DOB: UVEST Financial Consent Order 2012

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IN THE MATTER OF:

UVEST FINANCIAL SERVICES
GROUP, INC.

(CRD No. 13787)



("Respondent")

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CONSENT ORDER

No. CO-12-8021-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, UVEST Financial Services Group, Inc. (“UVEST”), now or formerly of 5 Coliseum Centre, 2810 Coliseum Centre Drive, Charlotte, North Carolina 28217, was registered as a broker-dealer under the Act from October 28, 1996 to May 21, 2012 when, following its filing of a May 17, 2012 Form BDW, the firm's broker-dealer registration was withdrawn in Connecticut;
 
WHEREAS, state regulators from multiple jurisdictions, including the Securities and Business Investments Division of the State of Connecticut Department of Banking (the “Division”) conducted coordinated investigations of Bankers Life and Casualty Company (“Bankers Life”) and BLC Financial Services, Inc. (CRD number 126638) (“BLCFS”) (collectively, “Bankers”) to determine whether Bankers should have been registered as a broker-dealer and investment adviser between January 1, 2005, and December 2, 2011;
 
WHEREAS, the investigations revealed that Bankers had acted as a broker-dealer and investment adviser in various jurisdictions without being registered, exempt from registration, or a federal covered investment adviser, and had employed or otherwise engaged agents and investment adviser representatives who were not so registered on behalf of Bankers;
 
WHEREAS, UVEST entered into an agreement with Bankers to provide brokerage and investment advisory services out of Bankers Life branch office locations;
 
WHEREAS, Bankers has engaged in similar conduct in Connecticut in violation of Section 36b-6 of the Act;
 
WHEREAS, Section 36b-27(a) of the Act authorizes the Commissioner to order any person who has violated, is violating or is about to violate any provision of the Act or any regulation, rule or order adopted or issued under the Act, and any person who has materially aided in such violation, to cease and desist from such violation, and Section 36b-27(d) of the Act authorizes the Commissioner to impose a fine against any person who has violated any provision of the Act or any regulation, rule or order adopted or issued under the Act, and against any person who has materially aided in such violation;
 
WHEREAS, aiding a violation of the Act would also support the initiation of administrative proceedings under Section 36b-15(a)(2)(M) of the Act;
 
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 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, 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, the conduct addressed herein has resulted in no known direct consumer harm, and the parties understand that registered agents or representatives of UVEST participated in all securities transactions;
 
WHEREAS, UVEST has cooperated with state regulators conducting the investigations by responding to inquiries and providing documentary evidence;
 
WHEREAS, UVEST has ceased operations as a going concern and is in the process of winding down its business;
 
WHEREAS, UVEST, in order to avoid protracted and expensive proceedings in numerous states, has agreed to resolve the investigations through a multistate settlement which includes this Consent Order;
 
WHEREAS, UVEST, without admitting or denying the Conclusions of Law set forth below and solely for the purposes of this Consent Order, admits the jurisdiction of the Commissioner, admits the Findings of Fact set forth below, voluntarily consents to the entry of this Consent Order, and voluntarily waives the following rights:  (1) to be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f), 36b-27(a) and 36b-27(d)(2) 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 Sections 36b-15(f), 36b-27(a) and 36b-27(d)(2) 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;
 
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;
 
NOW THEREFORE, the Commissioner hereby enters this Consent Order.

II. FINDINGS OF FACT

1. Bankers Life is a life insurance company located in Illinois that has never been registered as a broker-dealer or investment adviser.
2. BLCFS is a wholly-owned subsidiary of Bankers Life that also is located in Illinois.  BLCFS has been a member of NASD or FINRA since 2003 and is registered as a broker-dealer only in Illinois.  During its existence, BLCFS has had no business activity other than as described herein.  BLCFS has never been registered as a broker-dealer or investment adviser in Connecticut, and it has not registered any agents or investment adviser agents in Connecticut.
3.
At all relevant times, UVEST was a broker-dealer registered under the Act and (through an affiliate) a federally covered investment adviser.
4.
Effective January 1, 2005, Bankers Life entered into a Financial Services Agreement with UVEST (the “UVEST Agreement”), under which Bankers Life insurance agents who became licensed as registered representatives and/or investment adviser representatives of UVEST (the “dual agents”) would provide brokerage and investment advisory services out of Bankers Life branch office locations.  The UVEST Agreement specified that UVEST would “exercise exclusive control” over the broker-dealer and investment advisory activities of the dual agents, and assigned Bankers Life several securities-related roles, which Bankers Life did perform, including:

a.    appointing the persons to be dual agents and having sole discretion to withdraw appointments at any time;
 
b.    determining with UVEST the number and identity of dual agents at each office;
   
c.     determining with UVEST the compensation to be paid to each agent;
   
d.     determining with UVEST the “brokerage product offerings available for distribution” by the dual agents;
   
e.     approving the clearing broker selected by UVEST;
   
f.   approving advertising and promotional material; and
 
g.   paying for:  (i) pre-examination training for required NASD/FINRA examinations; (ii) investment research materials used in the branch offices; (iii) recruitment and travel costs; and (iv) UVEST stationery and business cards.
 
5. The UVEST Agreement provided for UVEST to pay Bankers Life “Revenue Sharing Payments” according to a schedule that varied from 82% to 85% of the gross commissions received by UVEST for the dual agents’ securities transactions.  The UVEST Agreement characterized these payments as representing reimbursement for the compensation Bankers Life pays to the dual agents and “payment for the use of the facilities and equipment” of Bankers Life.  The UVEST Agreement provided that Bankers Life would not compensate Series 6 licensed dual agents for the sale of individual stocks and bonds, and instead Bankers Life would retain all such revenue.
6. In March of 2005, Bankers Life determined that BLCFS should have been a party to the UVEST Agreement.  As a result, the three firms agreed to a new first page of the UVEST Agreement that added BLCFS as a party and a new signature page, which was executed by the three parties.  The revised UVEST Agreement did not assign BLCFS any rights or duties separate from those of Bankers Life and made all of Bankers Life’s rights and duties also apply to BLCFS.
7. Bankers and UVEST terminated the UVEST Agreement effective on or about April 29, 2010..
8. Evidence uncovered during the investigation showed that Bankers screened prospective securities agents, trained new securities agents, conducted periodic training sessions for securities agents, monitored and attempted to increase securities production of securities agents, and played a significant role in determining the compensation of securities agents.  In addition, evidence showed that the involvement of Bankers in securities-related roles led to confusion in the reporting and responsibility hierarchies between Bankers and the applicable broker-dealer.
9. At no time were the dual agents registered as agents or investment adviser agents of Bankers Life or BLCFS.
10. From January 1, 2005 through April 29, 2010, Bankers received, on a nationwide basis, a total of approximately $17 million from UVEST under their agreement for variable annuity and securities transactions and investment advice.

III. CONCLUSIONS OF LAW

1.
Under Section 36b-6(a) of the Act, a person may not transact business as a broker-dealer in Connecticut unless registered.
2.
Similarly, under Section 36b-6(c) of the Act, a person may not transact business as an investment adviser in Connecticut unless registered or exempt from registration.
3. Section 36b-6(b) of the Act prohibits a broker-dealer from employing an agent unless that agent is registered under the Act or an associated person who represents a broker-dealer in effecting transactions described in subdivisions (2) and (3) of Section 15(h) of the Securities Exchange Act of 1934.
4. Section 36b-6(c)(3) of the Act prohibits an investment adviser from engaging an investment adviser agent unless such investment adviser agent is registered under the Act.
5. By engaging in the conduct set forth above, Bankers transacted business as a broker-dealer and as an investment adviser absent registration in Connecticut in violation of Sections 36b-6(a) and 36b-6(c) of the Act.
6. Furthermore, by employing or engaging dual agents who were not registered in Connecticut as agents or investment adviser agents of Bankers, Bankers violated Sections 36b-6(b) and 36b-6(c)(3) of the Act.
7. By engaging in the conduct set forth above, UVEST materially aided in the above described violations by Bankers, thus subjecting UVEST to administrative sanctions under Sections 36b-15(a)(2)(M), 36b-27(a)(3) and 36b-27(d)(1)(C) of the Act;
8. As a result, 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.

