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IN THE MATTER OF: STEPHEN BURTON BLANKENSHIP * * * * * * * * * * * * * * * * * * * |
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I. PRELIMINARY STATEMENT
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
WHEREAS, Blankenship is an individual whose address last known to the Commissioner is P.O. Box 2, Candlewood Isle, New Fairfield, Connecticut 06812;
WHEREAS, Deer Hill is a Connecticut limited liability company with a principal place of business located at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut 06810. At all times pertinent hereto, Deer Hill purportedly provided tax preparation, financial planning and investment advisory services;
WHEREAS, Deer Hill is not and has not been registered in any capacity under the Act;
WHEREAS, at all times relevant hereto, Blankenship has been the sole managing member and control person of Deer Hill;
WHEREAS, Blankenship was previously registered under the Act as a broker-dealer agent of various broker-dealers from August 4, 1992 to November 10, 2011;
WHEREAS, Blankenship is not and has not been registered as an investment adviser or an investment adviser agent under the Act;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Blankenship and Deer Hill to determine whether they, or either of them, had violated, were violating or were about to violate provisions of the Act or Regulations (“Investigation”);
WHEREAS, from April 11, 2002 to May 18, 2006, Blankenship, while engaging in business activities through Deer Hill, also conducted broker-dealer agent activities on behalf of Syndicated Capital, Inc. (“Syndicated”) (Central Registration Depository (“CRD”) No. 29037) of 1299 Ocean Avenue, Second Floor, Santa Monica, California 90401. Blankenship was then registered as a broker-dealer agent of Syndicated under the Act, and Syndicated maintained a registered branch office at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut;
WHEREAS, from May 16, 2006 to November 10, 2011, Blankenship, while engaging in business activities through Deer Hill, also conducted broker-dealer agent activities on behalf of Vanderbilt Securities, LLC (“Vanderbilt”) (CRD No. 5953) of 445 Broadhollow Road, Suite 400, Melville, New York 11747. Blankenship was then registered as a broker-dealer agent of Vanderbilt under the Act, and Vanderbilt maintained a registered branch office at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut;
WHEREAS, on November 10, 2011, Vanderbilt filed a Form U-5 (Uniform Termination Notice for Securities Industry Registration) seeking to terminate Blankenship’s broker-dealer agent registration in all jurisdictions based upon alleged violations of company procedures and engaging in improper activities through an unaffiliated entity. Pursuant to Section 36b-15(e)(1) of the Act, such withdrawal became effective by operation of law ninety days after receipt of an application to withdraw such registration;
WHEREAS, Section 36b-15(e)(1) of the Act adds that “If . . . withdrawal [from registration] automatically becomes effective, the commissioner may nevertheless institute a . . . revocation or suspension proceeding under subsection (a) of this section within one year after withdrawal became effective”;
WHEREAS, as a result of the Investigation, the Division obtained evidence that at various times from April 2002 to November 2011 1) Deer Hill transacted business as a investment adviser by giving securities related investment advice for compensation to Deer Hill customers and clients without being registered as an investment adviser under the Act; 2) Blankenship transacted business as a investment adviser by giving securities related investment advice for compensation to Deer Hill customers and clients without being registered as an investment adviser under the Act; and 3) Blankenship transacted business as an investment adviser agent of Deer Hill without being registered in such capacity under the Act;
WHEREAS, as a result of the Investigation, the Division also obtained evidence that from approximately April 2002 to approximately November 2011, Blankenship individually and/or through Deer Hill engaged in the following activities with regard to Deer Hill customers and clients:
| 1) | convinced his brokerage clients at Syndicated and Vanderbilt to transfer their money to Deer Hill with the promise that Deer Hill would invest their money in established securities and generate a greater rate of return; | |
| 2) | subsequently misappropriated at least $600,000 in customer and client funds; | |
| 3) | misrepresented to customers and clients that he invested their money in established securities and that these investments generated profits when in fact he did not make such investments; | |
| 4) | made unauthorized withdrawals from customer and client funds for his personal use and/or to reimburse other customers and clients for unauthorized account withdrawals by Blankenship; and | |
| 5) | created fictitious account statements that reflected incorrect account values, incorrect sources of deposits, and investments that did not exist, and forwarded such statements to customers and clients; |
