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NOTICE OF INTENT TO SUSPEND ORDER SUMMARILY NOTICE OF RIGHT TO HEARING Docket No. RS-13-8063-S |
I. PRELIMINARY STATEMENT
| 1. | 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 the Regulations promulgated thereunder (Sections 36b-31-1 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (the “Regulations”). |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, has been conducting an ongoing investigation into the activities of J. Capital Advisors, LLC and Aaron Jousan Johnson (collectively, “Respondents”), their affiliates, agents, representatives and employees to determine if they, or any of them, had violated, were violating, or were about to violate provisions of the Act or the Regulations. |
| 3. |
As a result of such investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act and the Regulations or have otherwise engaged in conduct that would support the initiation of administrative proceedings under Section 36b-15 and Section 36b-27 of the Act. |
II. RESPONDENTS
| 4. |
J. Capital Advisors, LLC d/b/a J. Capital Advisors Wealth Management (“J. Capital Advisors”) is a Connecticut limited liability company formed on August 1, 2007. J. Capital Advisors maintains its principal office at 1610 Saybrook Road, Haddam, Connecticut 06438 and a mailing address at P.O. Box 385, Haddam, Connecticut 06438. J. Capital Advisors shares the same address as J. Capital Risk Management LLC, a Connecticut limited liability company formed on December 4, 2009, and J. Capital Investment Partners, LLC, a Connecticut limited liability company formed on February 10, 2011. Other than 1610 Saybrook Road, Haddam, Connecticut, J. Capital Advisors has reported no other offices, either in Connecticut or out-of-state, from which it conducts business. |
| 5. | J. Capital Advisors was registered as an investment adviser under the Act from September 3, 2009 to December 31, 2009 and from February 3, 2010 to the present. |
| 6. | Aaron Jousan Johnson (“Johnson”) is an individual whose addresses last known to the Commissioner are c/o J. Capital Advisors Wealth Management, 1610 Saybrook Road, Haddam, Connecticut 06438 and 136 Old Chester Road, Haddam, Connecticut 06438. At all times pertinent hereto, Johnson was and remains the President and Chief Investment Officer of J. Capital Advisors as well as a control person of the firm. Johnson is also the President of J. Capital Investment Partners, LLC and J. Capital Risk Management LLC. |
| 7. | Other than Johnson, J. Capital Advisors has no additional reported officers or control persons. |
| 8. | Johnson was registered as an investment adviser agent of J. Capital Advisors under the Act from September 3, 2009 to December 31, 2009 and from February 3, 2010 to the present. |
III. STATEMENT OF FACTS
9.
Section 36b-14(a)(1) of the Act obligates registered investment advisers to “make, keep and preserve such accounts, correspondence, memoranda, papers, books and other records as the commissioner by regulation . . . or order prescribes. All such records shall be preserved for such period as the commissioner by regulation or order prescribes.” Subsection (d) of Section 36b-14(d) of the Act adds that: “All the records of a registered investment adviser . . . referred to in subsection (a) of this section are subject at any time or from time to time to such reasonable periodic, special or other examinations by the commissioner, within or without this state, as the commissioner deems necessary or appropriate in the public interest or for the protection of investors. Every registered investment adviser . . . shall keep such records open to examination by the commissioner and, upon the commissioner’s request, shall provide copies of any such records to the commissioner.”
10.
Section 36b-31-14f(b) of the Regulations obligates each registered investment adviser to “(1) make its records available to the commissioner in readable form; (2) provide personnel and equipment necessary to the conduct of the examination, including but not limited to assistance in the analysis of computer generated records; (3) provide copies or computer printouts of records when so requested; and (4) furnish access to all areas of its securities or investment advisory operations conducted on or off the premises and otherwise facilitate the examination.”
11.
On December 13, 2012, Division staff attempted to conduct an examination of J. Capital Advisors’ books and records at the firm’s 1610 Saybrook Road, Haddam, Connecticut location. No one appeared to be on the premises and no one answered the door.
12.
On December 13, 2012, the Division e-mailed Johnson, stating that the Division had visited the firm’s office that day but found no one present. The e-mail indicated that the Division wished to reschedule the examination for December 19, 2012.
13.
On December 13, 2012, Johnson replied to the Division’s December 13, 2012 e-mail, stating that he would be out of the country but returning “after New Years.”
14.
