuer.
The respondents were afforded an opportunity to request a hearing on the allegations in the action.
The Dratel Group, Inc. (CRD No. 8049) - Notice of Intent to Revoke Registration as a Broker-dealer Issued
On September 19, 2016, the Banking Commissioner issued a Notice of Intent to Revoke Registration as a Broker-dealer (Docket No. NR-16-8163-S) with respect to The Dratel Group, Inc. of 53345 Route 25, Building 10, No. 3, Southold, New York 11971. The action was based on sanctions levied against the firm by the Financial Industry Regulatory Authority ("FINRA") as well as a revocation by the State of New Jersey.
More specifically, on September 28, 2012, a FINRA extended hearing panel barred the firm from day trading and fined it $185,000 based on allegations that the firm executed a fraudulent scheme involving allocation of profitable trades to a preferred account and less profitable trades to a non-preferred account such as that of a customer, and that the firm falsified and backdated order tickets (Extended Hearing Panel Decision No. 2008012925001). FINRA's National Adjudicatory Council affirmed the hearing panel decision on May 2, 2014, and increased the sanction from a day-trading bar to a full expulsion from membership. On appeal to the Securities and Exchange Commission, the SEC found on March 17, 2016 that the trade allocation scheme violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that the firm also violated the recordkeeping provisions in Section 17(a)(1) of the Exchange Act as well as Rules 17a-3(a)(6) and 17a-3(a)(7) thereunder (Admin. Proc. File No. 3-15869). In addition, on March 21, 2016, FINRA expelled the firm from membership for failing to pay the fine and/or costs imposed in a prior matter involving reporting and recordkeeping violations (FINRA Case No. 2009016317701).
On May 3, 2016, the securities administrator of the State of New Jersey revoked the firm’s broker-dealer registration based on the FINRA expulsion and on claims that the firm engaged in dishonest or unethical practices in the securities business.
The Dratel Group, Inc. was afforded an opportunity to request a hearing on the allegations in the Notice of Intent to Revoke Registration as a Broker-dealer.
Lee Tyrol, Tyrol Group, LLC and Native American Tyrol Energy, LLC – Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued
On August 29, 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-16-8171-S) against Tyrol Group, LLC of 130 Captains Drive, Westbrook, Connecticut 06498, Native American Tyrol Energy, LLC of 45 Foxboro Road, Essex, Connecticut 06426 and Lee Tyrol, control person of each entity (the “Tyrol Entities”). The action alleged that from approximately January 2009 to September 2013, Tyrol, individually and/or on behalf of the Tyrol Entities sold approximately $587,000 of securities consisting of ownership interests in the Tyrol Entities, and that the securities were not registered under the Connecticut Uniform Securities Act. The action also alleged that, to induce investors to invest, Tyrol represented that investor monies would be used to finance projects earning upwards of $100 to $300 million dollars per year. Tyrol allegedly did not provide investors with information relating to the operating history and finances of the Tyrol Entities; the risks associated with the investment; the fact that Tyrol ultimately used investor funds for his personal expenses; or the unregistered status of the securities. Such conduct allegedly violated the antifraud provisions in Section 36b-4(a) of the Act. In addition, the action alleged that Tyrol transacted business as an unregistered agent of issuer in violation of Section 36b-6(a) of the Act and that the Tyrol Entities employed him in an unregistered capacity in contravention of Section 36b-6(b) of the Act. The respondents were the subject of a December 14, 2015 Connecticut Superior Court judgment in the amount of $260,209.17 based on allegations that the respondents fraudulently solicited investments by making false and misleading statements, failing to disclose associated risks and concealing information about the various business ventures pursued by the Tyrol Entities (Strategic Aegis, LLC v. Lee Tyrol, Tyrol Group, LLC and Native American Tyrol Energy, Docket No. MMX-CV-14-6011117-S).
The respondents were afforded an opportunity to request a hearing on the allegations in the August 29, 2016 action.
John William Rafal (CRD No. 809031) – 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.
Peter David Hershman (CRD No. 5999754) – 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.
Omniview Capital Advisors, LLC and Abraxas J. Discala (CRD No. 3188107) – 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 140 Rowayton Avenue, Norwalk, Connecticut 06853. 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.
