DOB: Portfolio Timing Service Consent Order

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IN THE MATTER OF: 

PORTFOLIO TIMING SERVICE
d/b/a PTS ASSET MANAGEMENT

(IARD No. 111047) 
  
   

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CONSENT ORDER

DOCKET No. CFNR-10-7779-S

I. PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (the “Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (the “Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Act (the “Regulations”);
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking (the “Department”), conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Portfolio Timing Service d/b/a PTS Asset Management (“Respondent”) to determine if it had violated, was violating or was about to violate provisions of the Act or the Regulations;
 
WHEREAS, Respondent has been registered as an investment adviser under the Investment Advisers Act of 1940 since October 12, 1990, and has made an investment advisory notice filing under Section 36b-6(e) of the Act.  William F. Wadsworth, Sr. (CRD No. 456251) (“Wadsworth, Sr.”) is a control person of Respondent as well as Respondent’s Chief Compliance Officer and general partner.  Wadsworth, Sr. has been registered as an investment adviser agent of Respondent since March 16, 2001;
 
WHEREAS, on June 1, 2011, the Commissioner, acting pursuant to Sections 36b-15 and 36b-27 of the Act, issued an Amended and Restated Order to Cease and Desist and Amended and Restated Notice of Intent to Fine (Docket No. CFNR-10-7779-S) against Respondent (the “Amended Notice”); which Amended Notice is incorporated by reference herein and made a part hereof;
 
WHEREAS, the Amended Notice alleged that Respondent engaged in conduct prohibited by Sections 36b-4, 36b-5, 36b-16 and 36b-23 of the Act, and that a basis therefore existed under Section 36b-27 of the Act to impose an administrative fine against Respondent and issue a cease and desist order against Respondent;
 
WHEREAS, Respondent requested a hearing on the matters alleged in the Amended Notice (the “Hearing”), which Hearing is currently in progress as to Respondent;
 
WHEREAS, Section 36b-31(a) of the Act provides, in relevant part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive”;
 
WHEREAS, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive”;
 
WHEREAS, an administrative proceeding initiated under Section 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
 
WHEREAS, Section 36b-27(f) of the Act provides, in relevant part, that “[a]ny time after the issuance of an order or notice provided for in subsection (a) . . . or subdivision (1) of subsection (d) of this section, the commissioner may accept an agreement by any respondent named in such order or notice to enter into a written consent order in lieu of an adjudicative hearing”;
 
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by consent order, unless precluded by law;
 
WHEREAS, Respondent and the Commissioner now desire to resolve the matters alleged in the Amended Notice without the need for further administrative proceedings as to Respondent;
 
WHEREAS, the Commissioner finds that the entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
 
AND WHEREAS, Respondent agrees that the Amended Notice may be used in construing the terms of this Consent Order and agrees to the language in this Consent Order.   

II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS

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

1. To be afforded notice and an opportunity for a hearing within the meaning of Section 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut;
2. To present evidence and argument and to otherwise avail itself of Section 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut;
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.

III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS

WHEREAS, Respondent, through its execution of this Consent Order, acknowledges the allegations of the Commissioner contained in the Amended Notice, without admitting or denying such allegations;

WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Respondent an opportunity for a hearing;

WHEREAS, Respondent acknowledges the possible consequences of an administrative hearing and voluntarily consents to the entry of the sanctions described below;

AND WHEREAS, Respondent, through its execution of this Consent Order, specifically represents to the Commissioner that none of the violations alleged against it in the Amended Notice or this Consent Order shall occur in the future.

IV. CONSENT TO ENTRY OF SANCTIONS

WHEREAS, Respondent, its officers, directors, representatives, agents, employees, affiliates, assigns and successors in interest, as well as any officers, directors, representatives, agents, employees, affiliates and assigns of those successors in interest, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing on it and any future successor in interest the following sanctions:

1. Respondent and its 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 organizational or other device, including, without limitation:  (a) utilizing or directing others to use blank but pre-signed customer forms; (b) providing, or directing others to provide, signature guarantees for clients with whom the Respondent and/or its employees and representatives did not have the required contact; (c) allowing its employees and representatives to use false names and hold themselves out to third party mutual funds as employees of other registered broker-dealers in order to gain access to client account information that otherwise would have been denied to them; (d) allowing its employees and representatives to hold themselves out as clients in order to access online client accounts, obtain client information and effect securities transactions, absent appropriate legal authorization by the client and the custodian of the client’s funds; (e) failing to disclose on its Connecticut investment advisory notice filing when it maintained custody of client funds; (f) offering and selling securities in violation of Section 36b-16 of the Act; and (g) making material misrepresentations or material omissions in communications with its clients.  The Order to Cease and Desist set forth in the Amended Notice shall become permanent upon the entry of this Consent Order by the Commissioner;
  
2. No later than the date this Consent Order is entered by the Commissioner, Respondent shall remit to the Department, by certified or cashier’s check payable to “Treasurer, State of Connecticut”, the sum of Twenty-five Thousand Dollars ($25,000) as an administrative fine;
 
