DOB: Huntington Investment Co Consent Order

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IN THE MATTER OF:

THE HUNTINGTON INVESTMENT COMPANY

    (CRD No. 16986)

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CONSENT ORDER

No. CO-06-7315-S

PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;
 
WHEREAS, on February 23, 2006, The Huntington Investment Company (“Huntington”) of 41 South High Street, Seventh Floor, Columbus, Ohio, filed an application for registration as a broker-dealer under the Act and disclosed in such application that it had effected a limited number of securities transactions for Connecticut customers at a time when Huntington was not registered as a broker-dealer in Connecticut;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division of the Department of Banking (the “Division”), conducted a follow-up investigation pursuant to Sections 36b-8 and 36b-26 of the Act into the activities of Huntington to assess the accuracy of the information provided by Huntington as well as the firm’s compliance with the Act and the Regulations thereunder;
 
WHEREAS, the Commissioner ascertained, as a result of such investigation, that:  1) From at least October, 2000 through February 2006, Huntington transacted business as a broker-dealer absent registration in contravention of Section 36b-6(a) of the Act; 2) at various times from October, 2000 through February 2006, Huntington employed between one and ten unregistered broker-dealer agents in contravention of Section 36b-6(b) of the Act; and 3) the trading activity largely consisted of sell transactions and transactions effected for customers whose accounts were opened in another state prior to the customers moving to Connecticut;
 
WHEREAS, Huntington 1) produced to the Division e-mail correspondence showing that, in one instance during 2005, a back office employee of the firm circumvented internal procedures governing Connecticut broker-dealer registration requirements, and 2) Huntington represented to the Division that such employee had received a reprimand as a result of such conduct;
 
WHEREAS, in 1999 and immediately prior to the onset of its unregistered activity in Connecticut, Huntington was sanctioned by the states of Arizona, Massachusetts and New Jersey for failing to register as a broker-dealer in those jurisdictions;
 
WHEREAS, on June 30, 2005, the National Association of Securities Dealers (the “NASD”) censured Huntington and fined it $10,000 for violating NASD Rules 2110, 2820 and 2830 in conjunction with a sales contest that weighted the firm’s proprietary mutual fund and variable annuity products more than other investment products offered by Huntington (Acceptance Waiver and Consent; Case No. C8A050063);
 
WHEREAS, Huntington maintains that several Connecticut securities transactions were liquidating transactions conducted in order to recover annual custodial and IRA fees; that one Connecticut account was established solely to facilitate the liquidation of positions inherited by the beneficiary of a deceased Huntington account holder; and that Huntington had implemented enhanced procedures to improve its blue sky compliance systems;
 
WHEREAS, Huntington neither admits nor denies any of the Commissioner’s allegations, but expressly consents to the Commissioner’s jurisdiction in this matter and to the entry of the sanctions in this Consent Order;
 
WHEREAS, Section 36b-15(a) of the Act provides, in part, that:  “The commissioner may, by order, deny . . . any registration or, by order, restrict or impose conditions on the securities or investment advisory activities that an applicant . . . may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the applicant . . . or, in the case of a broker-dealer or investment adviser, any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser . . . (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-33, inclusive, or a predecessor statute or any regulation or order under said sections or a predecessor statute . . . (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years . . . (iii) a . . . sanction issued by a . . . self-regulatory organization registered under federal laws administered by the Securities and Exchange Commission . . . if the effect of the sanction has not been stayed or overturned by appeal or otherwise . . . (H) has engaged in . . . dishonest or unethical practices in the securities . . . business, including abusive sales practices in the business dealings of such applicant . . . with current or prospective customers or clients . . . [or] (K) has failed reasonably to supervise:  (i) The agents . . . of such applicant . . . if the applicant . . . is a broker-dealer . . . “
 
WHEREAS, Section 36b-31-15a(b) of the Regulations under the Act explains that:  “In construing the term ‘dishonest or unethical practices in the securities . . . business’ as used in . . . section 36-15(a)(2)(H) [recodified as Section 36b-15(a)(2)(H)] of the general statutes, the commissioner may consider whether the conduct in question is proscribed by any rule of a . . . self-regulatory organization organized under registered under federal securities laws administered by the United States Securities and Exchange Commission”;
 
WHEREAS, Section 36b-27 of the Act authorizes the Commissioner to enter an order to cease and desist and to impose a fine of up to $100,000 per violation after granting Huntington an opportunity for a hearing;
 
WHEREAS, Section 36b-6(a) of the Act provides, in part, that:  “(a) No person shall transact business in this state as a broker-dealer unless such person is registered under sections 36b-2 to 36b-33, inclusive . . . No individual shall transact business as an agent in this state unless such individual is (1) registered as an agent of the broker-dealer . . . whom such individual represents in transacting such business, or (2) an associated person who represents a broker-dealer in effecting transactions described in subdivisions (2) and (3) of Section 15(h) of the Securities Exchange Act of 1934”;
 
WHEREAS, Section 36b-6(b) of the Act provides, in part, that:  “No broker-dealer shall employ an agent unless such agent is (1) registered under sections 36b 2 to 36b-33, inclusive, or (2) an associated person who represents a broker-dealer in effecting transactions described in subdivisions (2) and (3) of Section 15(h) of the Securities Exchange Act of 1934”;
 
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(2) of the Connecticut General Statutes;
 
WHEREAS Section 4-177(c) of Chapter 54 of the Connecticut General Statutes provides that"[u]nless precluded by law, a contested case may be resolved by stipulation, agreed settlement, or consent order or by the default of a party";
 
WHEREAS Section 36b-31(a) of the Act provides, in part, that: "The Commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of Sections 36b-2 to 36b-33, inclusive [of the Connecticut Uniform Securities Act]";
 