Robert Neil Tricarico (CRD No. 1500863) Fined $100,000, Investment Adviser Agent Registration Denied
RNT Wealth Management LLC Fined $100,000
On July 27, 2016, the Banking Commissioner entered an Order denying the registration of Robert Neil Tricarico as an investment adviser agent of Harbor Vista Wealth Management LLC (IARD No. 174937) and fining Tricarico $100,000. On the same day, the Commissioner levied a $100,000 fine against RNT Wealth Management LLC, an entity controlled by Tricarico. RNT Wealth Management is located at 6 South Trail, Darien, Connecticut.
Tricarico and RNT Wealth Management LLC were co-respondents in an April 22, 2016 action brought by the Commissioner 1) ordering the respondents to cease and desist from regulatory violations and to make restitution; 2) seeking to deny Tricarico’s investment adviser agent registration, and 3) seeking the imposition of a fine against each respondent (Docket No. NDCDRF-16-8200-S). The April 22, 2016 action stated that, on November 21, 2014, the executrix of a client’s estate had filed a civil complaint against Tricarico in Connecticut Superior Court (Moore v. Tricarico, Docket No. FBT-CV14-6046911-S) alleging that Tricarico had misappropriated over $1 million from the decedent while Tricarico was associated with Wells Fargo Advisors Financial Network, LLC and LPL Financial LLC. The civil suit was ultimately settled and withdrawn in April 2015. Before the civil suit was settled, and in conjunction with a department investigation, Tricarico allegedly made false statements to the Division concerning the sums appropriated. The April 22, 2016 action alleged that such statements violated Section 36b-23 of the Connecticut Uniform Securities Act, and that Tricarico knew the statements were false because he was personally involved in transferring funds from the client's accounts to himself directly and through RNT Wealth Management LLC, an entity he controlled.
In addition, the April 22, 2016 action had alleged that, in the spring of 2015, Tricarico and RNT Wealth Management LLC violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered promissory notes issued by RNT Wealth Management LLC to at least five of Tricarico’s ex-broker-dealer clients. The notes guaranteed a ten percent return. Despite the purportedly guaranteed nature of the notes, RNT Wealth Management LLC and Tricarico failed to make any payments to investors. The action also alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to provide investors with any offering document or other written disclosure describing the investment’s risks, the registration status of the securities or the fact that RNT Wealth Management LLC and Tricarico lacked funds to make payments on the notes. In addition, in violation of Section 36b-6 of the Act, Tricarico allegedly transacted business as an unregistered agent of issuer, and RNT Wealth Management LLC unlawfully employed him in that unregistered capacity. The action was also based on Tricarico’s allegedly misleading responses to certain form filings, responses which violated Section 36b-23 of the Act and 36b-31-14e(a) of the Regulations thereunder. Specifically, the responses concerned 1) a February 24, 2015 FINRA suspension for failing to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information regarding the status of compliance (Case No. 10-00920); and 2) an April 30, 2015 FINRA bar (Case No. 2014043719001) for failing to provide information requested by FINRA during a FINRA investigation into whether Tricarico converted customer funds.
Since neither Robert Neil Tricarico nor RNT Wealth Management LLC requested a hearing, the Order to Cease and Desist and Order to Make Restitution became permanent as to each of them on May 26, 2016 and May 10, 2016, respectively.
Similarly, neither Tricarico nor RNT Wealth Management LLC requested a hearing on the Notice of Intent to Fine nor, in Tricarico’s case, the Notice of Intent to Deny Registration as an Investment Adviser Agent. Accordingly, the Commissioner adopted as findings the allegations in the April 22, 2016 action, concluding that 1) Tricarico violated Sections 36b-4(a), 36b-16, 36b-6(a) and 36b-23 of the Act as well as Section 36b-31-14e(a) of the Regulations; and 2) RNT Wealth Management LLC violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act.
The Commissioner fined each respondent $100,000 and directed that payment be made within forty-five days. The Commissioner also ordered that Tricarico’s investment adviser agent registration be denied effective July 27, 2016.
Harbor Vista Wealth Management LLC (IARD No. 174937) – Investment Adviser Registration Denied; $25,000 Fine Imposed
On July 27, 2016, the Banking Commissioner entered an Order Denying Registration as an Investment Adviser and Order Imposing Fine (Docket No. NDCD-16-8295-S) against Harbor Vista Wealth Management LLC of 46 Southfield Avenue, 3 Stamford Landing, Suite 205, Stamford, Connecticut. The firm had been the subject of an April 22, 2016 Notice of Intent to Deny Registration as an Investment Adviser, Order Denying Withdrawal of Registration as an Investment Adviser, Order to Cease and Desist and Notice of Intent to Fine. The Order to Cease and Desist, being uncontested, had become permanent on May 11, 2016.
