DOB: Hawthorne Advisory Group-Heiden Consent Order

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IN THE MATTER OF:

HAWTHORNE ADVISORY
GROUP, LLC

   (IARD No. 127647)
   ("Hawthorne)


WILLIAM D. HEIDEN JR.,
a/k/a WILLIAM DAVID HEIDEN

   (CRD No. 2883964)
   ("Heiden")


(collectively "Respondents")

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CONSENT ORDER
 
DOCKET NO. CO-12-7656-S












I. PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Act (“Regulations”);

WHEREAS, Hawthorne, a Connecticut limited liability company located at 5 Westbrook Road, Bloomfield, Connecticut 06002, was registered as an investment adviser under the Act from January 23, 2002 to December 31, 2011.  Heiden was registered as an investment adviser agent of Hawthorne under the Act from January 23, 2002 to December 31, 2011.  Heiden was also registered as a broker-dealer agent under the Act at various times from 1997 to October 31, 2005;

WHEREAS, Heiden is a managing member and control person of Hawthorne;

WHEREAS, Heiden is also the sole member of Hawthorne Holding LLC, a Connecticut limited liability company sharing the same business address as Hawthorne;

WHEREAS, Hawthorne and Heiden are not currently registered in any capacity under the Act;

WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Respondents to determine if they had violated, were violating or were about to violate provisions of the Act or Regulations;

WHEREAS, as a result of the Investigation, the Division obtained evidence that Respondents 1) failed to disclose to a client in writing before any advice was rendered any material conflict of interest relating to the investment adviser or the investment adviser agent which could reasonably be expected to impair the rendering of unbiased and objective advice; and 2) alone or through an affiliated entity, borrowed money from investment advisory clients;

WHEREAS, in early November, 2011, a FINRA arbitration award (the “2011 Arbitration Award”) was issued against Heiden (In the Matter of the Arbitration Between:  Kenji Higuchi vs. Hawthorne Advisory Group, LLC, William David Heiden, Jr. and Sammons Securities Company, LLC; Case No. 09 06530).  The arbitration panel directed Heiden to pay the claimant $400,000 in compensatory damages plus interest at the rate of 18% per annum on $300,000 from April 4, 2008 until payment of the Award.  No timely motion to vacate or modify such award has been made pursuant to applicable law nor has such a motion been made and denied;

WHEREAS, on January 9, 2012, FINRA, a self-regulatory organization, suspended Heiden pursuant to Article VI, Section 3 of FINRA’s Bylaws and FINRA Rule 9554 for failing to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance (Case No. 09-06530).  Such suspension is currently effective and has not been stayed or overturned by appeal or otherwise;

WHEREAS, the Commissioner has reason to believe that the conduct described above violates certain provisions of the Act and Regulations, and would support administrative proceedings against Respondents under Sections 36b-15 and 36b-27 of the Act;

WHEREAS, Section 36b-15(a) of the Act provides, in part, that:

           The commissioner may, by order . . . revoke any registration or, by order, restrict or impose conditions on the securities or investment advisory activities that . . . [a] registrant may perform in this state if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant or, in the case of . . . [an] investment adviser, any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the . . . investment adviser . . . (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-34, inclusive . . . or any regulation or order under said sections . . . (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years . . . (iii) a suspension . . . or other sanction issued by a national securities exchange or other self regulatory organization registered under federal laws administered by the Securities and Exchange Commission . . . if the effect of the sanction has not been stayed or overturned by appeal or otherwise . . . [or] (H) has engaged in fraudulent, dishonest or unethical practices in the securities, commodities, investment, franchise, business opportunity, banking, finance or insurance business . . . .


WHEREAS, Section 36b-31-15c(a) of the Regulations provides, in part, that:

          In implementing section 36b-15(a)(2)(H) of the general statutes, the following shall be deemed ‘dishonest or unethical practices in the securities . . . business’ by investment advisers without limiting those terms to the following practices . . . (6)  Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser or a financial institution engaged in the business of lending funds or securities . . . (10)  Failing to disclose to a client in writing before any advice is rendered any material conflict of interest relating to the investment adviser or any of its investment adviser agents, representatives or employees which could reasonably be expected to impair the rendering of unbiased and objective advice . . . [and] (19)  Failing to comply with any securities-related arbitration award, where a timely motion to vacate or modify such award has not been made pursuant to applicable law or where such a motion has been denied.


WHEREAS, Section 36b-31-15d(a) of the Regulations adds that:

          In implementing section 36b-15(a)(2)(H) of the general statutes, the following shall be deemed ‘dishonest or unethical practices in the securities . . . business’ by investment adviser agents without limiting those terms to the following practices . . . (2)  Failing to disclose to a client in writing before any advice is rendered any conflict of interest relating to the investment adviser agent which could reasonably be expected to impair the rendering of unbiased advice; and (3)  Engaging in any of the practices specified in subdivisions (1) to (9), inclusive . . . and (19) of section 36b-31-15c of the regulations;


WHEREAS, Section 36b-5(f) of the Act provides that:

          No person who directly or indirectly receives compensation or other remuneration for:  (1) Advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise; or (2) soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall engage in any dishonest or unethical practice in  connection with the rendering of such advice or in connection with such solicitation.