On January 3, 2013, the Division e-mailed Johnson stating that an examination of the firm’s Haddam office had been scheduled for January 7, 2013.
15.
On January 7, 2013, Division staff again attempted to conduct an examination of J. Capital Advisors’ books and records at the firm’s 1610 Saybrook Road, Haddam, Connecticut location. No one appeared to be on the premises and no one answered the door.
16.
On January 7, 2013, the Division e-mailed Johnson, requesting that he supply availability dates for the examination.
17.
By e-mail dated January 29, 2013, Johnson advised the Division “I’ve been hospitalized and recovering and have been out of commission.” In an e-mail dated January 31, 2013, Johnson stated “I will gladly make arrangements for access to books and records, as stated, I have been ill and on leave.”
18.
At no time did Johnson provide specifics to the Division concerning his anticipated recovery time or when he would make the records available for examination. In addition, at no time did Respondents offer to provide the required records through a third party such as retained legal counsel.
19.
On February 5, 2013, the Division e-mailed Johnson, requesting that he produce the required records on February 20, 2013. In addition, the Division requested that Johnson appear before the Division on February 28, 2013. On February 22, 2013, the Division sent a letter to Johnson via certified mail, return receipt requested. On February 26, 2013, the Division left a telephone message for Johnson concerning Johnson’s appearance before the Division on February 28, 2013.
20.
Johnson failed to appear before the Division on February 28, 2013, and the Division received no explanation concerning his absence.
21.
To date, J. Capital Advisors has failed to produce required records or open its records to examination by the Division.
Excessive Undisclosed Advisory Fee Deductions
| 22. | Commencing in 2010, J. Capital Advisors had an arrangement with various clearing brokers pursuant to which advisory clients of J. Capital Advisors would authorize the clearing broker to pay J. Capital Advisors its fees as directed by J. Capital Advisors. |
| 23. | From at least 2011 forward, the frequency and amount of fees deducted from J. Capital Advisors client accounts at the participating clearing firms increased significantly, in some cases causing a marked depletion of client account holdings. Some of the affected clients filed complaints with the Division, indicating that they had not received prior disclosure concerning the extent of the fees or the basis on which the fees were calculated. |
| 24. | Section 36b-31-15c(a)(8) of the Regulations provides, in part, that “In implementing section 36b-15(a)(2)(H) of the general statutes, the following shall be deemed ‘dishonest or unethical practices in the securities . . . business’ by investment advisers without limiting those terms to the following practices . . . misrepresenting the nature of the advisory services being offered or the fees to be charged for such services, or omitting to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.” |
| 25. | Section 36b-31-15d(a)(3) of the Regulations provides, in part, that: “In implementing section 36b-15(a)(2)(H) of the general statutes, the following shall be deemed ‘dishonest or unethical practices in the securities . . . business’ by investment adviser agents without limiting those terms to the following practices . . . Engaging in any of the practices specified in subdivisions (1) to (9), inclusive . . . section 36b-31-15c of the regulations.” |
| 26. | Section 36b-5(f) of the Act states that: “No person who directly or indirectly receives compensation or other remuneration for: (1) Advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise; or (2) soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall engage in any dishonest or unethical practice in connection with the rendering of such advice or in connection with such solicitation.” |
Failure to Amend Registration Information
| 27. | Section 36b-31-14e(a) of the Regulations provides, in part, that: “If the information contained in any application for registration as . . . [an] investment adviser or investment adviser agent, or in any amendment thereto, is or becomes inaccurate or incomplete in any material respect for any reason, the . . . registrant shall promptly file a correcting amendment with the commissioner.” |
| 28. | J. Capital Advisors failed to update its Form ADV on file with the Commissioner to disclose, inter alia, the status of its business operations, including hours when it was open for business, and the scope of its client activity. |
Opportunity to Show Compliance
| 29. | By letter dated January 17, 2013, the Division provided Respondents with an opportunity to show compliance with the legal requirements for the retention of their respective registrations. Although Johnson replied by e-mail on behalf of Respondents, Johnson’s response was not persuasive in that he did not fully address the Division’s concerns. |
| 30. | As a result of the ongoing investigation conducted by the Division, the Commissioner brings this administrative action pursuant to Section 36b-15 of the Act and Section 4-182(c) of the Connecticut General Statutes to revoke or suspend and summarily suspend the investment adviser registration of J. Capital Advisors and the investment adviser agent registration of Johnson, as set forth herein. Section 36b-15 states, in pertinent part:
|
IV. STATUTORY BASIS FOR REVOCATION, SUSPENSION
AND SUMMARY SUSPENSION OF INVESTMENT ADVISER
AND INVESTMENT ADVISER AGENT REGISTRATIONS
