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HARBOR FINANCIAL SERVICES, LLC (CRD Number 25700) * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER File No. CO-06-7291-S |
PRELIMINARY STATEMENT
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, Harbor Financial Services, LLC (“Harbor Financial”), a broker-dealer having its principal office at 1555 University Boulevard South, Suite B, Mobile, Alabama, filed an application for registration as a broker-dealer under the Act;
WHEREAS, as part of such application Harbor Financial provided a sworn statement dated April 14, 2005 and signed by its chief compliance officer representing that, during the two year period preceding the date of the firm’s Connecticut broker-dealer application, the firm had not transacted business as a broker-dealer in Connecticut;
WHEREAS, the Commissioner, acting pursuant to Sections 36b-8 and 36b-26 of the Act and through the Division, conducted a follow-up investigation into the activities of Harbor Financial to assess the accuracy of the information provided by the firm;
WHEREAS, the Commissioner ascertained, as a result of such investigation, that from at least January 2005 and continuing over the period when its registration was pending, Harbor Financial 1) effected securities transactions for approximately 50 Connecticut residents at a time when it was not registered as a broker-dealer under the Act; 2) in so doing, employed two unregistered agents; and 3) transacted business from a Connecticut location that was not registered as a branch office under Section 36b-6(d) of the Act;
WHEREAS, as a result of such investigation, the Division alleges that Harbor Financial violated Section 36b-6(a) of the Act by transacting business as a broker-dealer absent registration; Section 36b-6(b) of the Act by employing unregistered agents; Section 36b-6(d) of the Act by transacting business from an unregistered branch office; Section 36b-23 of the Act by making a materially false and misleading statement in a document filed with the Commissioner; and Section 36b-31-14e(a) of the Regulations by failing to file a correcting amendment to its application disclosing the extent of its unregistered activity;
WHEREAS, Harbor Financial maintains that a large portion of its Connecticut brokerage activity consisted of automatic dividend reinvestment in mutual fund shares for clients who had recently transferred their accounts to the firm from another broker-dealer with whom the two unregistered Harbor Financial agents had been associated;
WHEREAS, Harbor Financial subsequently sought to register its branch office and its agents in accordance with the Act;
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, Harbor Financial and the Commissioner now desire to resolve the matters described herein;
WHEREAS, Harbor Financial, through its execution of this Consent Order, voluntarily waives the following rights:
| 1. | To be afforded an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the Connecticut General Statutes; |
| 2. | To present evidence and argument and to otherwise avail itself of Sections 36b-15(f) and Section 36b-27 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 COMMISSIONER'S ALLEGATIONS
WHEREAS, Harbor Financial, through its execution of this Consent Order, acknowledges the following allegations of the Commissioner, without admitting or denying them:
| 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. | From at least January 2005 and continuing over the period when its registration was pending, Harbor Financial violated Section 36b-6(a) of the Act by transacting business as a broker-dealer absent registration; |
| 3. | From at least January 2005 and continuing over the period when its registration was pending, Harbor Financial employed unregistered agents in contravention of Section 36b-6(b) of the Act; |
| 4. | From at least January 2005, Harbor Financial violated Section 36b-6(d) of the Act by transacting business from an unregistered branch office; |
| 5. | Harbor Financial violated Section 36b-23 of the Act by making a materially false and misleading statement in a document filed with the Commissioner concerning the extent of its unregistered activity; and |
| 6. | Harbor Financial violated Section 36b-31-14e(a) of the Regulations by failing to file a correcting amendment to its application disclosing the extent of its unregistered activity; |
WHEREAS, the Commissioner would have the authority to enter findings and to impose sanctions, including a denial of registration, an order to cease and desist and/or an order imposing fine of up to $100,000 per violation, after granting Harbor Financial an opportunity for a hearing;
WHEREAS, Harbor Financial acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
CONSENT TO ENTRY OF SANCTIONS
AND WHEREAS, Harbor Financial, through its execution of this Consent Order, consents to the Commissioner's entry of a Consent Order imposing on it the following sanctions:
| 1. | Harbor Financial, its officers, directors, employees and representatives shall cease and desist from engaging in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, including, without limitation, transacting business as a broker-dealer absent registration, employing unregistered agents in or from this state, transacting business from an unregistered branch office, and filing a materially false or misleading document with the Commissioner; |
| 2. | Harbor Financial shall implement revised supervisory and compliance procedures designed to improve regulatory compliance which procedures shall, at a minimum, provide for enhanced monitoring of state broker-dealer and agent licensing requirements and state branch office registration requirements; |
| 3. | For a two-year period, commencing on the date this Consent Order is entered by the Commissioner, Harbor Financial shall submit to the Division Director a written report each calendar quarter 1) describing any securities-related complaints, actions or proceedings (including arbitrations) (such complaints, actions or proceedings referred to collectively as "Complaints") involving Connecticut residents and initiated against Harbor Financial or any of Harbor Financial's members, officers, agents, employees or representatives for the quarter; 2) providing information on the disposition of any such Complaints or on any Complaints reflected in an earlier report filed pursuant to this paragraph; and attaching copies of such Complaints and any dispositional documents. If no securities-related Complaints exist for the quarter, the report shall so indicate. The first report shall be due no later than ten calendar days following the close of the quarter ending June 30, 2006, and the final report shall be due no later than ten calendar days following the close of the quarter ending June 30, 2008; and |
| 4. | No later than the date this Consent Order is entered by the Commissioner, Harbor Financial shall remit to the department by certified bank check payable to "Treasurer, State of Connecticut" the sum of twelve thousand seven hundred fifty dollars ($12,750), ten thousand dollars ($10,000) of which shall constitute an administrative fine; two thousand dollars ($2,000) of which shall represent disgorgement of commissions earned as a result of the unregistered activity, two hundred fifty dollars ($250) of which shall represent past due broker-dealer and agent registration fees; and five hundred dollars ($500) of which shall constitute reimbursement for Division investigative costs; |
CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Sanctions 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 Harbor Financial, its members, officers, directors, agents, employees, representatives, successors, and/or assigns, 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; and |
| 3. | This Consent Order shall become final when issued. |
________/s/_________
John P. Burke
Banking Commissioner
this 31st day of May, 2006.
CONSENT TO ENTRY OF ORDER
I, Marc Scott Whitehead, state on behalf of Harbor Financial Services, LLC, that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Harbor Financial Services, LLC; that Harbor Financial Services, LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Harbor Financial Services, LLC consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
Harbor Financial Services, LLC
By
________/s/_______________
Marc Scott Whitehead
Managing Member
On this the 19th day of May 2006, before me, the undersigned officer, personally appeared Marc Scott Whitehead, who acknowledged himself to be the managing member of Harbor Financial Services, LLC, a limited liability company, and that he, as such managing member, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the limited liability company by himself as managing member.
In witness whereof I hereunto set my hand.
_______________/s/______________
Notary Public
Date Commission Expires: March 23, 2008