WHEREAS, Section 36b-15(e)(2) of the Act, provides, in relevant part, that “[i]f the registration of . . . [an] investment adviser or investment adviser agent expires due to the registrant’s failure to renew, within one year of such expiration, the commissioner may nevertheless institute a revocation or suspension proceeding or issue an order suspending or revoking the registration under subsection (a) of this section”;

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 Sections 36b-15 and 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 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, 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 Respondents reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;

WHEREAS, Respondents, without admitting or denying any of the Commissioner’s allegations or findings, expressly consent to the Commissioner ’s jurisdiction under the Act and to the terms of this Consent Order;

WHEREAS, the issuance 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;

WHEREAS, Respondents have provided documentation to the Division evidencing their financial inability to pay the fine that otherwise would have been assessed against them pursuant to this Consent Order;

AND WHEREAS, Respondents, through their execution of this Consent Order, specifically assure the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.

II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, Respondents, through their execution of this Consent Order, voluntarily waive the following rights:

1. To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 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 themselves of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut;
3. To present their position in a hearing in which they are 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, Respondents, through their execution of this Consent Order, acknowledge the following allegations of the Commissioner, and admit sufficient evidence exists for the Commissioner to issue a permanent order to cease and desist, an order revoking Respondents’ registrations as an investment adviser and as an investment adviser agent, and an order imposing a maximum administrative fine of one hundred thousand dollars ($100,000) per violation of the Act, or any regulation, rule or order adopted or issued thereunder:

1.     Respondents engaged in dishonest or unethical practices in the securities business within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Act and Sections 36b-31-15c(a)(10) and 36b-31-15d(a)(2) of the Regulations by failing to disclose to a client in writing before any advice was rendered any material conflict of interest relating to the investment adviser or the investment adviser agent which could reasonably be expected to impair the rendering of unbiased and objective advice;
   
2.     Respondents, alone or through an affiliate controlled by Heiden, engaged in dishonest or unethical practices in the securities business within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Act and Sections 36b-31-15c(a)(6) and 36b-31-15d(a)(3) of the Regulations by borrowing money from a client who was not a broker-dealer, an affiliate of the investment adviser or a financial institution engaged in the business of lending funds or securities;
3.      Heiden’s failure to pay the 2011 Arbitration Award constitutes a dishonest or unethical practice in the securities business within the meaning of Sections 36b-15(a)(2)(H) and 36b-5(f) of the Act and Sections 36b-31-15d(a)(3) of the Regulations, and would support the initiation of administrative proceedings against Heiden under Sections 36b-15 and 36b-27 of the Act as well as proceedings against Hawthorne pursuant to Section 36b-15 of the Act; and
   
4.      The January 9, 2012 FINRA suspension against Heiden would support the initiation of administrative proceedings against Respondents pursuant to Section 36b-15(a)(2)(F)(iii) of the Act;
   

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

AND WHEREAS, Respondents acknowledge the possible consequences of an administrative hearing and voluntarily agree to consent to the entry of the sanctions described below.

IV. CONSENT TO ENTRY OF SANCTIONS

WHEREAS, Respondents, through their execution of this Consent Order, consent to the Commissioner’s entry of a Consent Order imposing the following sanctions:

1. Respondents, their 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; and
2. From the date this Consent Order is entered by the Commissioner until one (1) year after the date the November 2011 FINRA arbitration panel award is paid and documented proof of payment furnished to the Commissioner, Respondents are barred from (1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, as such terms are defined in the Act, and notwithstanding any definitional exclusion that might otherwise be available; (2) acting as a finder for compensation, or receiving referral fees, directly or indirectly, in connection with any recommendation, sale or purchase of securities; and (3) directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut.

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 Respondents 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;
3. Nothing in this Consent Order shall be construed as limiting the Commissioner's ability to take enforcement action against Respondents, their affiliates and/or successors in interest based upon evidence of which the Division was unaware on the date hereof relating to a violation of the Act or any regulation or order under the Act; and
4. This Consent Order shall become final when entered.



So ordered at Hartford, Connecticut       _______/s/____________
this 29th day of May 2012.      Howard F. Pitkin 
         Banking Commissioner 
 

CONSENT TO ENTRY OF ORDER

I, William D. Heiden, Jr., state on behalf of Hawthorne Advisory Group, 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 Hawthorne Advisory Group, LLC; that Hawthorne Advisory Group, LLC, agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Hawthorne Advisory Group, LLC consents to the entry of this Consent Order.


       Hawthorne Advisory Group, LLC
  
  
By: ______/s/__________
    William D. Heiden Jr.
     Member


State of:  Connecticut
 
County of:  Hartford

On this the 21 day of May 2012, before me, Santerria Moore, the undersigned officer, personally appeared William D. Heiden Jr., who acknowledged himself to be a Member of Hawthorne Advisory Group, LLC, a limited liability company, and that he, as such Member, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the limited liability company by himself as Member.
 
In witness whereof I hereunto set my hand.



_____/s/__________________________
Notary Public
Date Commission Expires:  May 31, 2016


CONSENT TO ENTRY OF ORDER

I, William D. Heiden Jr., state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I consent to the entry of this Consent Order.


______/s/______________
William D. Heiden Jr.


State of:  Connecticut

County of:  Hartford

On this the 21 day of May 2012, before me, Santerria Moore, the undersigned officer, personally appeared William D. Heiden Jr., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.

In witness whereof I hereunto set my hand.


____/s/___________________________
Notary Public
Date Commission Expires:  May 31, 2016
 


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