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SALOMON WHITNEY LLC CRD No. 145012 ("Respondent")
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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 promulgated under the Act (“Regulations”);
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, as amended by Public Act 10-141, into the activities of Respondent to determine if it had violated, was violating or was about to violate provisions of the Act or Regulations;
WHEREAS, on September 23, 2010, the Commissioner, acting pursuant to Sections 36b-15 and 36b-27 of the 2010 Supplement to the General Statutes (“2010 Supplement”), as amended by Public Act 10-141, and Section 4-182(c) of the General Statutes of Connecticut, issued an 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 (collectively “Notice”) against Respondent, which Notice is incorporated by reference herein;
WHEREAS, Respondent requested a hearing on the matters alleged in the Notice (“Hearing”);
WHEREAS, Respondent and the Division requested continuances of the Hearing;
WHEREAS, the Hearing has been continued so that the parties may engage in settlement discussions;
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 2010 Supplement, as amended, would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
WHEREAS, Section 36b-27(f) of the Act provides, in relevant part, that “[a]ny time after the issuance of an order or notice provided for in subsection (a) . . . or subdivision (1) of subsection (d) of this section, the commissioner may accept an agreement by any respondent named in such order or notice to enter into a written consent order in lieu of an adjudicative hearing”;
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, Respondent and the Commissioner now desire to resolve the matters alleged in the Notice without the need for further administrative proceedings;
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, Respondent agrees that the Notice may be used in construing the terms of this Consent Order, and agrees to the language in this Consent Order.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Respondent, through its 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 itself 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 its position in a hearing in which it 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, Respondent, through its execution of this Consent Order, acknowledges the following allegations of the Commissioner, without admitting or denying them, yet admits sufficient evidence exists for the Commissioner to issue: (a) a permanent order to cease and desist, (b) an order revoking Respondent’s registration as a broker-dealer in Connecticut, and (c) 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 thereunder:
| 1. | Respondent wilfully violated Section 36b-4(a) of the 2010 Supplement by failing to disclose to its Connecticut customers that the transactional “Handling Fee” it charged them 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; |
| 2. | Respondent wilfully violated Section 36b-4(b) of the 2010 Supplement, and engaged in dishonest and unethical practices in connection with the offer and sale of any security, by failing to disclose to its Connecticut customers that the transactional “Handling Fee” it charged them 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; |
| 3. | Respondent’s conduct, as set forth in paragraph 15 of Section III of the Notice, was proscribed by the Financial Industry Regulatory Authority (formerly NASD) Conduct Rules 2210, 2430, and 2440, and constituted a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations; |
| 4. | Respondent wilfully violated Section 36b-14(a) of the Act by failing to maintain complete and accurate books and records, as more fully described in paragraphs 11 through 13, inclusive, of Section III of the Notice; |
| 5. | Respondent wilfully violated Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations by failing to provide copies or computer printouts of records when so requested, as more fully described in paragraphs 11 through 13, inclusive, of Section III of the Notice; and |
| 6. | Respondent wilfully violated Section 36b-31-6f of the Regulations by engaging in conduct contrary to its written supervisory procedures, to wit: (1) failing to maintain all compensation arrangements of associated persons and any agreements between the associated persons and the firm, as more fully described in paragraphs 11 and 13 of Section III of the Notice; and (2) failing to charge for its services in a reasonable amount and in a manner which was not unfairly discriminatory between its customers as more fully described in paragraphs 14 and 15 of Section III of the Notice; |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Respondent an opportunity for a hearing;
WHEREAS, Respondent acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below;
AND WHEREAS, Respondent specifically assures the Commissioner that none of the violations alleged in the Notice or this Consent Order shall occur in the future.
IV. CONSENT TO ENTRY OF SANCTIONSWHEREAS, Respondent, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | Respondent, its representatives, agents, employees, affiliates, assigns, or successors in interest 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; |
| 2. | Within Forty-five (45) days from the date this Consent Order is entered by the Commissioner, Respondent shall provide the Division with proof, with respect to all transactions effected from April 1, 2008 to the present, that Respondent has: (a) reimbursed each Connecticut customer the difference between the amount of the “Handling Fee” paid by the Connecticut customer for each transaction and the actual amount of Respondent’s ticket and clearing charge and the postage fee assessed by Respondent’s clearing firm; (b) amended its customer trade confirmations and/or pre-confirmations to provide each of Respondent’s Connecticut customers with additional disclosure acceptable to the Division which adequately describes the “Handling Fee” appearing on the trade confirmations and/or pre-confirmations; and (c) sent correspondence to each Connecticut customer who received the reimbursement an explanation that the “Handling Fee” reimbursement was a result of an examination conducted by the Division; |
| 3. | No later than the date this Consent Order is entered by the Commissioner, Respondent shall provide to the Division Director for review and approval the letter that will be sent to those Connecticut customers eligible for the “Handling Fee” reimbursement described in paragraph 2 of Section IV Consent to Entry of Sanctions of this Consent Order; and |
| 4. | No later than the date this Consent Order is entered by the Commissioner, Respondent shall remit to the Department of Banking by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut”, or by wire transfer, the sum of Twelve Thousand Five Hundred Dollars ($12,500) 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 Respondent 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; and |
| 3. | This Consent Order shall become final when issued. |
| Issued at Hartford, Connecticut, | _______/s/____________ | |
| this 4th day of March 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Thomas Diamante, state on behalf of Salomon Whitney 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 Salomon Whitney LLC; that Salomon Whitney LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Salomon Whitney LLC consents to the issuance of this Consent Order.
| Salomon Whitney LLC | |
| By: | ______/s/_____________ |
| Thomas Diamante | |
| Chief Executive Officer |
State of: New York
County of: Suffolk
On this the 15th day of Feb 2011, before me, Aaron Stein, the undersigned officer, personally appeared Thomas Diamante, who acknowledged himself to be the Chief Executive Officer of Salomon Whitney LLC, a limited liability company, and that he, as such Chief Executive Officer, 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 Chief Executive Officer.
In witness whereof I hereunto set my hand.
______/s/_________________________
Notary Public
Date Commission Expires: August 31, 2014