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IN THE MATTER OF:
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CONSENT ORDER CONDITIONING REGISTRATION AS AN AGENT AND AS AN INVESTMENT ADVISER AGENT
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WHEREAS, the Banking Commissioner (the “Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the “Act”) and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act (the “Regulations”);
WHEREAS, Summit Brokerage Services, Inc. (CRD number 33432) (“SBS”) of 980 North Federal Highway, Suite 310, Boca Raton, Florida has been registered as a broker-dealer under the Act since December 10, 1998;
WHEREAS, Summit Financial Group, Inc. (CRD number 109485) ("SFG"), an affiliate of SBS located at 980 North Federal Highway, Suite 310, Boca Raton, Florida, is an investment adviser that is registered with the Securities and Exchange Commission and that has made a notice filing with the Commissioner pursuant to Section 36b-6(e) of the Act;
WHEREAS, Andrew Seafus Prophet (“Prophet”) applied for registration as a broker-dealer agent of SBS under the Act on June 2, 2008;
WHEREAS, Prophet applied for registration as an investment adviser agent of SFG under the Act on May 27, 2008;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking has conducted an investigation of Prophet pursuant to Sections 36b-8 and 36b-26 of the Act;
WHEREAS, as a result of such investigation, the Division obtained evidence that, while previously associated with another securities brokerage firm as an agent, Prophet deposited into his personal account an annuity check returned by a Connecticut client to Prophet because the check was in an erroneous amount;
WHEREAS, Prophet maintains that he ultimately returned the client’s funds to the annuity company for the benefit of the client, and that his former firm compensated the client for early withdrawal fees and taxes incurred on the distribution;
WHEREAS, the Division also obtained evidence that, on at least two separate occasions, Prophet accepted gratuities from clients in excess of one-hundred dollars in contravention of FINRA Rule 3060;
WHEREAS, the foregoing conduct, if proven, would support the initiation of administrative proceedings under Section 36b-15(a)(2)(H) of the Act to deny Prophet’s registration as an agent and an investment adviser agent under the Act and/or to restrict or impose conditions on the securities or investment advisory activities that Prophet may perform in this state;
WHEREAS, Section 36b-15(a) of the Act provides, in part, that “[t]he commissioner may, by order, deny . . . any registration or, by order, restrict or impose conditions on the securities or investment advisory activities that an applicant . . . may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the applicant . . . (H) has engaged in fraudulent, dishonest or unethical practices in the securities or commodities business, including abusive sales practices in the business dealings of such applicant . . . with current or prospective customers or clients”;
WHEREAS, Prophet neither admits nor denies that the allegations described above would support administrative proceedings under Section 36b-15 of the Act;
WHEREAS, Prophet, through his execution of this Conditioning Order, represents that since the date of his association with SBS and SFG, he has not engaged in any securities-related activities that would contravene the registration requirements in Section 36b-6 of the Act;
WHEREAS, Prophet agrees to the entry of this Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent (hereinafter, “Conditioning Order”) solely for the purpose of obviating the need for formal administrative proceedings on the matters described above;
WHEREAS, Section 36b-6(b) of the Act states, in part, that: “No broker-dealer shall employ an agent unless such agent is . . . registered under . . . [the Act]”;
WHEREAS, Section 36b-6(c)(3) of the Act states, in part, that: “No investment adviser shall engage an investment adviser agent unless such investment adviser agent is registered under . . . [the Act]”;
WHEREAS, SBS and SFG agree to the entry of this Conditioning Order solely as a condition to their employment of Prophet as an agent and an investment adviser agent, respectively, under the Act, and understand that the entry of this Conditioning Order does not constitute a finding by the Commissioner of a violation of any provision of the Act or the Regulations promulgated thereunder by SBS and/or SFG, nor shall it operate as a restriction or limitation on the securities or investment advisory activities of SBS or SFG in the State of Connecticut;
WHEREAS, Prophet voluntarily agrees to waive any right to a hearing upon the entry of this Conditioning Order, and waives the right to seek judicial review or otherwise challenge or contest the validity of this Conditioning Order;
NOW, THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:
| 1. | For two years following the entry of this Conditioning Order by the Commissioner and during the term of his association with SBS, Profit shall restrict his securities business in or from Connecticut to effecting transactions in (1) securities listed on the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market; (2) securities issued by investment companies regulated under the Investment Company Act of 1940; (3) 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; and (4) exchange-listed options; |