WHEREAS, the Commissioner has reason to believe that the foregoing conduct violates certain provisions of the Act and Regulations, and would support administrative proceedings against Blankenship under Sections 36b-15 and 36b-27 of the Act and against Deer Hill under Section 36b-27 of the Act;
WHEREAS, Section 36b-15 of the Act provides, in part, that:
| (a) | The commissioner may, by order . . . suspend or revoke any registration or, by order, restrict or impose conditions on the securities or investment advisory activities that . . . [a] registrant may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant . . . (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-34, inclusive . . . or any regulation or order under said sections . . . [or] (H) has engaged in fraudulent, dishonest or unethical practices in the securities . . . [or] investment . . . business; |
WHEREAS, Section 36b-4 of the Act provides, in part, that:
| (a) | No person shall, in connection with the offer, sale or purchase of any security, directly or indirectly: (1) Employ any device, scheme or artifice to defraud; (2) make any untrue statement of a material fact . . . or (3) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; |
WHEREAS, Section 36b-5 of the Act provides, in part, that:
(a)
No person who directly or indirectly receives compensation or other remuneration for advising another person as to the value of securities . . . shall: (1) Employ any device, scheme or artifice to defraud . . .; (2) make any untrue statement of a material fact . . . or (3) engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon such other person;
WHEREAS, Section 36b-6 of the Act provides, in part, that:
(c)
(1)
No person shall transact business in this state as an investment adviser unless registered as such by the commissioner as provided in sections 36b-2 to 36b-34, inclusive, or exempted pursuant to subsection (e) of this section;
. . .
(c)
(2)
No individual shall transact business in this state as an investment adviser agent unless such individual is registered as an investment adviser agent of the investment adviser for which such individual acts in transacting such business;
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-34, inclusive”;
WHEREAS, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action 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 sections 36b-2 to 36b-34, inclusive”;
WHEREAS, an administrative proceeding initiated under Sections 36b-15 and 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, without holding a hearing and without trial or adjudication of any issue of fact or law, and prior to the initiation of any formal proceeding, the Commissioner, Blankenship and Deer Hill reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
WHEREAS, Blankenship and Deer Hill, without admitting or denying any of the Commissioner’s allegations or findings, expressly consent to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, the issuance 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;
AND WHEREAS, Blankenship and Deer Hill, through their execution of this Consent Order, specifically assure the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.
WHEREAS, Blankenship and Deer Hill, through their execution of this Consent Order, voluntarily waive the following rights:
| 1. | To be afforded notice and an opportunity for a hearing (a) within the meaning of Sections 36b-27 and 36b-15(f) of the Act and Section 4-177(a) of the General Statutes of Connecticut in the case of Blankenship; and (b) within the meaning of Section 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut in the case of Deer Hill; |
| 2. | To present evidence and argument and to otherwise avail themselves of (a) Sections 36b-27 and 36b-15(f) of the Act and Section 4-177c(a) of the General Statutes of Connecticut in the case of Blankenship; and (b) Section 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut in the case of Deer Hill; |
| 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. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, Blankenship and Deer Hill, through their execution of this Consent Order, acknowledge the following allegations of the Commissioner, and admit sufficient evidence exists for the Commissioner to issue an order to cease and desist, an order imposing a maximum administrative fine of one hundred thousand dollars ($100,000) per violation of the Act, or any regulation, rule or order adopted or issued under the Act, and, in the case of Blankenship, an order revoking or suspending registration or restricting the securities activities Blankenship may perform in and from Connecticut:
| 1. | Blankenship violated Section 36b-4(a) of the Act by conducting and participating in the following practices:
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| 2. | Deer Hill violated 36b-6(c)(1) of the Act by transacting business as an investment adviser in this state without registering as an investment adviser under the Act; | |||||||||||||