The April 22, 2016 action had been based on the firm’s allegedly misleading responses to certain form filings concerning one Robert Neil Tricarico (CRD No. 1500863) whom the firm identified as an advisory affiliate. Tricarico had been the subject of 1) a February 24, 2015 FINRA suspension for failing to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information regarding the status of compliance (Case No. 10-00920); and 2) an April 30, 2015 FINRA bar (Case No. 2014043719001) for failing to provide information requested by FINRA during a FINRA investigation into whether Tricarico converted customer funds. More specifically, the April 22, 2016 action alleged that Harbor Vista Wealth Management LLC violated 1) Section 36b-23 of the Connecticut Uniform Securities Act by making a materially false or misleading statement in a document filed with the Commissioner; and 2) Section 36b-31-14e(a) of the Regulations under the Act by failing to promptly file a correcting amendment.
Harbor Vista Wealth Management LLC did not request a hearing on the allegations in the April 22, 2016 action. As a result, the Commissioner adopted as findings the allegations in the April 22, 2016 action, determining that the firm violated Section 36b-23 of the Act and Section 36b-31-14e(a) of the Regulations.
The Commissioner ordered that the firm’s investment adviser registration be denied effective July 27, 2016, and directed the firm to pay a $25,000 fine no later than forty-five days following the entry of the July 27, 2016 Order.
RBS Securities Inc. (CRD No. 11707) Assessed $120 Million in Connection With Mortgage-backed Securities Activity
On September 30, 2016, the Banking Commissioner entered a Consent Order (Docket No. CO-16-8058-S) with respect to RBS Securities Inc., a Connecticut-registered broker-dealer located at 600 Washington Boulevard, Stamford, Connecticut 06901. The Consent Order followed an investigation of the firm by the department and the Office of the Attorney General. RBS Securities Inc. had been a large lead underwriter of residential mortgage backed securities prior to the 2008 financial crisis and, as such, conducted due diligence on the pools of residential mortgage loans that collateralized the securities to ensure that statements made in public offering documents for the securities were materially complete and accurate. As of September 2015, the publicly offered securities supported by the collateral pools had suffered many billions in realized and projected losses due to loan defaults and inadequate proceeds from the liquidation of foreclosed real property.
The Consent Order alleged that, in contravention of Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act, the firm failed to implement a supervisory system for its loan level due diligence process that was reasonably designed to achieve compliance with applicable securities laws and regulations. Among other things, there was an allegedly inadequate nexus between the loan level due diligence performed by the firm’s Credit Department and the material statements made to investors in the offering materials. In addition, the firm's trading desk purportedly entered into bid stipulations with originators that were not disclosed to investors or contemplated by firm procedures. The Consent Order also alleged that the firm's supervisory failures contributed to the inclusion of material misstatements and omissions in the offering materials and gave rise to violations of Sections 36b-4(b) and 36b-4(a)(2) of the Connecticut Uniform Securities Act.
The Consent Order directed the firm to cease and desist from regulatory violations and required that it pay $120 million to the State. Of that amount, $250,000 would be allocated to the department to fund and cover the costs associated with consumer, industry and staff financial education, training and financial literacy programs. The remaining $119,750,000 would be allocated to the State of Connecticut General Fund. The Consent Order also required that, for ten years, the firm annually certify its compliance with the Supervisory Plan approved by the National Adjudicatory Council of FINRA on June 17, 2016. Under the Supervisory Plan, the firm agreed that it would no longer engage in the business of securitizing newly original residential mortgage loans and issuing the resulting residential mortgage backed securities. The Consent Order also obligated the firm, with some exceptions, to notify the agency if it sought to reenter the business of issuing or underwriting publicly offered asset-backed securities during the ten year period.
