DOB: Kuhns Brothers Consent Order

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IN THE MATTER OF:

KUHNS BROTHERS
CAPITAL MANAGEMENT, INC.

(CRD number 126727) 
   

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CONSENT ORDER

File No. CO-07-7386-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, during the course of an examination of Kuhns Brothers Securities Corporation (“KBSC”), a broker-dealer registered under the Act, the Commissioner, through the Securities and Business Investments Division of the Department of Banking (the “Division”) uncovered evidence that Kuhns Brothers Capital Management, Inc. (“Kuhns”) may have transacted business in or from Connecticut as an unregistered investment adviser;
 
WHEREAS, John Douglas Kuhns is the president and a control person of both KBSC and Kuhns;
 
WHEREAS, upon being apprised of the Division’s concerns, Kuhns, which maintains its principal office at 558 Lime Rock Road, Lakeville, Connecticut, filed an application for registration as an investment adviser under the Act;
 
WHEREAS the Commissioner, through the Division, conducted a follow-up investigation pursuant to Sections 36b-8 and 36b-26 of the Act into the activities of Kuhns and of Kuhn’s officers, agents, employees and representatives to determine whether they, or any of them, had violated or were about to violate any provision of the Act or any regulation or order under the Act;
 
WHEREAS, the Division ascertained that, on July 21, 2003, Kuhns became registered as an investment adviser under the federal Investment Advisers Act of 1940 (the "Advisers Act") in reliance on Rule 203A-2 under the Advisers Act which allows an investment adviser to become federally registered if it has a reasonable expectation that it would be eligible to register with the Securities and Exchange Commission (the "SEC") within 120 days after the investment adviser's registration with the SEC becomes effective;
 
WHEREAS, the Division also ascertained that, on July 21, 2003, Kuhns filed an exemptive notice under Section 36b-6(e) of the Act and renewed such notice for 2004;
 
WHEREAS, on August 20, 2004, the SEC canceled Kuhns' registration under the Advisers Act, and the exemptive notice that Kuhns had filed under Section 36b-6(e) of the Act was no longer in effect;
 
WHEREAS, the Commissioner, as a result of such investigation, alleges from at least August 2004, Kuhns transacted business as an investment adviser absent registration and employed an unregistered investment adviser agent in violation of Section 36b-6(c) of the Act;
 
WHEREAS, the Commissioner further alleges that, in Kuhns’ 2006 application for state investment adviser registration, Kuhns inaccurately stated that it had not transacted investment advisory business in or from Connecticut in the past two years;
 
WHEREAS, Kuhns has represented to the Division in writing that, during such two year period, its clients were located in other jurisdictions;
 
WHEREAS, the Commissioner believes that the foregoing allegations would support the initiation of an administrative proceeding to deny or condition Kuhn’s investment adviser registration under Section 36b-15(a)(2)(B) of the Act;
 
WHEREAS, an administrative proceeding initiated under Section 36b-15 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 . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive . . . .   

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS Kuhns, 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) 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;

CONSENT TO ENTRY OF FINDINGS

WHEREAS Kuhns, through its execution of this Consent Order, and without admitting or denying the Commissioner's allegations of violations, accepts and consents to the entry of the following Findings by the Commissioner:

1. 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;
2. That from at least August 2004 forward, Kuhns transacted business as an investment adviser absent registration in violation of Section 36b-6(c) of the Act;
3. That from August 2004 forward, Kuhns employed an unregistered investment adviser agent in contravention of Section 36b-6(c) of the Act; and
4. That the foregoing allegations would support the initiation of an administrative proceeding to deny or condition Kuhn’s investment adviser registration under Section 36b-15(a)(2)(B) of the Act;


CONSENT TO ENTRY OF SANCTIONS AND REMEDIAL MEASURES

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

(1) Kuhns shall implement revised supervisory and compliance procedures designed to improve regulatory compliance, which procedures shall, at a minimum, provide for enhanced monitoring of state investment adviser and investment adviser agent licensing requirements; and
(2) No later than the date this Consent Order is entered by the Commissioner, Kuhns shall remit to the department via certified bank check payable to “Treasurer, State of Connecticut” the sum of five thousand one hundred ($5,100) dollars, three thousand dollars ($3,000) of which shall constitute an administrative fine, six hundred dollars ($600) of which shall represent past due investment adviser registration fees; and one thousand five hundred dollars ($1,500) of which shall defray the costs associated with the Division’s investigation of this matter;

ORDER

THE COMMISSIONER HEREBY ORDERS THAT:

(1) The Findings, Sanctions and Remedial Measures 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 Kuhns, 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 or on behalf of Kuhns and reflected in this Consent Order is subsequently determined to be untrue;
(3) Contemporaneously with the entry of this Consent Order by the Commissioner, the name "Kuhns Brothers Capital Management, Inc.” shall be entered on the register of investment advisers in accordance with Section 36b-8 of the Act; and
(4) This Consent Order shall become final when issued.
 
 

               ________/s/_________ 
    Howard F. Pitkin
            Banking Commissioner

So ordered at Hartford, Connecticut                 
this 28th day of August 2007.                         
 

CONSENT TO ENTRY OF ORDER

I, John Douglas Kuhns, state on behalf of Kuhns Brothers Capital Management, Inc., 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 Kuhns Brothers Capital Management, Inc.; that Kuhns Brothers Capital Management, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Kuhns Brothers Capital Management, Inc. voluntarily consents to the entry of this Consent Order expressly waiving any rights it may have to a hearing on the matters described herein.


      Kuhns Brothers Capital Management, Inc.

By
       ________/s/________________________ 
      John Douglas Kuhns 
      President


On this 23 day of August 2007, personally appeared John Douglas Kuhns, 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 Kuhns Brothers Capital Management, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.


_______________/s/_______________________
Notary Public/Commissioner of the Superior Court
My Commission Expires:  June 30, 2010

  


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