DOB: Rafal, John - CD-NOIR-NOIF

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IN THE MATTER OF:


JOHN WILLIAM RAFAL

CRD No. 809031 






 





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ORDER TO CEASE AND DESIST

NOTICE OF INTENT TO REVOKE
REGISTRATION AS A
BROKER-DEALER AGENT

NOTICE OF INTENT TO REVOKE
REGISTRATION AS AN
INVESTMENT ADVISER AGENT 

NOTICE OF INTENT TO FINE

AND

NOTICE OF RIGHT TO HEARING

DOCKET NO. CRF-16-8312-S
        

I. PRELIMINARY STATEMENT

1. 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 (“Regulations”) promulgated under the Act.
2. On November 23, 2015, the Commissioner entered a Consent Order with respect to John William Rafal (“Rafal”) in connection with the Commissioner’s allegation that Rafal 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 Section 36b-31-15d of the Regulations.
3.
As a result of new evidence that the Securities and Business Investments Division (“Division”) of the Department of Banking obtained in April 2016, and pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Division, has conducted an investigation into the activities of Rafal to determine if Rafal has violated, is violating or is about to violate provisions of the Act or Regulations.
4. As a result of the investigation, the Commissioner has reason to believe that Rafal has violated certain provisions of the Act.
5.
As a result of the investigation, the Commissioner has reason to believe that a basis exists to issue a cease and desist order against Rafal pursuant to Section 36b-27(a) of the Act.
6. As a result of the investigation, the Commissioner has reason to believe that a basis exists to revoke Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut pursuant to Section 36b-15(a) of the Act and Section 4-182(c) of the General Statutes of Connecticut.
7. As a result of the investigation, the Commissioner has reason to believe that a basis exists to impose a fine upon Rafal pursuant to Section 36b-27(d) of the Act.

II.  RESPONDENT

8.
Rafal is an individual whose address last known to the Commissioner is 4 Johnnycake Hill Road, Old Lyme, Connecticut 06371.  Rafal was registered as a broker-dealer agent under the Act from July 18, 1989 to December 16, 2015, and was registered as an investment adviser agent under the Act from February 5, 1996 to December 16, 2015.  Rafal was the founder, President and Chief Executive Officer of Essex Financial Services, Inc. (CRD No. 127549) (“EFS”), located at 176 Westbrook Road, Essex, Connecticut 06426, from April 2003 to July 2013.  EFS is an investment adviser registered with the Securities and Exchange Commission (SEC No. 801-62242) since August 7, 2003 and EFS has been an investment adviser notice filer under Section 36b-6(e) of the Act since August 7, 2003.  EFS has also been registered as a broker-dealer under the Act since September 22, 2003.

[III.  STATEMENT OF FACTS]

Prior Matters Involving Rafal

9. In April 2014, the Commissioner, through the Division, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Rafal to determine whether Rafal was violating or was about to violate any provision of the Act or any regulation or order under the Act (“First Investigation”).
10. As a result of the First Investigation, the Commissioner had reason to believe that Rafal violated certain provisions of the Act.  Specifically, the Division obtained evidence that:

(a)    In 2010 a Connecticut attorney (“Attorney A”) referred a multimillion dollar investment advisory account (“Account”) to Rafal and EFS.  After the Account was referred, Rafal agreed, on behalf of EFS, to pay Attorney A an annual referral fee of $50,000 (“Referral Fees”), despite the fact that Rafal knew the Attorney was not registered under the Act as an investment adviser agent of EFS.  Although EFS made arrangements for Attorney A to take the Series 65 exam, Attorney A did not take the Series 65 examination and never became a registered investment adviser agent of EFS in Connecticut;
     
(b)     At the direction of Rafal, EFS paid Attorney A and his law firm $25,190 in Referral Fees in connection with one invoice sent to EFS in August 2012 and a second invoice sent to EFS in November 2012;
 
(c)    On March 21, 2013, Attorney A sent EFS a third invoice for $24,570 (“Third Invoice”).  This invoice was never paid by EFS; and
   