RBS Securities Inc. (CRD No. 11707) - Consent Order Entered in Companion Case
On September 30, 2016, the Banking Commissioner entered a Consent Order (Docket No. CO-16-8058A-S) with respect to RBS Securities Inc., a Connecticut-registered broker-dealer and an affiliate of The Royal Bank of Scotland, plc. The Consent Order alleged that The Royal Bank of Scotland, plc had pled guilty to one violation of the Sherman Antitrust Act (United State of America v. The Royal Bank of Scotland PLC, No. 3:15 CR-00080-SRV-1 (D. Conn.)), and that the plea, if accepted by the Connecticut District Court, would support the initiation of proceedings under Section 36b-15 of the Connecticut Uniform Securities Act to suspend, revoke or condition the broker-dealer registration of RBS Securities Inc. The criminal charge had concerned an alleged conspiracy to fix the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the foreign currency exchange ("FX") spot market. The Consent Order also stated that, prior to the guilty plea, Royal Bank of Scotland Plc had consented to the entry of an order by the Commodity Futures Trading Commission on November 11, 2014 arising from the same conduct. In addition, on May 20, 2015, Royal Bank of Scotland plc and RBS Securities Inc. had consented to a transactionally-related Order to Cease and Desist and Order of Assessment of a Civil Money Penalty issued by the Board of Governors of the Federal Reserve System.
In resolution of the matter, the Consent Order required that RBS Securities Inc. certify compliance with the Commodity Futures Trading Commission Order, the terms of the Plea Agreement, if and when effective, and the Board of Governors of the Federal Reserve System Consent Order, and provide supporting documentation to the Commissioner.
Entertainment Only, LLC Sanctioned for Selling Unregistered Securities
On August 29, 2016, the Banking Commissioner entered a Consent Order (No. CO-16-8302-S) with respect to Entertainment Only, LLC, an inactive Florida limited liability company formerly of 243 Golden Harbour Trail, Bradenton, Florida 34212. The respondent had been the subject of an April 20, 2016 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-16-8302-S) alleging that in 2013 the respondent violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities and had employed an unregistered agent of issuer in violation of Section 36b-6(b) of the Act. The Consent Order acknowledged that, of the $154,000 in sales proceeds the respondent received from Connecticut investors, the respondent had repaid $11,000; $99,000 had been repaid by Respondent’s agent in a related action; and the $44,000 balance would be repaid from the sales proceeds of the agent’s residence.
The Consent Order fined the respondent $2,500 and directed it to cease and desist from regulatory violations.
Bridgewater Communications Group LLC, The Exchange, LLC and Peter Adam Schur (CRD No. 1872060)
On August 3, 2016, the Banking Commissioner entered a Consent Order (No. CO-16-8161-S) with respect to Bridgewater Communications Group LLC, a dissolved entity last located at 635 Danbury Road, Ridgefield, Connecticut 06877; The Exchange, LLC of the same address; and Peter Adam Schur, the sole managing member, owner and control person of both entities.
The Consent Order alleged that, from approximately October 2013 to December 2014, Bridgewater Communications Group LLC 1) transacted business as an unregistered investment adviser and engaged one or more unregistered investment adviser agents; 2) made materially misleading investment recommendations; and 3) engaged in dishonest or unethical practices by not disclosing to a client in writing before advice was rendered any material conflict of interest relating to the investment adviser or any of the adviser's agents, representatives or employees that could reasonably be expected to impair the rendering of unbiased and objective advice. The Consent Order also alleged that, during the same time frame, 1) The Exchange LLC transacted business as an unregistered broker-dealer and employed one or more unregistered broker-dealer agents; and 2) Peter Adam Schur transacted business as an unregistered investment adviser agent of Bridgewater Communications Group LLC and as an unregistered broker-dealer agent of The Exchange, LLC.
The Consent Order directed the respondents to refrain from violative conduct and fined them $7,500, jointly and severally. In addition, the Consent Order required that, for a five year period, respondents consult with experienced legal counsel prior to engaging in capital raising related activities involving securities.
Silver Oak Securities, Incorporated (CRD No. 46947) Fined $35,000
On August 3, 2016, the Banking Commissioner entered a Consent Order (No. CO-16-8056-S) with respect to Silver Oak Securities, Incorporated, a broker-dealer and investment adviser with its main office at 3339 North Highland Avenue, Jackson, Tennessee 38305. The firm also maintains a branch office at 100 Great Meadow Road, Suite 502, Wethersfield, Connecticut 06109. Sharing office space at the Wethersfield location is JP Capital LLC, headed by Joel Mark Johnson. Registered agents of Silver Oak Securities, Incorporated conduct investment-related activities under the name “Johnson Brunetti.”
