IN THE MATTER OF: TOWER SQUARE SECURITIES, INC. ADVANTAGE CAPITAL CORP. CONSENT ORDER File No. CO-07-7159-S PRELIMINARY STATEMENT
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(CRD Number 833)
USALLIANZ SECURITIES, INC.
(CRD Number 40875)
n/k/a QUESTAR CAPITAL
CORPORATION
(CRD Number 43100)
(CRD Number 146)
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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, Tower Square Securities, Inc. (“TSSI”) is a broker-dealer registered in the State of Connecticut under the Act since April 1, 1968, and has its principal office located at One Cityplace, 18th Floor, Hartford, Connecticut;
WHEREAS, USAllianz Securities, Inc. (“USAS”) was a broker-dealer registered in the State of Connecticut under the Act from October 9, 1996 to December 31, 2006, and had its principal office located at 5701 Golden Hills Drive, Minneapolis, Minnesota;
WHEREAS, in December, 2006, USAS merged with and assumed the name of Questar Capital Corporation (“Questar”), a broker-dealer registered under the Act since February 3, 1999 and an affiliate of USAS;
WHEREAS, Advantage Capital Corporation (“ACC”) is a broker-dealer registered in the State of Connecticut under the Act since November 17, 1952, and has its principal office located at 2300 Windy Ridge Parkway, Suite 1100, Atlanta, Georgia;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, has conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of TSSI, USAS and ACC to determine whether they, or any of them, had violated, were violating or were about to violate any provision of the Act or the Regulations thereunder (the “Investigation”);
WHEREAS, as a result of the Investigation, the Commissioner ascertained that from February 10, 2003 to March 24, 2005, TSSI engaged David M. Faubert (CRD number 2150188) (“Faubert”) as a registered broker-dealer agent at 10 Tower Lane, Avon Park South, Avon, Connecticut, and that Faubert also conducted business from that location under the trade name Faubert Financial Group, Inc.;
WHEREAS, as a result of the Investigation, the Commissioner ascertained that from March 21, 2002 to February 7, 2003, USAS engaged Faubert as a registered broker-dealer agent at 20 Woodside Avenue, Middlebury, Connecticut, and that Faubert also conducted business from that location under the trade name Faubert Financial Group, Inc.;
WHEREAS, as a result of the Investigation, the Commissioner ascertained that from August 15, 1994 to January 30, 2002, ACC engaged Faubert as a registered broker-dealer agent at 20 Woodside Avenue, Middlebury, Connecticut, and that Faubert also conducted business from that location under the trade name Faubert Financial Group, Inc.;
WHEREAS, the Commissioner further ascertained as a result of the Investigation that, while Faubert was associated with the foregoing firms, TSSI, USAS and ACC, in performing audits of the Avon and Middlebury, Connecticut locations, respectively, failed to discover that 1) Faubert had been preparing fraudulent monthly statements that improperly inflated the value of client holdings and had been forwarding those statements to clients; 2) Faubert maintained in the Avon and Middlebury offices the checkbooks and bank statements for Faubert Financial Group, Inc.; and 3) Faubert was depositing client funds into the account of Faubert Financial Group, Inc. and misappropriating those funds for his personal use;
WHEREAS, the Commissioner alleges that, based upon Faubert’s activity and in contravention of Section 36b-31-6f of the Regulations, TSSI, USAS and ACC failed to establish, enforce and maintain a system for supervising the activities of their agents, including Faubert, and their Connecticut office operations reasonably designed to achieve compliance with applicable securities laws and regulations;
WHEREAS, if proven, the alleged violations of Section 36b-31-6f of the Regulations by TSSI, USAS and ACC would have constituted a basis for issuing an order suspending or revoking their registrations as broker-dealers in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(K) of the Act, as well as a basis for imposing a fine pursuant to Section 36b-27(d) of the Act;
WHEREAS, an administrative proceeding initiated under Sections 36b-15 or 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(2) of the Connecticut General Statutes;
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, 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, TSSI, USAS (through Questar), ACC and the Commissioner now desire to resolve the foregoing allegations without the need for administrative proceedings, and agree to the language in this Consent Order.