| 2. | While associated with SBS, Prophet shall refrain from engaging in conduct that would contravene the supervisory and compliance policies and procedures of that firm, including, without limitation, procedures governing agent private securities transactions and outside business activity; |
| 3. | During the term of his association with SFG, Prophet shall (a) limit his investment advisory services on behalf of SFG to (1) insurance products regulated by the Connecticut Insurance Commissioner; (2) securities listed on the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market; (3) securities issued by investment companies regulated under the Investment Company Act of 1940; (4) 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; and (5) exchange-listed options; |
| 4. | For two years following the entry of this Conditioning Order by the Commissioner and during the term of his association with SBS and/or SFG, Prophet shall refrain from (1) having custody of client funds or securities, and (2) holding or exercising discretionary trading authority and/or a power of attorney with respect to any customer or customer account; |
| 5. | During the term of his association with SBS and/or SFG, Prophet shall not (1) manage or supervise himself; or (2) manage or supervise the securities-related activities of other agents or investment adviser agents transacting business in or from Connecticut; |
| 6. | During the term of his association with SBS and/or SFG, Prophet shall be supervised by a qualified principal of higher rank who is unrelated to Prophet by blood or marriage. Should such individual be unable to perform such supervisory functions, SBS and/or SFG, as the case may be, shall notify the Division Director in writing concerning the identity of such individual’s successor within five business days following the prior supervisor’s cessation of oversight activities with respect to Prophet; |
| 7. | For two years following the entry of this Conditioning Order by the Commissioner and during Prophet’s association with SBS and/or SFG, as the case may be, SBS and SFG shall notify the Division Director in writing each calendar quarter of any securities-related complaints, actions or proceedings (including arbitrations and updates thereto) involving Prophet which occur during the quarter, including the disposition thereof, and shall include copies of all related documents. Such report shall be provided no later than ten business days following the close of the quarter and shall include any written reprimands, censures or warnings issued by SBS, SFG or both to Prophet as well as any updates to information previously filed pursuant to this paragraph. Each report shall also include a written certification signed by Prophet that he is, and has been, in compliance with the terms of this Conditioning Order. If no complaints, actions, proceedings, firm actions or updates exist for the quarter, the report shall so indicate. The report required by this paragraph may be filed jointly by SBS and SFG. The first report shall cover the quarter ending September 30, 2008, and the final report shall cover the quarter ending September 30, 2010; |
| 8. | While Prophet is associated with SBS, SBS shall observe, and Prophet shall abide by, the following additional procedures with respect to Prophet’s activities as an agent: (1) All outgoing written securities-related communications, including, without limitation, correspondence, advertising, newsletters, client literature and e-mail, will be reviewed by Prophet’s supervisor pursuant to SBS’ supervisory system, which will include, at minimum, flagged e-mails containing certain keywords and a certain percentage sample and Prophet’s supervisor will report any discrepancies to SBS’ chief compliance officer; (2) all incoming written securities-related communications, including correspondence and e-mail, shall be reviewed by Prophet’s supervisor pursuant to SBS’ supervisory system, which will include, at minimum, flagged e-mails containing certain keywords and a certain percentage sample and Prophet’s supervisor will report any discrepancies to SBS’ chief compliance officer; (3) all order tickets reflecting securities transactions effected by Prophet will be signed by Prophet's supervisor or, in the supervisor's absence, by the backup supervisor; and (4) Prophet's supervisor will review all monthly statements, or a summary thereof, relating to accounts serviced by Prophet, and will initial the summary or the firm’s copy of each such monthly statement to show that the supervisor has reviewed it; |
| 9. | While Prophet is associated with SFG, SFG shall observe, and Prophet shall abide by, the following procedures with respect to Prophet’s activities as an investment adviser agent: (1) All outgoing written securities-related communications, including, without limitation, correspondence, advertising, newsletters, client literature and e-mail, will be reviewed by Prophet’s supervisor pursuant to SFG’s supervisory system, which will include, at minimum, flagged e-mails containing certain keywords and a certain percentage sample and Prophet’s supervisor will report any discrepancies to SFG’s chief compliance officer; (2) all incoming written securities-related communications, including correspondence and e-mail, shall be reviewed by Prophet’s supervisor pursuant to SFG’s supervisory system, which will include, at minimum, flagged e-mails containing certain keywords and a certain percentage sample and Prophet’s supervisor will report any discrepancies to SFG’s chief compliance officer; and (3) the firm’s compliance officer will review all monthly statements, or a summary thereof, relating to accounts serviced by Prophet, and will initial the summary or the firm’s copy of each such monthly statement to show that the compliance officer has reviewed it; |
