DOB: Gray, Robert Lawrence - CD-NOIF

* * * * * * * * * * * * * * * * *





IN THE MATTER OF:

ROBERT LAWRENCE GRAY
   

CRD No. 228103



(“Respondent”)

* * * * * * * * * * * * * * * * *

 

*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*

 

ORDER TO CEASE AND DESIST

NOTICE OF INTENT TO FINE

AND

NOTICE OF RIGHT TO HEARING

DOCKET NO. CF-16-8301-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. Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondent to determine if Respondent has violated, is violating or is about to violate provisions of the Act or Regulations (“Investigation”).
3.
As a result of the Investigation, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act.
4. As a result of the Investigation, the Commissioner has reason to believe that a basis exists to issue a cease and desist order against Respondent as authorized by Section 36b-27(a) of the Act.
5.
As a result of the Investigation, the Commissioner has reason to believe that a basis exists to impose a fine upon Respondent as authorized by Section 36b-27(d) of the Act.

II.  RESPONDENT

6. Respondent is an individual whose address last known to the Commissioner is 6343 Via Desonrisa Sur, Boca Raton, Florida 33433.

III.  STATEMENT OF FACTS

Prior Disciplinary History

7. The National Association of Securities Dealers, Inc. (“NASD”), now known as the Financial Industry Regulatory Authority, is a self-regulatory organization registered with the Securities and Exchange Commission (“SEC”) pursuant to Section 15A of the Securities Exchange Act of 1934.
8. On July 15, 1977, the NASD rendered a final decision against Respondent permanently barring him from association with any NASD member in any capacity.
9. On June 8, 1998, the United States District Court for the Southern District of New York entered a default judgment against Respondent and permanently enjoined him from violating the antifraud provisions of the Securities Exchange Act of 1934 and various registration, books and records and other provisions of the Investment Advisers Act of 1940.  (SEC v. Robert L. Gray, S.D.N.Y., 97 Civ. 5732)  The court also ordered Respondent to disgorge $121,654, representing his ill gotten gains, plus $48,071 in prejudgment interest.  The 1998 injunction was the result of a Securities and Exchange Commission civil complaint alleging that from January 1993 through June 1996, Respondent, while acting as an unregistered investment adviser:  (a) misappropriated over $139,000 from his advisory clients; (b) made material misrepresentations to clients concerning their investments to conceal his misappropriation; (c) engaged in free-riding at the expense of a registered broker-dealer through which client trades were effected; (d) failed to maintain required investment advisory records; (e) failed to furnish clients with required written disclosure statements; (f) entered into advisory contracts that unlawfully provided for performance-based compensation and did not prohibit assignment of the contracts without client consent; (g) failed to adhere to the rules governing treatment of client funds in an adviser’s custody; and (h) failed to disclose his disciplinary history to his clients.
  
