| * * * * * * * * * * * * * * *
SALOMON WHITNEY LLC CRD No. 145012 ("Respondent")
|
*
*
* * * * * * * * * * * |
ORDER TO CEASE AND DESIST NOTICE OF INTENT TO REVOKE AND NOTICE OF RIGHT TO HEARING DOCKET NO. RCF-10-7792-S |
I. PRELIMINARY STATEMENT
| 1. | 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 the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”). |
| 2. | Pursuant to Section 36b-26(a) of the Act, as amended by Public Act 10-141, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondent to determine if Respondent has violated, is violating or is about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act and Regulations. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement to the General Statutes (“2010 Supplement”), as amended by Public Act 10-141. |
| 5. |
As a result of the Investigation, the Commissioner brings this administrative action pursuant to Section 36b-15(a) of the 2010 Supplement, as amended by Public Act 10-141, and Section 4-182(c) of the General Statutes of Connecticut to revoke the broker-dealer registration of Respondent in Connecticut.
|
| 6. |
As a result of the Investigation, the Commissioner has the authority to impose a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended by Public Act 10-141. |
II. RESPONDENT
| 7. |
Respondent is a New York limited liability company with its principal place of business at 15 Deer Park Avenue, Suite 1, Babylon Village, New York 11702. |
III. STATEMENT OF FACTS
| 8. | From April 9, 2008 to the present, Respondent has been registered in Connecticut under the Act as a broker-dealer. |
| 9. | As part of the Investigation, the Division conducted an examination of Respondent’s books and records at Respondent’s main office located at 15 Deer Park Avenue, Suite 1, Babylon Village, New York 11702. |
| 10. | Pursuant to the Investigation, Respondent provided the Division with a copy of Respondent’s written supervisory policies and procedures manual (“WSP”). |
| 11. | Section VI(b) of the WSP, “SEC Rule 17a-3 & 17a-4”, detailed the required books and records which Respondent maintained and provided that, inter alia, the firm preserved all compensation arrangements of associated persons and any agreements between the associated persons and the firm for a period of three years and maintained those agreements in a readily accessible place for a period of two years. |
| 12. | During the Investigation, the Division requested copies of all compensation agreements (“Agreements”) between the Respondent and associated persons. |
| 13. | Notwithstanding the WSP’s requirements, the Respondent failed to maintain the Agreements and failed to provide the Agreements to the Division when so requested. To date, the Agreements have not been provided to the Division. |
| 14. | Section VIII(d) of the WSP, “Fair Pricing”, also required, inter alia, that “the Firm shall not charge the customer more than a fair commission or service charge, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense of executing the order and the value of any such service the Firm may have rendered by reason of its experience in and knowledge of such security and the market thereof.” Furthermore, Section VI(k) of the WSP, “Fees Charged to Customers”, required, inter alia, that charges for services performed “shall be reasonable and not unfairly discriminatory between customers.” |
| 15. | During the Investigation, the Division further discovered that Respondent charged a transactional “Handling Fee” of between $36.79 and $69.95 to each Connecticut customer, as well as a commission and “settlement fee”. However, Respondent failed to disclose to its Connecticut customers that the “Handling Fee” included a profit to Respondent, that certain customers paid lower fees and that the fee was not based on the costs of handling a particular transaction. Respondent’s omission was material to investors, and Respondent’s failure to adequately disclose the nature of these charges made Respondent’s limited explanation misleading. |
| 16. |
On January 15, 2010, the Commissioner gave Respondent written notice pursuant to Section 4-182(c) of the General Statutes of Connecticut that Respondent may have engaged in conduct which, if proven, would constitute a basis for the suspension or revocation of Respondent’s broker-dealer registration in Connecticut, and gave Respondent the opportunity to show compliance with all lawful requirements for the retention of its registration as a broker-dealer in Connecticut. Respondent provided the Department with a response to the written notice. The response, however, was not persuasive. |
IV. STATUTORY AND REGULATORY BASIS FOR ORDER TO CEASE AND DESIST,
REVOCATION OF REGISTRATION AS BROKER-DEALER
AND ORDER IMPOSING FINE
a. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 17. | Paragraphs 1 through 16, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 18. |
The conduct of Respondent, as more fully described in paragraph 15, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. Such conduct constitutes a wilful violation of Section 36b-4(a) of the 2010 Supplement, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
b. Violation of Section 36b-4(b) of the Act –
Dishonest and Unethical Practices in Connection with the Offer and Sale of any Security
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
The conduct of Respondent, as more fully described in paragraph 15, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly engaging in a dishonest or unethical practice. Such conduct constitutes a wilful violation of Section 36b-4(b) of the 2010 Supplement, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
c. Dishonest and Unethical Practices - Violation of FINRA Conduct Rules
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
The conduct of Respondent, as more fully described in paragraph 15, is conduct proscribed by the Financial Industry Regulatory Authority (formerly NASD) Conduct Rules 2210, 2430, and 2440. Such conduct constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, and for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(H) of the 2010 Supplement, as amended. |
