| * * * * * * * * * * * * * * * * * * * *
IN RE APPLICATION OF: CHARLES MORGAN SECURITIES, INC. * * * * * * * * * * * * * * * * * * * |
* * * * * * * * * |
CONSENT ORDER No. CO-07-7344-S |
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, on December 7, 2005, Charles Morgan Securities, Inc. (“Charles Morgan”) of 120 Wall Street, 16th Floor, New York, New York, filed an application with the Commissioner for registration in Connecticut as a broker-dealer;
WHEREAS, the application filed by Charles Morgan indicated that Paul Eric Taboada (“Taboada”) (CRD number 2033981) was President, Chief Executive Officer and a control person of the firm; and that Thomas James Cerna (“Cerna”) (CRD number 1636698) was the Chief Compliance Officer and a control person of the firm;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the "Division") of the Department of Banking, conducted an investigation of Charles Morgan pursuant to Section 36b-8 of the Act;
WHEREAS, the National Association of Securities Dealers, Inc. (the “NASD”) is a self-regulatory organization registered with the Securities and Exchange Commission (the “SEC”) pursuant to Section 15A of the Securities Exchange Act of 1934;
WHEREAS, as a result of the investigation, the Division obtained evidence that 1) on April 27, 2004, the NASD fined Taboada $25,000, directed that he pay $7,162.17 in costs and suspended him from association with any NASD member in any capacity for six months based upon claims that Taboada violated NASD Rules 2110, 2210(d)(1)(A) and 2210(d)(1)(B) by authoring a research report that made exaggerated, unwarranted, and misleading statements and claims, failing to disclose material facts, and failing to disclose important risks about a company; failing to conduct an adequate inquiry into the activities of the company and not having a reasonable basis for statements made within the research report (Disciplinary Proceeding No. CAF020022). The fine and suspension have not been stayed or overturned; and 2) on May 15, 1998, the NASD censured Cerna, fined him $7,500, and required him to requalify by exam as a general securities principal before functioning in such capacity, based on claims that Cerna violated NASD Rules 3010 and 3070. The NASD found that Cerna, acting on behalf of his employing firm, which was also sanctioned, failed to report to the NASD statistical and summary information regarding nineteen (19) customer complaints; failed to report to the NASD a securities consent judgment entered into with the State of New Jersey Bureau of Securities; failed to develop and maintain a continuing and current education program for its agents; and failed to develop a written training plan for the year 1997 (Disciplinary Proceeding No. C10970158). The censure and fine have not been stayed or overturned;
WHEREAS, on January 3, 2007, Charles Morgan amended its broker-dealer application to add Barry Morton Ferrari (CRD number 848024) (“Ferrari”) as a control person and Chief Compliance Officer of the firm;
WHEREAS, the Division obtained evidence that on September 7, 2001, the NASD censured Ferrari and fined him $5,000 based upon claims that Ferrari violated NASD Rules 2110 and 3070 by failing to report the following matters to the NASD: 1) customer complaints received by his employing firm; 2) that his employing firm had taken disciplinary action that led to the termination of registered representatives; and 3) his employing firm’s $30,000 settlement with a public customer (Acceptance, Waiver & Consent No. C10010116);
WHEREAS, on January 4, 2007, Charles Morgan amended its broker-dealer application to remove Cerna as a control person and Chief Compliance Officer, since Cerna had become associated with another broker-dealer;
WHEREAS, the Division obtained evidence that on January 1, 2007, Charles Morgan entered into a one-year Consulting Agreement with Cerna pursuant to which Cerna would perform such consulting and advisory services as Charles Morgan might reasonably require;
WHEREAS, Section 36b-15(a) of the Act provides, in part, that:
| The commissioner may, by order, deny . . . any registration, or, by order, restrict or impose conditions on the securities or investment advisory activities that an applicant or registrant may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the applicant or registrant or, in the case of a broker-dealer . . . any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer . . . (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years . . . (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 . . . . |
WHEREAS, Section 36b-31(a) of the Act, provides, in relevant part, that "[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive";
WHEREAS, Section 4-177(c) of the Connecticut General Statutes provides, in relevant part, that "[u]nless precluded by law, a contested case may be resolved by . . . consent order";
WHEREAS, in connection with its December 7, 2005 application for registration as a broker-dealer, Charles Morgan represented to the Division in writing that it would assign to the Director of Compliance the responsibility for exercising heightened supervision over the business activities of Taboada;
WHEREAS, Charles Morgan has represented to the Division in writing that its Director of Compliance would conduct a quarterly random review of Connecticut accounts to determine adherence with the firm’s policies and procedures concerning the proper treatment of client accounts;
CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Charles Morgan through its execution of this Consent Order, voluntarily waives the following rights:
| 1. | To receive prior written notice within the meaning of Sections 36b-15(f) and 4-177(b) of the Connecticut General Statutes; |
| 2. | To present evidence and argument and to otherwise avail itself of Section 36b-15(f) of the Act and Section 4-177c(a) of the Connecticut General Statutes; |
| 3. | To present its position in a hearing in which it is represented by counsel; |
| 4. | To have a written record of the hearing made and a written decision issued by a hearing officer; and |
| 5. | To seek judicial review of, or otherwise challenge or contest, the matters described herein, including the validity of this Consent Order. |
ACKNOWLEDGEMENT OF THE ENTRY OF FINDINGS
WHEREAS, Charles Morgan, through its execution of this Consent Order, and without admitting or denying that the Commissioner would have a basis for initiating administrative proceedings under Section 36b-15 of the Act, accepts and consents to the entry of the following findings by the Commissioner:
| 1. | The entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act. |
