DOB: Winter 2016 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXX  No. 4 
Winter 2016

Features

Enforcement and Other Highlights 



ADMINISTRATIVE ACTIONS

Meyers Associates, L.P. (CRD No. 34171) Directed to Cease and Desist from Regulatory Violations; Notice of Intent to Revoke Registration as a Broker-dealer and Notice of Intent to Fine Issued

On December 5, 2016, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as a Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-16-8342-S) against Meyers Associates, L.P.  The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act and has its principal office at 45 Broadway, New York, New York.


The firm had been the subject of two prior revocation proceedings, each of which was informally resolved by Consent Order, the first Consent Order being entered on June 14, 2011 (Docket No. RCF-10-7817-S) and the second on March 24, 2015.  Both Consent Orders contemplated that the firm would implement remedial measures to prevent future regulatory violations.


The current matter, which was the outgrowth of a follow-up investigation and examination by the department, alleged that the firm failed to adhere to fundamental compliance principles.  More specifically, the action alleged that Meyers Associates, L.P. 1) violated Section 36b-14(d) of the Connecticut Uniform Securities Act and Section 36b-31-14f of the Regulations thereunder by failing to make required books and records available to agency staff; 2) failed to maintain true, accurate and current books and records; 3) violated the 2015 Consent Order by selling securities listed on the OTCQB; 4) failed to establish, enforce and maintain adequate supervisory procedures; 5) violated Section 36b-16 of the Act by offering and selling unregistered securities; and 6) made materially misleading statements to the Division.

Meyers Associates, L.P. was afforded an opportunity to request a hearing on the allegations.
  
   

Hai Khoa Dang Directed to Cease and Desist from Regulatory Violations

On November 29, 2016, the Commissioner issued an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-16-8075-S) against Hai Khoa Dang, a former broker-dealer agent of Investors Capital Corp.  The action alleged that the respondent engaged in dishonest or unethical practices in the securities business by not disclosing to his employing firm that he had borrowed money from a customer to invest in an outside real estate venture.  Since the respondent did not request a hearing on the allegations, the Order to Cease and Desist became permanent on December 16, 2016.

The Dratel Group, Inc. (CRD No. 8049) Ė Broker-dealer Registration Revoked

On November 4, 2016, the Banking Commissioner issued an Order (Docket No. NR-16-8163-S) revoking the broker-dealer registration of The Dratel Group, Inc.  The firm is located at 53345 Route 25, Building 10, No. 3, Southold, New York 11971.  The action had been preceded by a September 19, 2016 Notice of Intent to Revoke Registration as a Broker-dealer based on sanctions levied against the firm by the Financial Industry Regulatory Authority ("FINRA") as well as a revocation by the State of New Jersey.  More specifically, on September 28, 2012, a FINRA extended hearing panel had barred the firm from day trading and fined it $185,000 based on allegations that the firm executed a fraudulent scheme involving allocation of profitable trades to a preferred account and less profitable trades to a non-preferred account such as that of a customer, and that the firm falsified and backdated order tickets (Extended Hearing Panel Decision No. 2008012925001).  FINRA's National Adjudicatory Council affirmed the hearing panel decision on May 2, 2014, and increased the sanction from a day-trading bar to a full expulsion from membership.   On appeal to the Securities and Exchange Commission, the SEC found on March 17, 2016 that the trade allocation scheme violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that the firm also violated the recordkeeping provisions in Section 17(a)(1) of the Exchange Act as well as Rules 17a-3(a)(6) and 17a-3(a)(7) thereunder (Admin. Proc. File No. 3-15869).  In addition, on March 21, 2016, FINRA expelled the firm from membership for failing to pay the fine and/or costs imposed in a prior matter involving reporting and recordkeeping violations (FINRA Case No. 2009016317701).  On May 3, 2016, the securities administrator of the State of New Jersey revoked the firmís broker-dealer registration based on the FINRA expulsion and on claims that the firm engaged in dishonest or unethical practices in the securities business.

Since The Dratel Group, Inc. did not request a hearing on the Notice of Intent to Revoke Registration as a Broker-dealer, the allegations in the Notice were deemed admitted, and the firmís Connecticut registration was revoked effective November 4, 2016.

Robert Lawrence Gray (CRD No. 228103) - Order to Cease and Desist and Notice of Intent to Fine Issued

On October 20, 2016, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-16-8301-S) against Robert Lawrence Gray of Boca Raton, Florida.  The action noted that respondent Gray had been the subject of a July 15, 1977 permanent bar by the NASD and a June 8, 1998 civil injunction procured by the Securities and Exchange Commission based on securities fraud violations.

In the current action, the Commissioner alleged that respondent Gray persuaded a Connecticut investor to transfer the investor's brokerage account to Cantone Research Inc. where Gray had an arrangement with agent Victor Polakoff to direct trading in the account.  Respondent Gray also had an arrangement with the investor to share in the gains earned as a result of Gray's investment recommendations, and that Gray would reimburse the investor for losses incurred as a result of the recommended trades.  The action alleged that the arrangement with Cantone Research, Inc. allowed respondent Gray to circumvent the bar and continue to be active in the securities industry without detection.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.

The action alleged that respondent Gray violated Section 36b-6(c)(1) of the Connecticut Uniform Securities Act by transacting business as an unregistered investment adviser, and that Gray also engaged in dishonest or unethical conduct in conjunction with the rendering of investment advice.