| 31. | Paragraphs 1 through 30 are incorporated and made a part hereof as if more fully set forth herein. |
| 32. |
J. Capital Advisors, alone and through its president and control person Johnson, violated Section 36b-14(d) of the Act by failing to keep required records open to examination by the Commissioner and by failing to provide copies of such records to the Commissioner upon the Commissioner's request. Such conduct constitutes a basis for the suspension, revocation and summary suspension of J. Capital Advisors’ investment adviser registration under Section 36b-15(a)(2)(B) of the Act. |
| 33. | J. Capital Advisors, alone and through its president and control person Johnson, violated 36b-31-14f(b) of the Regulations by failing to make its records available to the Commissioner and by failing to facilitate the examination of such records. Such conduct constitutes a basis for the suspension, revocation and summary suspension of J. Capital Advisors’ investment adviser registration under Section 36b-15(a)(2)(B) of the Act. |
| 34. | J. Capital Advisors refusal, through its president and control person Johnson, to furnish material information to the commissioner, to wit, books and records required by law, constitutes a basis for the revocation, suspension and summary suspension of J. Capital Advisors’ investment adviser registration pursuant to Section 36b-15(a)(2)(L) of the Act. |
| 35. | J. Capital Advisors, alone and through its president and control person Johnson, violated Section 36b-5(f) of the Act by engaging in dishonest or unethical practices in connection with the rendering of investment advice, to wit, deducting excessive, undisclosed client advisory fees from client accounts. Such conduct constitutes a basis for the revocation, suspension and summary suspension of J. Capital Advisors’ investment adviser registration pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the Act. |
| 36. | J. Capital Advisors, alone and through its president and control person Johnson, violated Section 36b-31-14e(a) of the Regulations by failing to update its Form ADV as set forth in paragraph 28. Such conduct constitutes a basis for the revocation, suspension and summary suspension of J. Capital Advisors’ investment adviser registration pursuant to Section 36b-15(a)(2)(B) of the Act. |
| 37. | Johnson violated Section 36b-5(f) of the Act by engaging in dishonest or unethical practices in connection with the rendering of investment advice, to wit, deducting excessive, undisclosed client advisory fees from client accounts. Such conduct constitutes a basis for the revocation, suspension and summary suspension of Johnson’s investment adviser agent registration pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the Act. |
| 38. | Johnson wilfully aided, abetted, counseled, commanded, induced or procured J. Capital Advisors’ violation of Section 36b-14(d) of the Act, Section 36b-31-14f(b) of the Regulations and Section 36b-31-14e(a) of the Regulations. Such conduct constitutes a basis for the revocation, suspension and summary suspension of Johnson’s investment adviser agent registration pursuant to Section 36b-15(a)(2)(M) of the Act. |
VI. NOTICE OF INTENT TO REVOKE OR
SUSPEND INVESTMENT ADVISER REGISTRATION
NOTICE OF INTENT TO REVOKE OR SUSPEND
INVESTMENT ADVISER AGENT REGISTRATION
WHEREAS, the Commissioner has reason to believe that, pursuant to Section 36b-15(a) of the Act, grounds exist for suspending or revoking Respondent J. Capital Advisors’ investment adviser registration in the State of Connecticut;
WHEREAS, the Commissioner also has reason to believe that, pursuant to Section 36b-15(a) of the Act, grounds exist for suspending or revoking Respondent Johnson’s investment adviser agent registration in the State of Connecticut;
AND WHEREAS, the Commissioner believes that the issuance of an order suspending or revoking such registrations would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, Section 36b-15(f) of the Act states that “[n]o order may be entered under this section except as provided in subsection (c) of this section without (1) appropriate prior notice to the . . . registrant and to the employer or prospective employer if such . . . registrant is an . . . investment adviser agent, (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”;
NOW THEREFORE, notice is hereby given to Respondent J. Capital Advisors that its investment adviser registration shall be suspended or revoked, and notice is hereby given to Respondent Johnson that his investment adviser agent registration shall be suspended or revoked, such action being subject to the right of each Respondent to a hearing on the respective allegations set forth above. A hearing will be granted to each Respondent if a written request for a hearing is received by the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following each Respondent’s receipt of this Order. The enclosed Appearance Form must be filled out and returned with the written request for a hearing and mailed to the above address. If you will not be represented by an attorney at the hearing, please fill out the Appearance Form as “pro se.” The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes. At such hearing, each Respondent will have the right to appear and present evidence; rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner. Once a written request for a hearing is received, the Commissioner shall issue a notice of hearing at least fourteen (14) days prior to the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36-1-17(c) of the Regulations of Connecticut State Agencies.
