DOB: Woodstock Financial Group Consent Order

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IN THE MATTER OF:

WOODSTOCK FINANCIAL GROUP, INC.


(CRD No. 38095) 
   

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CONSENT ORDER

CO-2009-7751-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, Woodstock Financial Group, Inc. (“Woodstock”) is a broker-dealer registered in Connecticut under the Act since June 4, 1996, and has its principal office located at 117 Towne Lake Parkway, Suite 200, Woodstock, Georgia;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, conducted an examination of a Woodstock Office of Supervisory Jurisdiction (“OSJ”) 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 Woodstock 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 that, from at least January 2007, 1) Woodstock charged its Connecticut customers a per transaction fee in addition to a commission and/or markup or markdown, which fee was categorized as “Misc.” on customer trade confirmations sent from Woodstock’s clearing firm and categorized as a “Ticket Charge” on the customer trade confirmations sent from the Woodstock OSJ.  This charge ranged from $50 to $99; and 2) while the “Ticket Charge” and the “Misc.” fee charged included the ticket charge assessed by the clearing firm for execution of the trade and for postage expense, notwithstanding the various disclosures in customer documentation generated by the clearing firm, it was not clearly disclosed that the remainder of the fee charged would be credited as revenue to Woodstock and/or its OSJ branch office and used to pay other expenses not specifically identified on either the pre-confirmation or the clearing firm confirmation was actual profit to Woodstock and/or its affected agents;
 
WHEREAS, the foregoing conduct would support the initiation of administrative proceedings under Section 36b-15 of the Act to suspend or revoke Woodstock’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 Woodstock;
 
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 Woodstock reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein; and

WHEREAS, Woodstock, through its execution of this Consent Order, represents and agrees that none of the alleged violations in this Consent Order shall occur in the future;   

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, Woodstock, 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 with respect to the matters described herein;
2. To present evidence and argument and to otherwise avail itself of Section 4-177c(a) of the Connecticut General Statutes with respect to the matters described herein;
3. To present its position in a hearing in which it is represented by counsel with respect to the matters described herein;
4. To have a written record of the hearing made and a written decision issued by a hearing officer with respect to the matters described herein; 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, Woodstock, through its execution of this Consent Order, accepts and consents to the entry of the following Findings by the Commissioner without admitting or denying them:

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. In employing unregistered “cold callers” who pre-qualified customers, Woodstock engaged in conduct proscribed by FINRA Rule 1031.  Such conduct constitutes a violation under Section 36b-31-15a(b) of the Regulations, and forms a basis for initiating administrative proceedings under Section 36b-15(a)(2)(H) of the Act;
3. Woodstock, by failing to itemize and adequately disclose to its Connecticut clients the fee classified as “Misc.” or “Ticket Charge” on the trade confirmations, which fee ranged from $50 to $99 per transaction, engaged in conduct which would support the initiation of proceedings under Section 36b-15(a)(2)(H) of the Act;
4. In contravention of Section 36b-31-6f(b) of the Regulations, Woodstock 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, Woodstock, through its execution of this Consent Order, consents to the Commissioner issuing an order imposing on it the following sanctions:

1. Woodstock, 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, Woodstock shall provide the Division with proof that 1) it has reimbursed its Connecticut customers for all transactions since January 1, 2008, the difference between the amount of the “Misc.” or “Ticket Charge” fee paid by its Connecticut customers for each transaction and the actual amount of Woodstock’s ticket and clearing charge and the postage fee assessed by its clearing firm; 2) it has amended its customer trade confirmations and/or pre-confirmations to provide Woodstock’s customers with additional disclosure acceptable to the Division which adequately described the “Misc.” fee appearing on the trade confirmations and/or pre-confirmations; and 3) it has sent correspondence to its Connecticut customers who received the reimbursement explaining that the “Misc.” or “Ticket Charge” 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, Woodstock shall provide to the Division Director for review and approval the letter that is to be sent to its  Connecticut customers who receive the “Misc.” or “Ticket Charge” fee reimbursement outlined in item #2 above;
4. No later than the date this Consent Order is entered by the Commissioner, Woodstock shall remit to the Department of Banking, via certified bank check, payable to "Treasurer, State of Connecticut", the sum of twenty thousand dollars ($20,000), fifteen thousand dollars ($15,000) of which shall constitute an administrative fine, and five thousand dollars ($5,000) of which shall be applied to defray the costs associated with the Division’s investigation of this matter; and

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 Woodstock 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 Woodstock and reflected herein are subsequently discovered to be untrue; and
3. This Consent Order shall become final when entered.


 
Dated at Hartford, Connecticut      _______/s/_________
this 26th day of March 2010.      Howard F. Pitkin 
    Banking Commissioner 


CONSENT TO ENTRY OF ORDER

I, William J. Raike III, state on behalf of Woodstock Financial Group, 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 Woodstock Financial Group, Inc.; that Woodstock Financial Group, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Woodstock Financial Group, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.     

 
     Woodstock Financial Group, Inc.
  
           
By ______/s/__________________
William J. Raike III
  President 



State of:  Georgia

County of:  Cherokee
 
On this 22 day of March 2010, personally appeared William J. Raike III, 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 Woodstock Financial Group, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.
 

_________/s/________________________
Notary Public
Date Commission Expires:  12-5-11

  

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