IV. CONSENT ORDER

On the basis of the Findings of Fact, Conclusions of Law, and the consent of the Respondent to the entry of this Consent Order,

IT IS HEREBY ORDERED THAT:

1.
UVEST shall CEASE AND DESIST from materially aiding any person, including Bankers, in a violation of the Act and the Regulations thereunder;
2.
In accordance with the terms of the multistate settlement, UVEST shall pay $750,000 to be distributed among the states where dual agents were located during the period from January 1, 2005 through April 29, 2010.  Within ten (10) business days following the entry of this Consent Order by the Commissioner, UVEST, its affiliates, successors and assigns, as the case may be should UVEST cease operations prior to the entry of this Consent Order, shall pay to the “Treasurer, State of Connecticut”, by electronic funds transfer or wire transfer, the sum of Fourteen Thousand One Hundred Fifty and 94/100 Dollars ($14,150.94) as an administrative fine, which amount constitutes Connecticut’s proportionate share of the total state settlement amount of $750,000.
3.
If any state securities regulator determines not to accept the settlement offer of UVEST reflected herein, the monetary payment to Connecticut hereunder shall not be affected, and UVEST shall not be relieved of any of the non-monetary provisions of this Consent Order.
4.
UVEST shall not attempt to recover any part of the payments described in this Consent Order from dual agents, Bankers or customers of UVEST.
5.
UVEST shall fully cooperate with any investigation or proceeding related to the subject matter of this Consent Order.
6.
This Consent Order concludes the investigation by the Division and any other action that the Commissioner could commence under the Act on behalf of Connecticut as it relates to the violations described above, up to and including activity occurring through April 29, 2010; provided, however, that excluded from and not covered by this paragraph are any claims by the Commissioner arising from or relating to enforcement of the terms and conditions of this Consent Order.
7. If payments are not made by UVEST, or if UVEST defaults in any of its obligations set forth in this Consent Order, the Commissioner may vacate this Consent Order, at the Commissioner’s sole discretion, upon 10 days notice to UVEST and without opportunity for administrative hearing or judicial review.
8. Nothing herein shall preclude the State of Connecticut, its departments, agencies, boards, commissions, authorities, political subdivisions and corporations, other than the Commissioner and only to the extent set forth herein, (collectively, “State Entities”) and the officers, agents or employees of State Entities from asserting any claims, causes of action, or applications for compensatory, nominal and/or punitive damages, administrative, civil, criminal, or injunctive relief against UVEST.
9. This Consent Order is not intended by the Commissioner to subject any person to any disqualifications under the laws of the United States, any state, the District of Columbia, Puerto Rico, or the Virgin Islands including, without limitation, any disqualification from relying upon the state or federal registration exemptions or safe harbor provisions.
10. This Consent Order and the order of any other state in related proceedings against UVEST (collectively, the “Orders”) shall not disqualify any person from any business that they otherwise are qualified, licensed or permitted to perform under applicable securities laws of Connecticut, and any disqualifications from relying upon this state’s registration exemptions or safe harbor provisions that arise from the Orders are hereby waived.
11. This Consent Order and any dispute related thereto shall be construed and enforced in accordance with, and governed by, the laws of Connecticut without regard to any choice of law principles.
12. This Consent Order shall be binding upon UVEST, its affiliates, successors and assigns as well as upon the successors and assigns of its affiliates with respect to all conduct subject to the provisions herein and all future obligations, responsibilities, undertakings, commitments, limitations, restrictions, events and conditions.
13. Except as set forth above, the Commissioner agrees to take no action adverse to UVEST based solely on the same conduct addressed in this Consent Order.  However, nothing in this Consent Order shall preclude the Commissioner from:  (a) taking adverse action based on other conduct; (b) taking this Consent Order and the conduct described above into account in determining the proper resolution of action based on other conduct; (c) taking any and all available steps to enforce this Consent Order; or (d) taking any action against other entities or individuals, regardless of any affiliation or relationship between UVEST and the entities or individuals.

NOW THEREFORE, the Commissioner enters the following:

1. The Findings of Fact, Conclusions of Law and Consent Order 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; and
3. This Consent Order shall become final when entered.


 
So ordered at Hartford, Connecticut      _______/s/_________
this 5th day of July 2012.      Howard F. Pitkin 
    Banking Commissioner 


CONSENT TO ENTRY OF ORDER

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

 
     UVEST Financial Services Group, Inc.
  
           
By: __________ /s/__________________
Name:    Kathleen D. Vannoy-Pineda
Title:    Executive Vice President and 
      Chief Compliance Officer 
  

 
State of:  California

County of:  San Diego

On this the 19th day of June, 2012, before me, the undersigned officer, personally appeared Kathleen D. Vannoy-Pineda, who acknowledged herself to be the Executive Vice President and Chief Compliance Officer of UVEST Financial Services Group, Inc., a corporation, and that she, as such Executive Vice President and Chief Compliance Officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by herself as Executive Vice President and Chief Compliance Officer.
 
In witness whereof I hereunto set my hand.



______/s/____________________________
Notary Public
Date Commission Expires:  March 14, 2015
 
  

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