(d)     In April 2013, EFS informed Rafal that because Attorney A never became registered as an investment adviser agent, Attorney A would be required to return the Referral Fees of $25,190 to EFS.  Attorney A returned the Referral Fees to EFS by check dated April 17, 2013.
11. On November 23, 2015, 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, Rafal and the Commissioner entered into a Consent Order (Docket No. CO-15-8158) (“Consent Order”), which is incorporated by reference herein.  In separate actions, the Commissioner also entered into separate Consent Orders with Attorney A and EFS.
12. At all times prior to the entry of the Consent Order, Rafal represented and led the Commissioner to believe that (i) Attorney A was no longer in possession of any money or compensation for Attorney A’s referral of the Account to EFS and Rafal, and (ii) the Third Invoice was never paid to Attorney A.
13. Section 36b-15(e)(1) of the Act provides, in relevant part, that:

      Withdrawal from registration as . . . [an] agent . . . or investment adviser agent . . . becomes effective ninety days after receipt of an application to withdraw such registration or a notice of intent to withdraw such application for registration or within such shorter period of time as the commissioner may determine, unless a denial, revocation or suspension proceeding is pending when the application or notice is filed or a proceeding to deny, revoke, suspend or impose conditions upon the withdrawal is instituted within ninety days after the application or notice is filed. . . . If no proceeding is pending or instituted and withdrawal automatically becomes effective, the commissioner may nevertheless institute a denial, revocation or suspension proceeding under subsection (a) of this section within one year after withdrawal became effective.

 
14.
On December 2, 2015, EFS filed a Form U-5 (Uniform Termination Notice for Securities Industry Registration) withdrawing Rafal’s broker-dealer agent and investment adviser agent registrations in Connecticut.  Such withdrawal became effective by the Commissioner on December 16, 2015.
  

Newly Discovered Evidence and Violation
  
15. On April 26, 2016, the Division obtained new evidence that Rafal failed to disclose to the Division prior to or at any time following the entry of the Consent Order.  The new evidence was not specifically addressed in the Consent Order, and was obtained from the Securities and Exchange Commission.
16. Specifically, the Division obtained evidence that in April 2013, Rafal took it upon himself to pay Attorney A the Referral Fees out of his own pocket.  On April 5, 2013, Rafal, without the knowledge of EFS, wrote a check out of a personal account he controlled to Attorney A’s law firm.  The check was for $24,570 (“April 5, 2013 Check”), which was the same amount as the amount on the Third Invoice.  Attorney A’s law firm deposited the April 5, 2013 Check into its bank account.
17. The Division also obtained evidence that on April 17, 2013, after Rafal learned that EFS had directed Attorney A to return the $25,190 in Referral Fees and on the very same day that Attorney A sent a check to EFS for such fees, Rafal, again without the knowledge of EFS, sent Attorney A’s law firm a check for $25,190 out of another personal account Rafal controlled (“April 17, 2013 Check”).  The April 17, 2013 Check was issued to reimburse Attorney A for the $25,190 referral fee refund Attorney A had been required to make to EFS.  Attorney A’s law firm deposited the April 17, 2013 Check into its bank account.  Even though Rafal knew that Attorney A was prohibited from receiving investment advisory referral fees because Attorney A was not registered as an investment adviser agent, Rafal sent Attorney A the April 5, 2013 Check and the April 17, 2013 Check in direct defiance of EFS’ instruction that Attorney A not receive such fees.
18. In light of this newly discovered evidence, the Commissioner, through the Division, conducted a second investigation pursuant to Section 36b-26(a) of the Act (“Second Investigation”) to determine whether Rafal’s failure to disclose to the Division that he sent the April 5, 2013 Check and the April 17, 2013 Check to Attorney A was a violation of any provision of the Act or any regulation or order under the Act.
19. At all times prior to the entry of the Consent Order, Rafal led the Division to believe that Attorney A was no longer in possession of any money related to the referral of the Account.
20. At no time prior to the entry of the Consent Order did Rafal disclose to the Division that, in reality, he paid the Third Invoice and sent the April 5, 2013 Check and the April 17, 2013 Check to Attorney A.  This was an omission of material fact.

