DOB: EKN Financial Services Inc Consent Order

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IN THE MATTER OF: 

EKN FINANCIAL
SERVICES, INC.


(CRD No. 113525) 
   

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CONSENT ORDER

No. CO-11-7909-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, EKN Financial Services, Inc. (“EKN”) is a broker-dealer registered in Connecticut under the Act since December 20, 2001, and has its principal office located at 201 Old Country Road, Suite 101, Melville, New York  11747;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, conducted an examination of EKN 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 EKN 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 April 1, 2010 through December 30, 2010 (the “Review Period”), 1) EKN charged its Connecticut customers a per transaction fee in addition to a commission and/or markup or markdown, which fee was categorized as a “Handling Fee” on customer trade confirmations sent from EKN’s clearing firm and which was the same for each customer, regardless of trading activity; and 2) while the “Handling Fee” charged included the ticket charge assessed by the clearing firm for execution of the trade and for postage expense, it was not clearly disclosed that the remainder of the fee charged would be credited as revenue to EKN and used to pay other expenses not specifically identified on either the pre-confirmation or the clearing firm confirmation;
 
WHEREAS, the foregoing conduct would support the initiation of administrative proceedings under Section 36b-15 of the Act to suspend or revoke EKN’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 EKN;
 
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-34, 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 EKN 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, EKN, 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, EKN, 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, EKN, 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. During the Review Period 1) EKN charged its Connecticut customers a per transaction fee in addition to a commission and/or markup or markdown, which fee was categorized as a “Handling Fee” on customer trade confirmations sent from EKN’s clearing firm and which was the same for each customer, regardless of trading activity; and 2) while the “Handling Fee” charged included the ticket charge assessed by the clearing firm for execution of the trade and for postage expense, it was not clearly disclosed that the remainder of the fee charged would be credited as revenue to EKN and used to pay other expenses not specifically identified on either the pre-confirmation or the clearing firm confirmation.  Such disclosure deficiencies constituted conduct that would support the initiation of administrative proceedings under Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the Act;

CONSENT TO ENTRY OF SANCTIONS

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

1. EKN, 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, EKN shall provide the Division with proof that:  (a) with respect to Connecticut transactions effected from April 1, 2010 to December 30, 2010, EKN has reimbursed affected Connecticut customers the difference between the amount of the “Handling Fee” paid by such Connecticut customers for each transaction and the actual amount of EKN’s ticket and clearing charge and the postage fee assessed by its clearing firm; (b) EKN has amended its customer trade confirmations and/or pre-confirmations and welcome letter to provide EKN’s customers with additional disclosure acceptable to the Division which adequately describes the “Handling Fee” appearing on such documents; and (c) EKN has provided written notice to each Connecticut customer receiving the reimbursement described in subparagraph (a) of this paragraph, explaining that the “Handling Fee” reimbursement was the result of an examination conducted by the Division;
3. No later than the date this Consent Order is entered by the Commissioner, EKN shall submit to the Division for review and approval the written communications that EKN will send to those Connecticut customers receiving the “Handling Fee” reimbursement described in paragraph (2) above;
4. No later than the date this Consent Order is entered by the Commissioner, EKN shall remit to the Department of Banking, via certified bank check payable to “Treasurer, State of Connecticut”, the sum of three thousand dollars ($3,000) as an administrative fine.

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


 
So ordered at Hartford, Connecticut      _______/s/_________
this 14th day of October, 2011.      Howard F. Pitkin 
    Banking Commissioner 


CONSENT TO ENTRY OF ORDER

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

 
    EKN Financial Services, Inc.
   
              
By ______/s/________________
Thomas Giugliano
  President



State of:  New York

County of:  Suffolk


On this 26th day of September, 2011, personally appeared Thomas Giugliano, 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 EKN Financial Services, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.


_____/s/______________________
Notary Public
Date Commission Expires: 4/7/2015


  

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