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JOHN WILLIAM RAFAL * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER NO. CO-15-8158 |
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, John William Rafal (“Rafal”) is an individual whose address last known to the Commissioner is 4 Johnnycake Hill Road, Old Lyme, Connecticut 06371.
WHEREAS, Essex Financial Services, Inc. (“EFS”), located at 176 Westbrook Road, Essex, Connecticut 06426, has been an investment adviser registered with the Securities and Exchange Commission (SEC No. 801-62242) since August 7, 2003, and has been an investment adviser notice filer under Section 36b-6(e) of the Act since August 7, 2003. EFS has also been registered as a broker-dealer under the Act since September 22, 2003 (CRD No. 127549). Rafal has been registered as both an investment adviser agent and a broker-dealer agent of EFS under the Act since December 12, 2003, and served as the President and Chief Executive Officer of EFS from April 2003 through July 2013. From July 2013 to the present, Rafal has served as a director of EFS;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking (“Department”), conducted an investigation (“Investigation”) pursuant to Section 36b-26(a) of the Act into the activities of Rafal to determine if he had violated, was violating or was about to violate provisions of the Act or Regulations;
WHEREAS, as a result of the Investigation, the Division obtained evidence that:
| 1. | In 2010, a Connecticut attorney (“Attorney A”) referred a multimillion dollar investment advisory account (“Account”) to Rafal, while Rafal was employed at EFS. The following year in 2011, Rafal, on behalf of EFS, agreed to pay Attorney A an annual fee of $50,000; |
| 2. | Rafal knew that Attorney A was required to register as an investment adviser agent of EFS in order to receive a referral fee. Although Attorney A applied to take the Series 65 exam in January 2012, he did not take the Series 65 exam and never became a registered investment adviser agent of EFS. Rafal was aware of this fact; |
| 3. | During the summer of 2012, Rafal informed EFS’ Chief Compliance Officer (“CCO”) that EFS was going to pay Attorney A a quarterly fee of $12,500 in connection with the Account, despite the fact that Rafal knew Attorney A was not at that time registered as an investment adviser agent of EFS; |
| 4. | In or about August 2012, Attorney A represented to Rafal that Attorney A had re-applied to take the Series 65 exam and was planning to take that exam. In August of 2012, Attorney A sent Rafal an invoice for services rendered for EFS from January 2012 through March 2012 in the amount of $12,500. The invoice did not identify clients or detail the services performed. Rafal, knowing that Attorney A was not yet registered as an investment adviser agent of EFS, nevertheless instructed the CCO to pay this invoice, which was paid by a check to Attorney A on August 20, 2012; |
| 5. | During the fall of 2012, the CCO informed Rafal that Attorney A could not receive any additional fees until Attorney A became registered as an investment adviser agent of EFS. On November 11, 2012, Rafal asked Attorney A to provide EFS a new itemized invoice for the first quarter of 2012. On November 12, 2012, Attorney A sent a new and much more detailed invoice for first quarter of 2012, listing various purported legal services performed for certain clients; |
| 6. | On November 14, 2012, Attorney A sent another itemized invoice to Rafal for legal services purportedly performed for EFS from April 2012 through June 2012 in the amount of $12,690. Rafal arranged for this invoice to be paid, which was done on November 26, 2012; |
| 7. | Rafal, in his capacity as president and CEO of EFS, authorized payments to Attorney A in August and November of 2012 totaling $25,190, despite Rafal knowing that Attorney A was required to be registered as an investment adviser agent of EFS to receive such fees, but was not so registered; |
| 8. | EFS never entered into a retainer agreement for legal services with Attorney A. Attorney A did not perform any legal services for EFS during the time period in question; and the only payments from EFS to Attorney A were the August and November 2012 payments; and |
| 9. | In April 2013, at Rafal’s request, Attorney A refunded EFS $25,190 for the two payments made to him. |
WHEREAS, the Commissioner has reason to believe that the conduct described above violates certain provisions of the Act and Regulations, and would support administrative proceedings against Rafal under Sections 36b-15 and 36b-27 of the Act;
WHEREAS, Rafal asserts that the client did not lose any money as a result of the facts described herein;
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(4) 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 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 and Rafal have reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
WHEREAS, Rafal, without admitting or denying any of the Commissioner’s allegations or findings, expressly consents to the Commissioner ’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, the Commissioner finds that 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, Rafal, through his execution of this Consent Order, specifically assures the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Rafal, through his execution of this Consent Order, voluntarily waives the following rights:
| 1. | To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut; |
| 2. | To present evidence and argument and to otherwise avail himself of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut; |
| 3. | To present his position in a hearing in which he 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, Rafal, through his execution of this Consent Order, and without admitting or denying any of the Commissioner’s allegations, acknowledges the following allegations of the Commissioner:
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Rafal engaged in dishonest or unethical practices in the securities business within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Act and Section 36b-31-15d of the Regulations by:
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WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Rafal an opportunity for a hearing;
AND WHEREAS, Rafal seeks to avoid the expense of a disputed hearing and acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Rafal, through his execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | Rafal 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, either directly or through any person, organization or other device, including, without limitation, engaging in dishonest or unethical business practices within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Act and Section 36b-31-15d of the Regulations; |
| 2. | Rafal’s registration as an investment adviser agent and broker-dealer agent under the Act will be suspended for fifteen business (15) days commencing on the date this Consent Order is entered by the Commissioner; and |
| 3. | No later than the date this Consent Order is entered by the Commissioner, Rafal shall remit to the Department, by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut” the sum of twenty-five thousand dollars ($25,000) as an administrative fine. |
V. 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 action against Rafal 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. | This Consent Order shall not preclude additional proceedings by the Commissioner against Rafal for acts or omissions not specifically addressed in this Consent Order or for acts and/or omissions that do not arise from the facts or transactions addressed herein; |
| 4. | Rafal shall not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation referenced in this Consent Order or create the impression that this Consent Order is without factual basis. However, nothing is this Consent Order affects Rafal’s testimonial obligations or right to take any legal or factual position in litigation, arbitration, or other legal proceedings in which the Commissioner is not a party; |
| 5. | Rafal shall not take any position in any proceeding brought by or on behalf of the Commissioner, or to which the Commissioner is a party, that is inconsistent with any part of this Consent Order. |
| 6. | The Consent Order is not intended by the Commissioner to subject Rafal to any disqualifications under the laws of the United States, any state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands, or under the rules or regulations of any securities, insurance or commodities regulator or self-regulatory organization, including without limitation, any disqualification from relying upon state or federal registration exemptions or safe harbor provisions; |
| 7. | This Consent Order shall not disqualify Rafal from any business that he otherwise is qualified, licensed or permitted to perform under the applicable securities or insurance laws or regulations of Connecticut, and any disqualifications from relying upon Connecticut’s registration exemptions or safe harbor provisions that arise from the Consent Order are hereby waived; and |
| 8. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut | , | _____/s/____________ |
| this 23rd day of November 2015. | Jorge L. Perez | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, John William Rafal, 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/_________ |
| John William Rafal |
State of: Connecticut
County of: Middlesex ss: Essex
On this the 09 day of November 2015, before me, the undersigned officer, personally appeared John William Rafal, 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.
In witness whereof I hereunto set my hand.
_______/s/__________________________
Notary Public
Date Commission Expires: Feb. 28, 2019