| 3. | Blankenship violated 36b-6(c)(1) of the Act by transacting business as an investment adviser in this state without registering as an investment adviser under the Act; | |||||||||||||
| 4. | Blankenship violated Section 36b-6(c)(2) of the Act by transacting business as an investment adviser agent of Deer Hill in this state without registering as an investment adviser agent of Deer Hill under the Act; | |||||||||||||
| 5. | Deer Hill violated Section 36b-5(a) of the Act by, while directly or indirectly receiving compensation or other remuneration for advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, employing a device, scheme or artifice to defraud another person, making any untrue statement of a material fact, and/or engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon another person; | |||||||||||||
| 6. | Blankenship violated Section 36b-5(a) of the Act by, while directly or indirectly receiving compensation or other remuneration for advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, employing a device, scheme or artifice to defraud another person, making any untrue statement of a material fact, and/or engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon another person; | |||||||||||||
| 7. | The foregoing conduct, if proven, forms a basis for the initiation of administrative proceedings (a) against Blankenship pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(H), 36b-27(a) and 36b-27(d) of the Act; and (b) against Deer Hill pursuant to Sections 36b-27(a) and 36b-27(d) of the Act; |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Blankenship and Deer Hill an opportunity for a hearing;
AND WHEREAS, Blankenship and Deer Hill acknowledge the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
WHEREAS, Blankenship and Deer Hill, through their execution of this Consent Order, consent to the Commissioner entering an order imposing the following sanctions:
| 1. | From the date this Consent Order is entered by the Commissioner, the registration of Blankenship as a broker-dealer agent shall be REVOKED and Blankenship, either directly or through any person, organization, entity or other device, shall be PERMANENTLY BARRED from (a) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, as such terms are defined in the Act, and notwithstanding any definitional exclusion that might otherwise be available under the Act; and (b) from directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut; and |
| 2. | From the date this Consent Order is entered by the Commissioner, Deer Hill and its existing and future representatives, agents, employees, affiliates, subsidiaries, and successors in interests are PERMANENTLY BARRED from (1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, as such terms are defined in the Act, and notwithstanding any definitional exclusion that might otherwise be available under the Act; and (2) from directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut. |
V. CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Sanctions set forth 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 action against Blankenship and/or Deer Hill 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; |
| 3. | Nothing in this Consent Order shall be construed as limiting the Commissioner’s ability to take enforcement action against Blankenship and/or Deer Hill based upon evidence of which the Division was unaware on the date hereof relating to a violation of the Act or any regulation or order under the Act; and |
| 4. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut, | _______/s/____________ | |
| this 31st day of August 2012. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Stephen Burton Blankenship, state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I consent to the entry of this Consent Order.
| ______/s/__________ |
| Stephen Burton Blankenship |
State of: Connecticut
On this the 20 day of August 2012, before me, Theresa D. Kowal, the undersigned officer, personally appeared Stephen Burton Blankenship, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.
_____/s/________________________
Notary Public
Date Commission Expires: 12/31/2014
CONSENT TO ENTRY OF ORDER
I, Stephen Burton Blankenship, state on behalf of Deer Hill Financial Group, 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 Deer Hill Financial Group, LLC; that Deer Hill Financial Group, LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Deer Hill Financial Group, LLC consents to the entry of this Consent Order.
| Deer Hill Financial Group, LLC | |
| By: | ______/s/__________ |
| Stephen Burton Blankenship | |
| Member |
County of: Fairfield
On this the 20 day of August 2012, before Theresa D. Kowal, the undersigned officer, personally appeared Stephen Burton Blankenship, who acknowledged himself to be a Member of Deer Hill Financial Group, LLC, and that he, as such 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 Member.
In witness whereof I hereunto set my hand.
____/s/___________________________
Notary Public
Date Commission Expires: 12/31/2014