d. Wilful Violation of Section 36b-14(a) of the Act –
Failure to Maintain Books and Records
| 23. | Paragraphs 1 through 22, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 24. |
Respondent’s failure to maintain complete and accurate books and records, as more fully described in paragraphs 11 through 13, inclusive, constitutes a wilful violation of Section 36b-14(a) of the Act, which forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
e. Wilful Violation of Section 36b-14(d) of the Act
and Section 36b-31-14f of the Regulations –
Failure to Provide Copies or Computer Printouts of
Records When So Requested
| 25. | Paragraphs 1 through 24, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 26. |
Respondent’s failure to provide copies or computer printouts of records when so requested, as more fully described in paragraphs 11 through 13, inclusive, constitutes a wilful violation of Section 36b-14(d) of the Act, as amended, and Section 36b-31-14f of the Regulations, which forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
f. Failure to Enforce and Maintain Adequate Supervisory Procedures
| 27. | Paragraphs 1 through 26, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 28. |
Respondent’s failure to maintain all compensation arrangements of associated persons and any agreements between the associated persons and the firm, in contradiction of its WSP, as more fully described in paragraphs 11 and 13, constitutes a violation of Section 36b-31-6f of the Regulations, which forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(K) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. Such activity further constitutes a wilful violation of Section 36b-31-6f of the Regulations which forms a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended. |
| 29. | Respondent’s failure to charge for its services in a reasonable amount and in a manner which is not unfairly discriminatory between its customers, as more fully described in paragraph 15, in contradiction of its WSP, as more fully described in paragraph 14, constitutes a violation of Section 36b-31-6f of the Regulations, which forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(K) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. Such activity further constitutes a wilful violation of Section 36b-31-6f of the Regulations which forms a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended. |
V. ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE
REGISTRATION AS BROKER-DEALER, NOTICE OF INTENT TO FINE
AND NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Respondent has committed at least one violation of Section 36b-4(a) of the 2010 Supplement, at least one violation of Section 36b-4(b) of the 2010 Supplement, at least one violation of Section 36b-14 of the Act, as amended, at least one violation of Section 36b-31-14a of the Regulations, at least one violation of Section 36b-31-14f of the Regulations, and at least one violation of Section 36b-31-6f of the Regulations;
WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct that, pursuant to Section 36b-15 of the 2010 Supplement, as amended, constitute grounds for revoking Respondent’s registration as a broker-dealer in Connecticut;
WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist, the issuance of an order revoking Respondent’s registration as a broker-dealer in Connecticut, and the imposition of a fine against Respondent is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;
WHEREAS, notice is hereby given to Respondent that its registration as a broker-dealer in Connecticut shall be revoked, subject to Respondent’s right to request a hearing on the allegations set forth above;
WHEREAS, notice is hereby given to Respondent that the Commissioner intends to impose a maximum fine not to exceed One Hundred Thousand Dollars ($100,000) per violation;
WHEREAS, the Commissioner ORDERS that Respondent CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) in connection with the offer, sale or purchase of any security, directly or indirectly, employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, (2) engaging in dishonest or unethical business practices, (3) failing to maintain required books and records, (4) failing to provide copies and computer printouts of records to the Commissioner when so requested, and (5) failing to maintain and enforce adequate supervisory procedures;
AND WHEREAS, pursuant to Sections 36b-15(f) and 36b-27 of the 2010 Supplement, as amended, Respondent will be afforded an opportunity for a hearing on the allegations set forth above.
THE COMMISSIONER FURTHER ORDERS that a hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, Securities Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following Respondent’s receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the General Statutes of Connecticut and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on December 1, 2010, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, 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.
This Order to Cease and Desist shall remain in effect and become permanent against Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
The Commissioner shall issue an order revoking Respondent’s registration as a broker-dealer in Connecticut if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
The Commissioner may order that the maximum fine be imposed upon Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | ________/s/________ | |
| this 23rd day of September 2010. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 24th day of September 2010, the foregoing Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Salomon Whitney LLC, 15 Deer Park Avenue, Suite 1, Babylon Village, New York 11702, certified mail no. 7010 0290 0002 7489 7808.
_______/s/_________
Jesse Silverman
Prosecuting Attorney