VII. ORDER SUMMARILY SUSPENDING
INVESTMENT ADVISER REGISTRATION
ORDER SUMMARILY SUSPENDING
INVESTMENT ADVISER AGENT REGISTRATION
WHEREAS. the Commissioner has initiated proceedings to revoke or to suspend Respondent J. Capital Advisors’ registration as an investment adviser under Section 36b-15(a) of the Act;
WHEREAS. the Commissioner has initiated proceedings to revoke or to suspend Respondent Johnson’s registration as an investment adviser agent under Section 36b-15(a) of the Act;
WHEREAS, the Commissioner finds, pursuant to Section 4-182(c) of the Connecticut General Statutes, that the public welfare imperatively requires emergency action;
NOW THEREFORE IT IS ORDERED, pursuant to Section 36b-15(c) of the Act and Section 4-182(c) of the Connecticut General Statutes, that 1) the investment adviser registration of J. CAPITAL ADVISORS, LLC in Connecticut be and is hereby SUMMARILY SUSPENDED pending final determination of the proceedings to revoke or suspend Respondent J. Capital Advisors, LLC’s investment adviser registration; and 2) the investment adviser agent registration of AARON JOUSAN JOHNSON in Connecticut be and is hereby SUMMARILY SUSPENDED pending final determination of the proceedings to revoke or suspend Respondent Aaron Jousan Johnson’s investment adviser agent registration. Pursuant to Section 36b-15(c) of the Act, this Order Summarily Suspending Registration will be set down for a hearing within fifteen (15) days after the receipt of a written request from the affected Respondent.
A hearing will be granted to you if a written request for a hearing is received by the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following your receipt of this Order. The enclosed Appearance Form must be filled out and returned with the written request for a hearing and mailed to the above address. If you will not be represented by an attorney at the hearing, please fill out the Appearance Form as “pro se.”
The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes. At such hearing, you will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner. Once a written request for a hearing is received, the Commissioner shall issue a notice of hearing at least fourteen (14) days prior to the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36-1-17(c) of the Regulations of Connecticut State Agencies. If no hearing is requested on this Order and none is ordered by the Commissioner, this Order will remain in effect until it is modified or vacated by the Commissioner. If a hearing is requested or ordered, the Commissioner, after notice and opportunity for hearing, may modify or vacate this Order or extend it until final determination of the proceeding to revoke the affected Respondent’s registration.
| Dated at Hartford, Connecticut | ________/s/________ | |
| this 18th day of March, 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 18th day of March 2013, the foregoing Notice of Intent to Suspend or Revoke Registration as an Investment Adviser and as an Investment Adviser Agent, Order Summarily Suspending Registration as an Investment Adviser and as an Investment Adviser Agent and Notice of Right to Hearing was sent by certified mail, return receipt requested, to J. Capital Advisors, LLC d/b/a J. Capital Advisors Wealth Management, 1610 Saybrook Road, Haddam, Connecticut 06438, certified mail no. 7011 0470 0002 2572 5528; J. Capital Advisors, LLC d/b/a J. Capital Advisors Wealth Management, P.O. Box 385, Haddam, Connecticut 06438, certified mail no. 7011 0470 0002 2572 5498; Aaron Jousan Johnson, c/o J. Capital Advisors, LLC d/b/a J. Capital Advisors Wealth Management, 1610 Saybrook Road, Haddam, Connecticut 06438, certified mail no. 7011 0470 0002 2572 5511; and Aaron Jousan Johnson, 136 Old Chester Road, Haddam, Connecticut 06438, certified mail no. 7011 0470 0002 2572 5504.
_____/s/___________
Helen C. Crane
Administrative Assistant