The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Cantone Research Inc. (CRD No. 26314) and Victor Polakoff (CRD No. 365011)

On October 20, 2016, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Suspend or Revoke Registrations as a Broker-dealer, an Investment Adviser and a Broker-dealer Agent and a Notice of Intent to Fine (Docket No. CRSRF-16-8108-S) against Cantone Research Inc. and its broker-dealer agent Victor Polakoff.  The firm, which is registered as a broker-dealer and an investment adviser under the Connecticut Uniform Securities Act, maintains its principal office at 766 Shrewsbury Avenue, Suite E-401, Tinton Falls, New Jersey 07724.  In addition to being an agent of the firm, respondent Polakoff was a control person of the firm as well as its Executive Vice President and Supervisor of the firm's main office.

The action alleged that the firm and respondent Polakoff permitted one Robert Lawrence Gray, an individual barred from the securities industry, to direct trading in the account of a Connecticut investor at a time when there was no written firm record evidencing the investor's acquiescence to the arrangement.  The action alleged that the respondents materially aided Gray's transacting business as an unregistered investment adviser, and that both respondents engaged in dishonest or unethical practices in the securities business.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.

As a separate matter, the action alleged that 1) the respondents violated Section 36b-16 of the Act by selling unregistered shares of XenaCare Holdings, Inc.; 2) the firm failed to keep books and records that accurately characterized certain trades as solicited or unsolicited; 3) respondent Polakoff engaged in outside business activity with a client (the spouse of Robert Gray) without providing notice to the firm; and 4) the firm failed to enforce and maintain adequate supervisory procedures.

The respondents were afforded an opportunity to request a hearing on the allegations in the action.


David Lerner Associates, Inc. (CRD No. 5397) Fined $5,000, Directed to Cease and Desist from Regulatory Violations

On October 26, 2016, the Banking Commissioner entered a Consent Order (No. CO-16-8184-S) with respect to David Lerner Associates, Inc., a Connecticut-registered broker-dealer with a branch office at 1221 Post Road, Westport, Connecticut 06880.  The Consent Order alleged that the firm violated Section 36b-31-6f(b) of the Regulations under the Connecticut Uniform Securities Act by failing to follow and enforce its system for supervising agent activities regarding the processing of client IRA distributions.  The Consent Order grew out of the conduct of ex-agent Michael Thomas Lombardo (CRD No. 4091665) who was barred by FINRA (Case No. 2014040513601) following allegations that Lombardo misappropriated funds from a David Lerner Associates, Inc. customer by forging the customerís signature on an IRA distribution request form; taking delivery of the IRA disbursement check; forging the customer's signature on the disbursement check; and converting the funds to Lombardo's own use.  On September 11, 2014, Lombardo pled guilty in the United States District Court for the District of Connecticut to one count of violating 18 U.S.C. Section 1343 (Wire Fraud) (United States v. Lombardo, Case No. 3:14-cr-00189-AVC).


The Consent Order acknowledged that David Lerner Associates, Inc. had immediately terminated Lombardo when the firm was alerted of Lombardo's misconduct, and that the firm had voluntarily offered each client affected by Lombardo's conduct a full refund of amounts misappropriated plus interest.


The Consent Order fined the firm $5,000 and directed it to cease and desist from regulatory violations.
 
 


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered   2,207 2,214
2,218
2,139
Broker-dealer Agents Registered 163,316 164,563
166,680
159,184
Broker-dealer Branch Offices Registered 2,681 2,657
2,632
2,599
Investment Advisers Registered 520 535 541
509
SEC Registered Advisers Filing Notice 2,109 2,130 2,147
2,042
Investment Adviser Agents Registered 12,770 13,061 13,248
12,937
Exempt Reporting Advisers
102
106
107
113
Agents of Issuer Registered 19 19 20
18
Conditional Registrations
1
0
0
0
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 45 54
45
28 172
Investment Company Notice Filings 812 546
586
7,807 9,751
Exemptions and Exemptive Notices 850 885 809 845 3,389
 
 
Examinations
     
Broker-dealers 38 24
25
25 112
Investment Advisers 47 37
33
30 147
 
 
Securities Investigations
 
Opened 23 30 13
14
80
Closed 7 31 34
28
100
Ongoing as of End of Quarter 126 125 104
90
 
Subpoenas issued 9 8 6 3 26
Matters referred from Attorney General 1 3 1 1 6
Matters referred from Other Agencies 2 3 2 0 7
 
 
Business Opportunity Investigations
 
Investigations Opened 0 0 0 1 1
Investigations Closed 0 1
0
0 1
Ongoing as of End of Quarter 2 1 1 2     
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
2
0
0
2
Notices of Intent to Suspend (Licensing)
0
0
0
1
1
Notices of Intent to Revoke (Licensing)
1
0
2
2
5
Denial Orders (Licensing) 0 0
2
0 2
Suspension Orders (Licensing) 0 0
0
0
0
Revocation Orders (Licensing) 1 1
0
1 3
Notices of Intent to Fine 0 3
5
3 11
Orders Imposing Fine 1 0
3
0 4
Cease and Desist Orders 0 3
5
4 12
Notices of Intent to Issue Stop Order 0 0
0
0
0
Activity Restrictions/Bars 1 1
0
0
2
Stop Orders 0 0 0 0 0
Vacating/Withdrawal/ Modification Orders 0 1 0 0 1
Restitutionary Orders 0 1
4
1 6
Injunctive Relief Obtained 0 0 0 0 0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
3
4
9
5
21
Consent Orders
3
2
6
1
12
Stipulation and Agreements
1
1
1
 0
3
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$621,370
$5,360
$120,271,000
$5,000
$120,902,730
Portion attributable to settlements
$21,370
$5,360
$120,046,000
$5,000
$120,077,730
Attributable to Court-Ordered Penalties
0
0
0
0
0
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$1,161,000
$154,000
$75,000
$99,685 $1,489,685

*Cents eliminated

 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal Matters
0
0
0
0
0
Civil (Attorney General)
0
1
0
0
1
Other Agency Referrals
1
1
1
0
3



Securities Division