WHEREAS, the Commissioner finds that 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;
CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, TSSI, USAS (through Questar) and ACC, through their execution of this Consent Order, voluntarily waive the following rights:
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To be afforded an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b 27(d)(2) of the Act, and Section 4-177(a) of the Connecticut General Statutes; |
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To present evidence and argument and to otherwise avail themselves of Sections 36b-15(f) and 36b 27(d)(2) of the Act, and Section 4 177c(a) of the Connecticut General Statutes; |
| 3. | To present their respective positions in a hearing in which each 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, TSSI, USAS (through Questar) and ACC, through their execution of this Consent Order, without admitting or denying any of the allegations or findings herein and solely for the purpose of obviating the need for formal administrative proceedings on the matters described herein, acknowledge the following allegations of the Commissioner:
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In contravention of Section 36b-31-6f of the Regulations, and based upon Faubert’s activity, TSSI, USAS and ACC failed to establish, enforce and maintain a system for supervising the activities of its respective agents and its Connecticut office operations reasonably designed to achieve compliance with applicable securities laws. Such conduct, if proven, would constitute a basis for an order suspending or revoking each firm’s registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(K) of the Act and an order imposing a fine pursuant to Section 36b-27(d) of the Act; |
WHEREAS, if the foregoing allegations were proven, the Commissioner would have the authority to enter findings after granting TSSI, USAS (through Questar) and ACC an opportunity for a hearing;
WHEREAS, this Consent Order concludes the Investigation by the Commissioner concerning the matters alleged herein and any related civil or administrative action that could be commenced under the Act or Regulations on behalf of the Commissioner relating to TSSI, USAS, ACC, their current affiliates and employees and their former affiliates and employees, based upon the conduct described herein;
WHEREAS, TSSI, USAS (through Questar) and ACC acknowledge the possible consequences of an administrative hearing and voluntarily agree to consent to the entry of the sanctions described below;
WHEREAS, through their execution of this Consent Order, TSSI, USAS (through Questar) and ACC represent to, and specifically assure the Commissioner that none of the violations alleged herein shall occur in the future;
WHEREAS, in furtherance of their desire to resolve this matter informally with the Commissioner, TSSI, USAS (through Questar) and ACC have represented to the Commissioner and have furnished written proof that they have either 1) monetarily settled the claims of Affected Investors, or 2) offered restitution of the net losses allegedly incurred by Affected Investors with whom they have not settled, plus simple interest calculated at the annual rate of six percent (6%), such amount approximating $5,017,795 in the aggregate, including settled cases and interest. For purposes of this paragraph, “Affected Investors” means those investors identified by the Division to TSSI, USAS (through Questar) and ACC as having suffered losses attributable to the conduct of Faubert and/or Faubert Financial Group, Inc. described in this Consent Order;
CONSENT TO ENTRY OF SANCTIONS
WHEREAS, TSSI, USAS (through Questar) and ACC, through their execution of this Consent Order, consent to the Commissioner’s entry of a Consent Order imposing on them the following sanctions:
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Administrative Penalty
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Branch Office Audit | ||
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No later than twenty-four (24) months following the entry of this Consent Order by the Commissioner, TSSI, ACC and Questar shall each conduct an audit of their respective Connecticut branch offices and report their findings by branch office in writing to the Division Director; |
CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
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The Sanctions set forth above be and are hereby entered; |
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Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against TSSI, USAS (through Questar) and ACC, singly or collectively, based upon their respective 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 by the respective firm, if any representations made herein by TSSI, USAS (through Questar) and ACC, as the case may be, are subsequently discovered to be untrue; or if TSSI, USAS (through Questar) or ACC fails to make payment to any Affected Investor electing restitution of the restitutionary amount referenced herein; |
| 3. | TSSI, ACC and Questar shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding in this Consent Order or creating the impression that this Consent Order is without factual basis. Nothing in this paragraph affects Respondents’ (i) testimonial obligations, or (ii) right to take legal or factual positions in defense or prosecution of litigation of other legal proceedings to which the Department is not a party; |
| 4. | Nothing herein shall preclude TSSI, ACC and Questar from requiring Affected Investors accepting payment under the offer of restitution described herein to execute a Release waiving any right to further remedies at law or in equity against TSSI, ACC, USAS, their present or former affiliates, officers, directors, employees, agents, or attorneys relating to losses arising from the activities of Faubert and/or Faubert Financial Group, Inc. and described herein; |
| 5. | If TSSI, ACC or USAS (through Questar), singly or collectively, fails to comply with the sanctions imposed by this Consent Order relating to that entity, the Division, in its discretion, may impose sanctions including, without limitation, a monetary penalty of up to $100,000 or a registration suspension, against the affected entity, and TSSI, ACC and USAS (through Questar), through their execution of this Consent Order, knowingly waive notice and an opportunity for a hearing in connection with the imposition of any such sanction. Prior to imposing sanctions pursuant to this paragraph, the Division shall provide the affected entity with an informal opportunity to demonstrate its compliance with this Consent Order; and |
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This Consent Order shall become final when issued. |
________/s/_________
Howard F. Pitkin
Banking Commissioner
So ordered at Hartford, Connecticut
this 23rd day of July 2007.
CONSENT TO ENTRY OF ORDER
I, Craig William Markham, state on behalf of Tower Square Securities, Inc. 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 Tower Square Securities, Inc.; that Tower Square Securities, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Tower Square Securities, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
Tower Square Securities, Inc.
By _________/s/_________________
Craig William Markham
President
On this 10 day of July 2007, personally appeared Craig William Markham, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Tower Square 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: October 9, 2007
CONSENT TO ENTRY OF ORDER
I, Michael James Jorgensen, state on behalf of Questar Capital Corporation, successor to USAllianz Securities, Inc., 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 Questar Capital Corporation; that Questar Capital Corporation agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Questar Capital Corporation voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
Questar Capital Corporation
f/k/a USAllianz Securities, Inc.
By _________/s/_________________
Michael James Jorgensen
President
On this [blank in original] day of [blank in original] 2007, personally appeared Michael James Jorgensen, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Questar Capital Corporation f/k/a USAllianz 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: Jan. 31, 2010
CONSENT TO ENTRY OF ORDER
I, Joseph Benjamin Gruber, state on behalf of Advantage Capital Corp. 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 Advantage Capital Corp.; that Advantage Capital Corp. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Advantage Capital Corp. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
Advantage Capital Corp.
By _________/s/_________________
Joseph Benjamin Gruber
President
On this 10 day of July 2007, personally appeared Joseph Benjamin Gruber, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Advantage Capital Corp., 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: March 13, 2009