The Consent Order was the outgrowth of an examination and investigation that cited certain firm irregularities and deficiencies involving 1) recordkeeping relating to the sale of alternative investments; 2) the firm’s supervisory system; 3) the use of signature stamps by Silver Oak, Incorporated and its agents; and 4) the firm’s employment of an unregistered investment adviser agent. The alternative investment recordkeeping issue prompted Division concerns regarding concentration levels and product suitability.
In furtherance of its desire to settle the matter informally with the department, the firm represented and undertook that 1) the firm had implemented supervisory and compliance procedures responsive to the issues raised in the Consent Order; 2) securities personnel at the Wethersfield branch would be placed on heightened supervision for twelve months; 3) within ninety days, the Wethersfield branch would hire a Series 24 principal to review and approve all new accounts at that branch; 4) within ninety days, the firm would hire an independent consultant to perform a compliance review of the Wethersfield branch’s securities and advisory operations; 5) within 120 days, the firm would hold a branch compliance conference for Wethersfield branch securities personnel; and 6) for two years, the firm would conduct annual audits of the Wethersfield branch.
The Consent Order fined the firm $35,000 and directed it to cease and desist from regulatory violations.
Trade-PMR Inc. (CRD No. 46350)
On July 7, 2016, the Banking Commissioner entered a Consent Order (No. CO-16-8170-S) with respect to Trade-PMR Inc., a Connecticut-registered broker-dealer located at 2511 NW 41st Street, Gainesville, Florida 32606. The firm focuses on serving the needs of registered investment advisers. The Consent Order alleged that, commencing in 2010, through inaction or a lack of system monitoring, the firm allowed J. Capital Advisors Wealth Management (CRD No. 151176) and its president Aaron Jousan Johnson (CRD No. 4402048) to deduct excessive advisory fees from client accounts. J. Capital Advisors Wealth Management’s Connecticut investment adviser registration had been revoked by the Commissioner in 2013 for conduct relating to the excessive advisory fee deductions (Docket No. RS-13-8063-S). Aaron Jousan Johnson’s investment adviser agent registration was also revoked by the department. On July 14, 2014, the Securities and Exchange Commission imposed a permanent bar on Johnson (Docket/Case No. 3-15808) in a collateral action.
The Consent Order involving Trade-PMR Inc. alleged that the firm failed to establish, enforce and maintain an effective compliance and supervisory system for monitoring account activity that would have flagged the deduction of excessive client advisory fees from client accounts, and that this conduct violated Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act.
The Consent Order directed the firm to enhance its supervisory procedures and to cease and desist from regulatory violations. In addition, the Consent Order required that the firm establish a $75,000 fund to benefit affected clients of J. Capital Advisors Wealth Management and Aaron Jousan Johnson who had accounts at Trade-PMR Inc. between 2010 and 2012. Following notice, the affected clients could file a claim for payment from the fund. Monies would then be disbursed on a pro rata basis no later than 90 days following the Commissioner’s entry of the Consent Order.
Hunton Oil Partners LP, Giddings Oil and Gas LP and Asym Energy Fund III LP
On August 29, 2016, the Banking Commissioner entered into a Stipulation and Agreement (Docket No. CF-13-8320-S) with Hunton Oil Partners LP, Giddings Oil and Gas LP and Asym Energy Fund III LP. Each of the parties is an inactive investment fund whose last known address was 9 West Broad Street, Suite 550, Stamford, Connecticut 06902. The funds were previously controlled by one Gregory Richard Imbruce (CRD No. 4392235). On December 17, 2013, the Commissioner had issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-8064-S) against Imbruce, the funds and their then general partners alleging, among other things, that 1) Hunton Oil Partners LP and Giddings Oil and Gas LP sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) Asym Energy Fund III made a delinquent Rule 506 notice filing in connection with a prior private placement. The allegations against Imbruce and the funds’ general partners were resolved separately.
As the result of an arbitration ruling, later affirmed by the Connecticut Superior Court (Henry v. Imbruce, Superior Court, Judicial District of Stamford, Docket No. (X08) FST-CV-125013927-S (April 11, 2016)), Imbruce no longer performed a management role vis a vis the funds.