WHEREAS, the Commissioner finds that the entry of this Consent Order is appropriate, in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS Huntington, through its execution of this Consent Order, voluntarily waives the following rights:

1. To receive prior written notice within the meaning of Sections 36b-15(f), 36b-27(a), 36b-27(d) and 4-177(b) of the Connecticut General Statutes;
2. To present evidence and argument and to otherwise avail itself of Section 4-177c(a) of the Connecticut General Statutes;
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;


FINDINGS OF THE COMMISSIONER AS TO EVIDENTIARY SUFFICIENCY TO INITIATE ADMINISTRATIVE PROCEEDINGS

WHEREAS, the Commissioner finds that sufficient grounds would exist to initiate administrative proceedings against Huntington, including proceedings to deny or condition Huntington’s registration as a broker-dealer under the Act, proceedings to enter an order to cease and desist against Huntington under Section 36b-27(a) of the Act and proceedings to impose a fine of up to $100,000 per violation pursuant to Section 36b-27(d) of the Act, based on the following, all of which are more fully described above, after granting Huntington an opportunity for a hearing:

1. From at least October, 2000 through February 2006, Huntington transacted business as a broker-dealer absent registration in contravention of Section 36b-6(a) of the Act;
2. At various times from October, 2000 through February 2006, Huntington employed between one and ten unregistered broker-dealer agents in contravention of Section 36b-6(b) of the Act;
3. The sanctions imposed by the NASD in Case No. C8A050063 would constitute a basis for administrative action under Section 36b-15(a)(2)(F)(iii) of the Act;
4. The conduct underlying the NASD sanctions imposed in Case No. C8A050063 would constitute a basis for administrative action under Section 36b-15(a)(2)(H) of the Act;
5. Huntington’s failure to supervise its agents would support the initiation of  administrative proceedings under Section 36b-15(a)(2)(K) of the Act;
 

CONSENT TO ENTRY OF SANCTIONS AND REMEDIAL MEASURES

WHEREAS Huntington, through its execution of this Consent Order, consents to the Commissioner issuing an order imposing on it the following sanctions and remedial measures:

1. Huntington shall cease and desist from engaging, directly or indirectly, in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, including, without limitation, transacting business in or from this state absent registration as a broker-dealer and employing unregistered agents;
2. No later than the date this Consent Order is entered by the Commissioner, Huntington shall retain and identify to the Division Director in writing a person, not unacceptable to the Division Director, having experience in securities regulatory matters (and not previously associated with Huntington) to conduct a review of Huntington’s supervisory and compliance procedures, particularly as they pertain to sales practices and state broker-dealer and agent licensing requirements, and prepare a written report thereon, which report shall include recommendations for improved compliance.  No later than one hundred twenty (120) days following the Commissioner’s entry of this Consent Order, Huntington shall file with the Division Director a written summary of the recommendations contained in the report, together with a description of those measures implemented by Huntington to comply with such recommendations and, if any of the recommendations have not been or will not be implemented, the reasons therefor;
3. For a two-year period, commencing on the date this Consent Order is entered by the Commissioner, Huntington shall submit to the Division Director a written report each calendar quarter 1) describing any securities-related complaints, actions or proceedings (including arbitrations) (such complaints, actions or proceedings referred to collectively as "Complaints") involving entities and individuals located in Connecticut and initiated against Huntington or any of Huntington’s officers, agents, employees or representatives for the quarter; 2) providing information on the disposition of any such Complaints or on any Complaints reflected in an earlier report filed pursuant to this paragraph; and 3) attaching copies of such Complaints and any dispositional documents.  If no securities-related Complaints exist for the quarter, the report shall so indicate.  The first such report shall be due no later than ten business days following the close of the quarter ending September 30, 2006, and the final report shall be due no later than ten business days following the close of the quarter ending September 30, 2008;
4. No later than the date this Consent Order is entered by the Commissioner, Huntington shall remit to the department via certified bank check payable to “Treasurer, State of Connecticut” the sum of thirteen thousand one hundred fifty dollars ($13,150), ten thousand dollars ($10,000) of which shall constitute an administrative fine, one thousand nine hundred fifty dollars ($1,950) of which shall represent past due registration fees, seven hundred dollars ($700) of which shall represent disgorgement of known commissions earned during the period of unregistered activity; and five hundred dollars ($500) of which shall constitute reimbursement for division investigative costs;

ORDER

THE COMMISSIONER HEREBY ORDERS THAT:

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 Huntington, its officers, agents, employees or representatives based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance is not being observed with the terms hereof or if any representation made by Huntington and reflected herein is subsequently determined to be untrue;
3. Contemporaneously with the entry of this Consent Order by the Commissioner, the name "The Huntington Investment Company” shall be entered on the register of broker-dealers in accordance with Section 36b-8 of the Act; and
4. This Consent Order shall become final when issued.
 
 

               ________/s/_________
 John P. Burke
            Banking Commissioner


So ordered at Hartford, Connecticut                 
this 29th day of August 2006.                         
 

CONSENT TO ENTRY OF ORDER

I, Matthew Watson, state on behalf of The Huntington Investment Company, 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 The Huntington Investment Company; that The Huntington Investment Company agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that The Huntington Investment Company voluntarily consents to the entry of this Consent Order expressly waiving any rights it may have to a hearing on the matters described herein. 


The Huntington Investment Company

By

  ________/s/_______________
 Matthew Watson
 Chief Compliance Officer 


On this 16 day of August 2006, personally appeared Matthew Watson, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of The Huntington Investment Company, a corporation, and acknowledged the same to be his free act and deed, before me.

_______________/s/_______________________
Notary Public
My Commission Expires:  04-15-07



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