Respondent’s relationship with a Connecticut Investor
           
10.  In or about 2010, Respondent met a Connecticut investor (“Connecticut Investor”) at a social function in Florida.  Respondent convinced the Connecticut Investor that transferring the Connecticut Investor’s brokerage account to Cantone Research, Inc. (CRD No. 26314) (“CRI”) would allow Respondent to directly trade securities in the account through Respondent’s “guy”, Victor Polakoff (CRD No. 365011) (“Polakoff”), a broker dealer agent at CRI.  Polakoff is a broker-dealer agent registered under the Act since July 31, 1998.
11. Pursuant to an unwritten agreement, Respondent would share in the gains earned as a result of the recommendations, and Respondent would reimburse the Connecticut Investor for losses incurred as a result of the recommended trades.
12. At no time prior to the start of or during the relationship with the Connecticut Investor did Respondent disclose his disciplinary history to the Connecticut Investor.
13. At Respondent’s recommendation and believing in Gray’s purported investment expertise, the Connecticut Investor transferred his brokerage account to CRI in or about May 2010.  The Connecticut Investor’s newly opened discretionary account at CRI was to be handled by Polakoff.
14. Although Polakoff had discretion over the account, Respondent selected the trades.  In connection with the Division’s Investigation into Respondent’s activities, the Division obtained on-the-record testimony from Polakoff stating, “I never solicited any of them [the trades].  They were all given to me to trade from Rob Gray, and I used my discretion to enter the trades”.
15. Due to his past disciplinary history and the NASD bar, Respondent was unable to obtain appropriate registration as an investment adviser or as an agent of any member firm.  Therefore, Respondent was unable to enter trades on his own for the Connecticut Investor’s account.  Respondent, aided by CRI and Polakoff, effected trades using Polakoff in order to allow him to trade absent registration and to circumvent the bar placed on him by the NASD.  With Polakoff executing the trades, Respondent was able to continue to be active in the securities industry without detection.
16. From May 2010 through September 2010, Polakoff and CRI permitted Respondent to direct trading in the Connecticut Investor’s account.  No signed authorization from the Connecticut Investor was on file with CRI or Polakoff giving Respondent permission to direct trading in the account.  In addition, Polakoff disseminated account information to Respondent, again without written documentation from the Connecticut Investor evidencing the Connecticut Investor’s acquiescence to this arrangement.
17. The Connecticut Investor lost approximately $200,000 as a result of the trades directed by Gray and effected through CRI and Polakoff.

IV.  STATUTORY BASIS FOR ORDER TO CEASE AND DESIST 
AND ORDER IMPOSING FINE

a.  Violation of Section 36b-6(c)(1) of the Act by Respondent –
Unregistered Investment Adviser Activity

18. Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
19.
Respondent transacted business as an investment adviser in Connecticut absent registration, as more fully described in paragraphs 10 through 17, inclusive.  Such conduct constitutes a violation of Section 36b-6(c)(1) of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act and the imposition of a fine upon Respondent under Section 36b-27(d) of the Act.

b.  Violation of Section 36b-5(f) of the Act by Respondent –
Dishonest and Unethical Activity in Connection With Advisory Activity

20. Paragraphs 1 through 19, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
21.
The conduct of Respondent, as more fully described in paragraphs 7 through 17, inclusive, in connection with directly or indirectly receiving compensation or other remuneration for advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, constitutes engaging in a dishonest or unethical practice in connection with the rendering of such advice.  Such conduct constitutes a violation of Section 36b-5(f) of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act, and for the imposition of a fine upon Respondent under Section 36b-27(d) of the Act.

V.  ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO FINE
AND NOTICE OF RIGHT TO HEARING

WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Respondent has committed at least one violation of Section 36b-6(c)(1) and at least one violation of Section 36b-5(f) of the Act;

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

WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist and the imposition of a fine upon Respondent 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 ROBERT LAWRENCE GRAY CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation:  (a) acting as an unregistered investment adviser; and (b) in connection with directly or indirectly receiving compensation or other remuneration for advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, engaging in any dishonest or unethical practice in connection with the rendering of such advice;

THE COMMISSIONER FURTHER ORDERS THAT, pursuant to Section 36b-27 of the Act, Respondent 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 Respondent’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 Respondent 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 December 13, 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, Respondent 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 Respondent does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein against Respondent will be deemed admitted.  Accordingly, the Order to Cease and Desist shall remain in effect and become permanent against Respondent and the Commissioner may order that the maximum fine be imposed upon Respondent.     
    

Dated at Hartford, Connecticut,       _____/s/____________ 
this 20th day of October 2016.   Jorge L. Perez
    Banking Commissioner 



CERTIFICATION

I hereby certify that on this 21st day of October 2016, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing to:  Robert Lawrence Gray, 6343 Via Desonrisa Sur, Boca Raton, Florida 33433, certified mail no. 7012 3050 0000 6997 6322.

      
  ___/s/_____ 
  W. C. Hall
  Paralegal
                            
 


Administrative Orders and Settlements