The August 29, 2016 Stipulation and Agreement, which was executed by the funds’ new general partner, obligated the funds to refrain from regulatory violations. In addition, the Stipulation and Agreement required that the funds jointly and severally remit $1,000 to the department to cover past due notice filing fees as well as partial reimbursement for agency investigative costs.
|
Licensing At A Glance |
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
|---|---|---|---|---|
| Broker-dealers Registered | 2,207 | 2,214 |
2,218
|
|
| Broker-dealer Agents Registered | 163,316 | 164,563 |
166,680
|
|
| Broker-dealer Branch Offices Registered | 2,681 | 2,657 |
2,632
|
|
| Investment Advisers Registered | 520 | 535 | 541 |
|
| SEC Registered Advisers Filing Notice | 2,109 | 2,130 | 2,147 |
|
| Investment Adviser Agents Registered | 12,770 | 13,061 | 13,248 |
|
| Exempt Reporting Advisers |
102
|
106
|
107
|
|
| Agents of Issuer Registered | 19 | 19 | 20 |
|
| Conditional Registrations |
1
|
0
|
0
|
|
|
Securities and Business |
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Year to Date |
|---|---|---|---|---|---|
| Offerings Reviewed | 45 | 54 |
45
|
144 | |
| Investment Company Notice Filings | 812 | 546 |
586
|
1,944 | |
| Exemptions and Exemptive Notices | 850 | 885 | 809 | 2,544 | |
| Examinations | |||||
| Broker-dealers | 38 | 24 |
25
|
87 | |
| Investment Advisers | 47 | 37 |
33
|
117 | |
| Securities Investigations | |||||
| Opened | 23 | 30 | 13 |
|
66 |
| Closed | 7 | 31 | 34 |
|
72 |
| Ongoing as of End of Quarter | 126 | 125 | 104 |
|
|
| Subpoenas issued | 9 | 8 | 6 | 23 | |
| Matters referred from Attorney General | 1 | 3 | 1 | 5 | |
| Matters referred from Other Agencies | 2 | 3 | 2 | 7 | |
|
Business Opportunity Investigations
|
|||||
| Investigations Opened | 0 | 0 | 0 | 0 | |
| Investigations Closed | 0 | 1 |
0
|
1 | |
| Ongoing as of End of Quarter | 2 | 1 | 1 | ||
|
Enforcement: Remedies and Sanctions
|
|||||
| Notices of Intent to Deny (Licensing) | 0 |
2
|
0
|
2
|
|
| Notices of Intent to Suspend (Licensing) |
0
|
0
|
0
|
|
0
|
| Notices of Intent to Revoke (Licensing) |
1
|
0
|
2
|
|
3
|
| Denial Orders (Licensing) | 0 | 0 |
2
|
2 | |
| Suspension Orders (Licensing) | 0 | 0 |
0
|
|
0 |
| Revocation Orders (Licensing) | 1 | 1 |
0
|
2 | |
| Notices of Intent to Fine | 0 | 3 |
5
|
8 | |
| Orders Imposing Fine | 1 | 0 |
3
|
4 | |
| Cease and Desist Orders | 0 | 3 |
5
|
8 | |
| Notices of Intent to Issue Stop Order | 0 | 0 |
0
|
|
0 |
| Activity Restrictions/Bars | 1 | 1 |
0
|
|
2 |
| Stop Orders | 0 | 0 | 0 | 0 | |
| Vacating/Withdrawal/ Modification Orders | 0 | 1 | 0 | 1 | |
| Restitutionary Orders | 0 | 1 |
4
|
5 | |
| Injunctive Relief Obtained | 0 | 0 | 0 | 0 | |
|
Proceedings and Settlements
|
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Year to Date |
| Administrative Actions |
3
|
4
|
9
|
16
|
|
| Consent Orders |
3
|
2
|
6
|
11
|
|
| Stipulation and Agreements |
1
|
1
|
1
|
3
|
|
|
Monetary Relief*
|
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Year to Date |
| Monetary Sanctions Imposed |
$621,370
|
$5,360
|
$120,271,000
|
$120,897,730
|
|
| Portion attributable to settlements |
$21,370
|
$5,360
|
$120,046,000
|
|
$120,072,730
|
| Attributable to Court-Ordered Penalties |
0
|
0
|
0
|
|
0
|
| Restitution or Other Monetary Relief (includes rescission offer amounts) |
$1,161,000 |
$154,000
|
$75,000
|
$1,390,000 | |
|
*Cents eliminated Securities Referrals
|
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
Year to Date |
| Criminal Matters |
0
|
0
|
0
|
|
0
|
| Civil (Attorney General) |
0
|
1
|
0
|
|
1
|
| Other Agency Referrals |
1
|
1
|
1
|
|
3
|