3. Within ninety days of the date this Consent Order is entered by the Commissioner, Respondent shall designate, and identify in writing to the Division, a new full-time Compliance Officer, sufficiently experienced in securities regulation, to replace Wadsworth, Sr. and to be responsible for supervising the compliance aspects of the firm’s operations in and from Connecticut and for providing compliance training to employees and agents of Respondent.  The designation of such Compliance Officer shall be in accordance with the following provisions:  (a) the experience and identity of the Compliance Officer shall be subject to Division approval, such approval not [to] be unreasonably withheld; (b) the Compliance Officer shall not be a current or prior employee, officer or control person of Respondent, Wadsworth Investment Co., Inc. (CRD No. 5844) (“WIC”) or any entity affiliated with Respondent and/or WIC; and (c) the Compliance Officer shall not be subject to disqualification under Section 36b-15 of the Act.  For three years following the entry of this Consent Order by the Commissioner, Respondent shall ensure that any successor Compliance Officer complies with the requirements of this paragraph and shall notify the Division of the identity of any such successor by letter postmarked no later than ten business days following the succession.  Such notice shall include the reasons for the departure or termination of the prior Compliance Officer;
 
4. Within ninety days of the date this Consent Order is entered by the Commissioner, Respondent shall:  (a) cease utilizing all blank but pre-signed customer forms and shall destroy all blank but pre-signed customer forms; and (b) cease allowing its employees and representatives to hold themselves out as clients in order to access online client accounts, obtain client information and effect securities transactions, absent appropriate legal authorization by the client and the custodian of the client’s funds;
 
5. Commencing on the date this Consent Order is entered by the Commissioner and for a period of three (3) years, Respondent and its successors in interest shall provide access to any and all books, papers, correspondence, memoranda, agreements or other documents or records which the Commissioner deems necessary to determine whether Respondent and its successors in interest, or any of its principals, officers, agents, employees and representatives, has violated, is violating or is about to violate any provisions of the Act or Regulations or to assess Respondent’s compliance with the terms of this Consent Order;
 
6. For ten years following the entry of this Consent Order by the Commissioner, Respondent and its successors in interest shall not:  (a) employ or engage Wadsworth, Sr. as an investment adviser agent as defined in Section 36b-3 of the Act.  No later than five business days following the Commissioner's entry of this Consent Order, Respondent shall file a Form U-5 (Uniform Termination Notice for Securities Industry Registration) covering Wadsworth, Sr.’s current registration as an investment adviser agent of Respondent to ensure Respondent’s compliance with this paragraph; (b) rely on any exemption or exclusion that would otherwise permit Respondent to employ or engage Wadsworth, Sr. as an investment adviser agent absent Wadsworth, Sr. being registered as such; (c) permit Wadsworth, Sr. to act as an officer, director, general partner, any person occupying a similar status or performing similar functions, or employee at Respondent or any of its successors; (d) compensate Wadsworth, Sr. in the form of advisory fees, transaction fees or referral fees for activities performed by Wadsworth, Sr. on behalf of Respondent or any of Respondent's successors in interest; and (e) permit Wadsworth, Sr. to supervise, oversee the day to day management of, or train individuals associated with Respondent or any successors in interest of Respondent.  Nothing in this paragraph shall be construed to prohibit Wadsworth, Sr. from continuing to serve on the Investment Committee of Respondent.

V. 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 Respondent 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 Respondent and reflected herein are subsequently discovered to be untrue;
3. If Respondent or any successor in interest fails to comply with the sanctions imposed by this Consent Order, the Division, in its discretion, may impose sanctions including, without limitation, a monetary penalty of up to $100,000 per violation, and Respondent, through its execution of this Consent Order, knowingly waives notice and an opportunity for a hearing in connection with the imposition of any such sanction.  Prior to imposing sanctions pursuant to this paragraph, the Division shall provide Respondent with an informal opportunity to demonstrate its compliance with this Consent Order.  This paragraph does not constitute a waiver of any rights of appeal under the General Statutes of Connecticut and, for the purposes of Section 4-183 of the General Statutes of Connecticut, any sanction imposed pursuant to this section shall be considered a final decision;
4. Respondent shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding in this Consent Order or creating the impression that this Consent Order is without factual basis.  Nothing in this paragraph affects Respondent’s (i) testimonial obligations, or (ii) right to take legal or factual positions in defense or prosecution of litigation of other legal proceedings to which the Department is not a party; and
5. This Consent Order shall become final when issued.


 
Issued at Hartford, Connecticut,      _______/s/_________
this 19th day of September 2011.      Howard F. Pitkin 
    Banking Commissioner 


CONSENT TO ENTRY OF ORDER

I, William F. Wadsworth, Jr., state on behalf of Portfolio Timing Service d/b/a PTS Asset Management, 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 Portfolio Timing Service d/b/a PTS Asset Management; that Portfolio Timing Service d/b/a PTS Asset Management agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Portfolio Timing Service d/b/a PTS Asset Management consents to the issuance of this Consent Order.

Portfolio Timing Service
   d/b/a PTS Asset Management
 
      
By: ______/s/______________
William F. Wadsworth, Jr.
National Sales Manager



State of:  Connecticut
 
County of:  Hartford
 
On this the 19th day of September 2011, before me, Amy B. Grillo, the undersigned officer, personally appeared William F. Wadsworth, Jr., who acknowledged himself to be the National Sales Manager of Portfolio Timing Service, a general partnership, and that he, as such National Sales Manager, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the general partnership by himself as National Sales Manager.
 
In witness whereof I hereunto set my hand.


_____/s/__________________________________
Notary Public/Commissioner of the Superior Court
Date Commission Expires:  Feb. 28, 2013


  

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