DOB: New Castle Consent Order

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IN THE MATTER OF:

NEW CASTLE FINANCIAL
SERVICES LLC

    (CRD No. 102380)


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CONSENT ORDER

No. CO-2008-7486-S

PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (the “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 promulgated under the Act (the “Regulations”);

WHEREAS, New Castle Financial Services LLC (“New Castle”) is a broker-dealer registered in Connecticut under the Act since October 24, 2003, and has its principal office located at 535 Broad Hollow Road, Suite A-2 in Melville, New York;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, conducted an examination of New Castle’s records pursuant to Section 36b-14(d) of the Act and 36b-31-14f of the Regulations, and a related investigation under Section 36b-26 of the Act to determine whether New Castle had violated, was violating or was about to violate any provision of the Act or any regulation or order under the Act (the “Investigation and Examination”);
 
WHEREAS, as a result of the Investigation and Examination, the Division obtained evidence, as more fully described herein, that would support the initiation of administrative proceedings under Section 36b-15 of the Act to suspend or revoke New Castle’s broker-dealer registration under the Act or to restrict or impose conditions on the securities activities that the firm may perform in this state; and/or proceedings under Section 36b-27 of the Act seeking the entry of an order to cease and desist and/or an order imposing an administrative fine against New Castle;
 
WHEREAS, an administrative proceeding 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, without holding a hearing and without trial or adjudication of any issue of fact or law, and prior to the initiation of any formal proceeding, the Commissioner and New Castle reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
 
WHEREAS, New Castle, through its execution of this Consent Order, undertakes to promptly and completely respond to all future inquiries and requests made by the Division;
 
WHEREAS, New Castle, without admitting or denying any of the Commissioner’s allegations or findings, expressly consents to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order; and
 
WHEREAS, New Castle, through its execution of this Consent Order, represents and agrees that none of the violations alleged in this Consent Order shall occur in the future;

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, New Castle, 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.

CONSENT TO ENTRY OF FINDINGS

WHEREAS, New Castle, through its execution of this Consent Order, accepts and consents to the entry of the following Findings by the Commissioner:

1. 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. From September 1, 2006 to March 1, 2007, New Castle violated Section 36b-6(b) of the Act by employing at least four individuals as agents at a time when such individuals were not registered as agents of New Castle under the Act;
3. From September 1, 2006 to March 1, 2007, New Castle violated Section 36b-6(d) of the Act by transacting business from an unregistered branch office located at 4 Old Mill Plain Road in Danbury, Connecticut;
4. Between February 1, 2005 and April 30, 2006, New Castle violated Section 36b-16 of the Act by offering and selling securities to four Connecticut residents at a time when such securities were not registered under Sections 36b-17, 36b-18 or 36b-19 of the Act nor the subject of an exemptive claim or claim of covered security status under Section 36b-21 of the Act;
5. New Castle engaged in the practice of having at least one Connecticut client pre-sign incomplete forms that might or might not be completed in the future, conduct which would support the initiation of administrative proceedings under Section 36b-15(a)(2)(H) of the Act and Section 36b-31-15a(a) of the Regulations;
6. New Castle, through at least six of its agents, utilized and/or possessed research materials, sales presentations and/or sales scripts in a deceptive or misleading manner, conduct which would support the initiation of administrative proceedings under 1) Section 36b-15(a)(2)(H) of the Act and Section 36b-31-15a(a)(20) of the Regulations; and 2) Sections 36b-4 and 36b-27 of the Act;
7. In contravention of Section 36b-31-6f(b) of the Regulations, New Castle failed to establish, enforce, and maintain a system for supervising the activities of its agents that was reasonably designed to achieve compliance with applicable securities laws and regulations;


CONSENT TO ENTRY OF SANCTIONS

WHEREAS, New Castle, through its execution of this Consent Order, consents to the Commissioner issuing an order imposing on it the following sanctions:

1. New Castle, its representatives, agents, employees, affiliates, assigns, successors in interest, and those persons in active concert or participation with them 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 organizational or other device;
2. No later than the date this Consent Order is entered by the Commissioner, New Castle shall remit to the Department of Banking, via certified bank check, payable to "Treasurer, State of Connecticut", the sum of fifty thousand dollars ($50,000) as an administrative fine;
3. No later than the date this Consent Order is entered by the Commissioner, New Castle shall (a) pay fifty thousand dollars ($50,000) to the National White Collar Crime Center (“NW3C”) for the purpose of training Connecticut regulatory and law enforcement personnel in the investigation, prevention and prosecution of financial fraud perpetrated on senior citizens in Connecticut pursuant to the Senior Fraud Training Cooperative Agreement Between the Connecticut Department of Banking and the National White Collar Crime Center, which Agreement was executed by the Commissioner on May 23, 2007 and as may be amended from time to time; and (b) submit to the Division Director written evidence or acknowledgement that such payment has been made;
4. Commencing on the date this Consent Order is entered by the Commissioner and continuing for a period of three years thereafter, the securities business of New Castle in Connecticut shall be exclusively limited to the purchase, sale, and redemption of securities issued by investment companies regulated under the Investment Company Act of 1940; securities issued or guaranteed by the United States government, any state, any political subdivision of a state, or any agency or corporate or other instrumentality of the foregoing; exchange-listed options; and securities listed on the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, and the NASDAQ Capital Market.  During such period, New Castle shall not offer or sell securities trading on the NASDAQ Bulletin Board or listed for quotation on the Pink Sheets to its Connecticut clients; provided, that nothing in this paragraph shall preclude New Castle from effecting liquidating sales transactions for its existing Connecticut accounts in securities trading on the NASDAQ Bulletin Board or listed for quotation on the Pink Sheets;
5. Commencing on the date this Consent Order is entered by the Commissioner and continuing for a period of three years thereafter, New Castle shall not maintain any discretionary accounts for Connecticut clients;
6. Commencing on the date this Consent Order is entered by the Commissioner and continuing for a period of three years thereafter, New Castle shall not offer or sell to any Connecticut customer any private placement or initial public offering of New Castle, its successors in interest, or any entity related to or affiliated with New Castle unless such Connecticut customer is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933;
7. Commencing on the date this Consent Order is entered by the Commissioner and continuing for a period of two years thereafter, New Castle shall not open any new margin accounts for any Connecticut customer unless that Connecticut customer is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933.  During such two year period, New Castle shall limit its new accounts for non-accredited investors in this state to cash accounts; and
8. Commencing on the date this Consent Order is entered by the Commissioner and continuing for a period of two years thereafter, New Castle shall not open any new account approved for options trading for any Connecticut customer unless that Connecticut customer is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933;

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 New Castle 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 or if any representations made by New Castle and reflected herein are subsequently discovered to be untrue; and
3. This Consent Order shall become final when issued.
 
 

               ________/s/_________
    Howard F. Pitkin
            Banking Commissioner

So ordered at Hartford, Connecticut                 
this 18th day of August 2008.                         
 

CONSENT TO ENTRY OF ORDER

I, Anthony F. Lodati, state on behalf of New Castle Financial Services 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 New Castle Financial Services LLC; that New Castle Financial Services LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that New Castle Financial Services LLC voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.


      New Castle Financial Services LLC

By
       ________/s/_______________ 
      Anthony F. Lodati 
      Chief Executive Officer


On this 22nd day of July 2008, personally appeared Anthony F. Lodati, 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 New Castle Financial Services LLC, a limited liability company, and acknowledged the same to be his free act and deed, before me.


_______________/s/______________
Notary Public
Date Commission Expires:  May 14, 2011

 


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