IV.  STATUTORY BASIS FOR ORDER TO CEASE AND DESIST,
REVOCATION OF REGISTRATIONS AS A BROKER-DEALER AGENT
AND AN INVESTMENT ADVISER AGENT AND ORDER IMPOSING FINE
    
a.  Violation of Section 36b-23 of the Act by Rafal –
Material Misleading Statement or Omission of Material Fact

21. Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
22.
Rafal made a statement to the Commissioner that was, at the time and in the light of the circumstances under which it was made, false or misleading in a material respect and/or, in connection with the statement, omitted to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading, as more fully described in paragraphs 14 through 19, inclusive.  Such conduct violated Section 36b-23 of the Act, and, as such, supports the entry of an order to cease and desist against Rafal pursuant to Section 36b-27(a) of the Act and the imposition of a fine upon Rafal pursuant to Section 36b-27(d) of the Act.  Such conduct also constitutes a wilful violation of Section 36b-23 of the Act and provides a basis for revoking Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut pursuant to Section 36b-15(a)(2)(B) of the Act.

b.  Dishonest or Unethical Business Practice by Rafal

23. Paragraphs 1 through 22, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
24.
The conduct of Rafal, as more fully described in paragraphs 10 and 15 through 20, inclusive, is conduct which constitutes a dishonest or unethical practice in the securities business within the meaning of Sections 36b-31-15b and 36b-31-15d of the Regulations.  Such conduct supports the entry of an order to cease and desist against Rafal pursuant to Section 36b-27(a) of the Act and the imposition of a fine upon Rafal pursuant to Section 36b-27(d) of the Act.  Such conduct also provides a basis for revoking Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut pursuant to Section 36b-15(a)(2)(H) of the Act.

    
V.  ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE
REGISTRATIONS AS A BROKER-DEALER AGENT AND
AN INVESTMENT ADVISER AGENT, NOTICE OF INTENT TO FINE
AND NOTICE OF RIGHT TO HEARING

WHEREAS, as a result of the Second Investigation, the Commissioner finds that, with respect to the activity described herein, Rafal has committed at least one violation of Section 36b-23 of the Act and has engaged in a dishonest or unethical practice in the securities business;

WHEREAS, the Commissioner has reason to believe that grounds exist for revoking Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the Act;

WHEREAS, Section 36b-15(f) of the Act provides, in pertinent part, that “[n]o order may be entered under this section except as provided in subsection (c) of this section without (1) appropriate prior notice to the . . . registrant and to the employer . . . if such . . . registrant is an agent or investment adviser agent, (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”;

WHEREAS, notice is hereby given to Rafal that his respective registrations in Connecticut shall be revoked, subject to his right to request a hearing on the allegations set forth above;

WHEREAS, notice is hereby given to Rafal that the Commissioner intends to impose a fine not to exceed the maximum fine of one hundred thousand dollars ($100,000) per violation;

WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist against Rafal, the issuance of an Order Revoking Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut, and the imposition of a fine upon Rafal is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;

WHEREAS, the Commissioner ORDERS that JOHN WILLIAM RAFAL CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) violating Section 36b-23 of the Act, and (2) engaging in dishonest or unethical practices in the securities business.

THE COMMISSIONER FURTHER ORDERS THAT Rafal will be afforded an opportunity for a hearing on the allegations set forth above if a written request for a hearing is received by the Department of Banking, Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following Rafal’s receipt of this Order.  To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form to the above address.  If you will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”.  If a hearing is requested, the hearing will be held on October 25, 2016, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.

The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut.  At such hearing, you will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.

If Rafal does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein will be deemed admitted.  Accordingly, the Order to Cease and Desist shall remain in effect and become permanent against Rafal, the Commissioner shall issue an order revoking Rafal’s registrations as a broker-dealer agent and an investment adviser agent in Connecticut, and the Commissioner may order a fine upon Rafal up to the maximum fine allowable under the Act.

Dated at Hartford, Connecticut,       ____/s/_____________ 
this 19th day of August 2016.   Jorge L. Perez
    Banking Commissioner 



CERTIFICATION

I hereby certify that on this 19th day of August 2016, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Notice of Intent to Revoke Registration as a Broker-dealer Agent, Notice of Intent to Revoke Registration as an Investment Adviser Agent, Notice of Intent to Fine and Notice of Right to Hearing to John William Rafal, c/o John Sylvia, Esq., Mintz Levin, 1 Financial Center, Boston, Massachusetts 02111, certified mail no. 7012 3050 0000 6997 6193.
 
 
___/s/____
W. C. Hall
Paralegal

                                                                     
                                        


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