| 10. | Prophet shall be on ADMINISTRATIVE PROBATION as an agent and as an investment adviser agent for a period of two (2) years from the date this Conditioning Order is entered by the Commissioner. Once two years have elapsed from the date hereof, Prophet, SBS and/or SFG may apply in writing for relief from any of the provisions of this Conditioning Order to which such party is subject upon a written showing of good cause; |
| 11. | Prophet shall cease and desist from engaging in conduct that would constitute a violation of the Act or any regulation or order under the Act; including, without limitation, accepting gratuities from clients and borrowing monies from any customer without the prior consent of that customer and notice to the broker-dealer whom Prophet represents; |
| 12. | Should Prophet terminate his association with SBS and/or SFG, Prophet shall provide a copy of this Conditioning Order to his new employing broker-dealer and/or investment adviser, as the case may be and shall comply with any special supervisory requirements imposed by any such broker-dealer or investment adviser; |
| 13. | Entry of this Conditioning Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against Prophet for violations of this Conditioning Order or the basis for its entry if the Commissioner determines that compliance is not being observed with the terms hereof, or if any representation made in any document furnished by or on behalf of Prophet in connection with his applications for registration as an agent and/or as an investment adviser agent is subsequently discovered to be untrue; |
| 14. | Through his execution of this Conditioning Order, Prophet understands that, should the Commissioner take any enforcement action pursuant to the preceding paragraph of this Conditioning Order, Prophet knowingly, wilfully and voluntarily waives his right to notice and an administrative hearing adjudicating the revocation of both his agent registration and his investment adviser agent registration, and that such registrations shall be immediately revoked. Nothing in this paragraph shall preclude Prophet, following informal notice of the matter from the Division, from presenting to the Division such information as he deems relevant to forestall any such administrative enforcement action; |
| 15. | The name of Andrew Seafus Prophet be and is hereby entered on the Register of Agents and the Register of Investment Adviser Agents pursuant to Section 36b-8 of the Act; and |
| 16. | This Conditioning Order shall become final when entered. |
So ordered at Hartford, Connecticut _______/s/__________
this 10th day of October, 2008. Howard F. Pitkin
Banking Commissioner
CONSENT TO ENTRY OF ORDER
I, Andrew Seafus Prophet, being duly sworn, do state that I agree voluntarily and without threat or coercion of any kind to the entry of this Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent, voluntarily waiving any right to a hearing on the matters described herein.
________/s/_________
Andrew Seafus Prophet
Subscribed and sworn to before me
this 6th day of October, 2008.
_________/s/______________________________
Notary Public/Commissioner of the Superior Court
My Commission Expires: 07/31/2012
I, Michael Hill, Executive Vice President and Chief Compliance Officer of Summit Brokerage Services, Inc., state on behalf of such entity that I have read the foregoing Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent; that I know and fully understand its contents; that I am authorized to execute the same on behalf of Summit Brokerage Services, Inc.; and that Summit Brokerage Services, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein, expressly waiving any right to a hearing on the matters described herein.
Summit Brokerage Services, Inc.
By _______/s/_________________________________
Mlchael Hill
Executive Vice President and Chief Compliance Officer
On this 7th day of October 2008, personally appeared Michael Hill, signer of the foregoing Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Summit Brokerage Services, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.
_______________________________________
Notary Public/Commissioner of the Superior Court
My Commission Expires: May 22, 2011
I, Michael Hill, Executive Vice President and Chief Compliance Officer of Summit Financial Group, Inc., state on behalf of such entity that I have read the foregoing Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent; that I know and fully understand its contents; that I am authorized to execute the same on behalf of Summit Financial Group, Inc.; and that Summit Financial Group, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein, expressly waiving any right to a hearing on the matters described herein.
Summit Financial Group, Inc.
By _______/s/_________________________________
Mlchael Hill
Executive Vice President and Chief Compliance Officer
On this 7th day of October 2008, personally appeared Michael Hill, signer of the foregoing Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Summit Financial Group, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.
_______________________________________
Notary Public/Commissioner of the Superior Court
My Commission Expires: May 22, 2011