| 2. | The sanctions imposed by the NASD against officers and control persons Taboada and Ferrari in case numbers CAF020022 (April 27, 2004), and C10010116 (September 7, 2001), respectively, and more fully described herein provide a basis for denying Charles Morgan’s registration as a broker-dealer in Connecticut or restricting its Connecticut securities activities pursuant to Section 36b-15(a)(2)(F)(iii) of the Act; |
CONSENT TO ENTRY OF ACTIVITY RESTRICTIONS
WHEREAS, Charles Morgan through its execution of this Consent Order, consents to the Commissioner's entry of a Consent Order imposing on it the following restrictions:
| 1. | For a three-year period, commencing on the date this Consent Order is entered by the Commissioner, Charles Morgan and/or its successors in interest shall submit to the Division Director a written report each calendar quarter 1) describing any securities-related written reprimands, censures or warnings issued by Charles Morgan to its personnel and involving Connecticut activity (“Reprimands”) and any securities-related complaints, actions or proceedings (including arbitrations) (such complaints, actions or proceedings referred to collectively as "Complaints") involving entities and individuals located in Connecticut and initiated against Charles Morgan, its successors in interest or any of Charles Morgan’s officers, directors, control persons, agents, employees or representatives for the quarter; 2) providing information on the disposition of any such Reprimands or Complaints, or on any Reprimands or Complaints reflected in an earlier report filed pursuant to this paragraph; and 3) attaching copies of such Complaints or Reprimands and any dispositional documents. If no securities-related Complaints or Reprimands exist for the quarter, the report shall so indicate. The first such report shall be due no later than ten business days following the close of the quarter ending September 30, 2007, and the final report shall be due no later than ten business days following the close of the quarter ending September 30, 2010; | ||||||||
| 2. | Charles Morgan shall reimburse the Department of Banking for the costs, not to exceed three thousand five hundred dollars ($3,500) in the aggregate, associated with one or more future examinations of any of the firm’s offices to be conducted by the Division within thirty-six (36) months following the Commissioner’s entry of this Consent Order. Any such costs incurred by the department shall be in accordance with Sections 5-141c-1 through 5-141c-11, inclusive, of the Regulations of Connecticut State Agencies governing State travel, and shall be remitted to the Commissioner via check payable to “Treasurer, State of Connecticut” within thirty (30) days following completion of the examination(s); | ||||||||
| 3. |
For three years following the entry of this Consent Order by the Commissioner, Charles Morgan shall restrict its securities business in Connecticut as follows:
| ||||||||
| 4. |
No later than the date this Consent Order is entered by the Commissioner, Charles Morgan shall designate, and identify in writing to the Division, a full-time employee to be responsible for supervising the compliance aspects of the firm's Connecticut operations ("Connecticut Compliance Supervisor") in accordance with the following provisions:
| ||||||||
| 5. | Charles Morgan shall maintain such electronic surveillance systems as are necessary to maintain proper supervisory controls over the firm’s trading activities; | ||||||||
| 6. | No later than the date this Consent Order is entered by the Commissioner, Charles Morgan shall remit to the department by certified bank check payable to “Treasurer, State of Connecticut” the sum of two thousand, five hundred dollars ($2,500) to defray the costs associated with the Division’s investigation of Charles Morgan; | ||||||||
| 7. | Charles Morgan, its officers, directors, control persons, agents, employees, representatives, independent contractors, consultants, and successors in interest shall refrain from engaging in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act. |
CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Findings and Activity Restrictions set forth above be and are hereby entered; |
| 2. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement against Charles Morgan, its officers, directors, control persons, agents, employees, representatives or successors in interest based upon a violation of this Consent Order or the matters underlying its entry, if the Commissioner determines that compliance with the terms herein is not being observed or if any representation made by Charles Morgan and reflected herein is subsequently discovered to be untrue; |
| 3. | Entry of this Consent Order shall not be deemed a waiver or estoppel on the part of the Commissioner from proceeding in individual actions against any person who may have violated the Act or any transaction not currently known to the Commissioner at the time this Consent Order is issued; |
| 4. | Contemporaneously with the entry of this Consent Order by the Commissioner, the name "Charles Morgan Securities, Inc." shall be entered on the register of broker-dealers in accordance with Section 36b-8 of the Act; and |
| 5. | This Consent Order shall become final when issued. |
________/s/_________
Howard F. Pitkin
Banking Commissioner
So ordered at Hartford, Connecticut
this 12th day of June 2007.
CONSENT TO ENTRY OF ORDER
I, Paul Eric Taboada, state on behalf of Charles Morgan Securities, Inc., that I have read the foregoing Consent Order Conditioning Registration as a Broker-dealer; that I know and fully understand its contents; that I am authorized to execute this Consent Order Conditioning Registration as a Broker-dealer on behalf of Charles Morgan Securities, Inc; that Charles Morgan Securities, Inc agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Charles Morgan Securities, Inc. consents to the issuance of this Consent Order Conditioning Registration as a Broker-dealer, expressly waiving any right to a hearing on the matters described herein.
Charles Morgan Securities, Inc.
By _________/s/_________________
Paul Eric Taboada
President
On this 7th day of June, 2007, personally appeared Paul Eric Taboada, signer of the foregoing Consent Order Conditioning Registration as a Broker-dealer, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Charles Morgan Securities, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.
____________/s/_________________________
Notary Public/Commissioner of the Superior Court
My Commission Expires: July 10, 2010