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SPEAR CAPITAL * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-11-7756-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 (the "Regulations") promulgated under the Act;
WHEREAS, Spear was registered as an investment adviser under the Act at various times from June 25, 1998 through December 31, 2010, and had its principal place of business located at 45 Wintonbury Avenue, Bloomfield, Connecticut 06002. Spear's registration as an investment adviser expired on December 31, 2010 and was not renewed;
WHEREAS, the Commissioner, through the Securities and Business Investments Division of the Department of Banking (the "Division"), has conducted an examination of Spear's records pursuant to Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations, and a related investigation under Section 36b-26 of the Act to determine whether Spear, its officers, agents, employees or representatives violated, are violating or are about to violate any provision of the Act or any regulation or order under the Act;
WHEREAS, as a result of such investigation and examination, the Division obtained evidence that Spear made recommendations concerning the purchase and/or sale of risky and speculative Exchange Traded Funds ("ETFs") without reasonable grounds to believe that such recommendations were suitable for the affected client on the basis of information furnished by such client; and that Spear, acting on behalf of clients, induced trading in risky and speculative ETFs that was excessive in size or frequency given the financial resources, investment objectives and character of the affected client accounts. Such conduct violates Section 36b-5(f) of the Act, constitutes a dishonest or unethical practice in the securities business within the meaning of Sections 36b-31-15c(a)(1) and 36b-31-15c(a)(5) of the Regulations, and forms a basis for the revocation of Spear's registration as an investment adviser in Connecticut pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(H) and 36b-15(e)(2) of the Act. Such conduct also forms a basis for an order to cease and desist against Spear under Section 36b-27(a) of the Act and an order imposing fine against Spear pursuant to Section 36b-27(d) of the Act;
WHEREAS, as a result of such investigation and examination, the Division also obtained evidence that Spear violated Section 36b-31-6f(b) of the Regulations by failing to establish, enforce and maintain a system for supervising the activities of its investment adviser agents and Connecticut office operations that was reasonably designed to achieve compliance with applicable securities laws and regulations. Such violation would support the revocation of Spear's investment adviser registration pursuant to Sections 36b-15(a)(2)(B) of the Act, 36b-15(a)(2)(K) of the Act and 36b-15(e)(2) of the Act; an order to cease and desist against Spear under Section 36b-27(a) of the Act; and an order imposing fine against Spear pursuant to Section 36b-27(d) of the Act;
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 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 Spear reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
WHEREAS, Spear, without admitting or denying any of the Commissioner's allegations or findings, expressly consents to the Commissioner's jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, Spear, through its execution of this Consent Order, represents to the Commissioner that it will refrain from transacting business as an investment adviser in or from Connecticut absent registration as an investment adviser under the Act; and
WHEREAS, Spear, 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, Spear, 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; |
| 2. | To present evidence and argument and to otherwise avail itself of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the Connecticut General Statutes; |
| 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. |
CONSENT TO ENTRY OF FINDINGS
WHEREAS, Spear, through its execution of this Consent Order, and without admitting or denying the Commissioner's allegations of violations, accepts and consents to the entry of the following Findings by the Commissioner:
| 1. | 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; |
| 2. | Spear violated Section 36b-5(f) of the Act and engaged in a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15c(a)(1) of the Regulations by making recommendations concerning the purchase and/or sale of risky and speculative ETFs without reasonable grounds to believe that such recommendations were suitable for the affected client on the basis of information furnished by such client. Such conduct forms a basis for (a) the revocation of Spear's investment adviser registration pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(H) and 36b-15(e)(2) of the Act; (b) an order to cease and desist against Spear under Section 36b-27(a) of the Act; and (c) the imposition of a fine against Spear under Section 36b-27(d) of the Act; |
| 3. | Spear violated Section 36b-5(f) of the Act and engaged in a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15c(a)(5) of the Regulations by inducing trading in risky and speculative ETFs that was excessive in size or frequency given the financial resources, investment objectives and character of the affected client accounts. Such conduct forms a basis for (a) the revocation of Spear's investment adviser registration pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(H) and 36b-15(e)(2) of the Act; (b) an order to cease and desist against Spear under Section 36b-27(a) of the Act; and (c) the imposition of a fine against Spear under Section 36b-27(d) of the Act; and |
| 4. | Spear violated Section 36b-31-6f(b) of the Regulations by failing to establish, enforce and maintain a system for supervising the activities of its investment adviser agents and Connecticut office operations that was reasonably designed to achieve compliance with applicable securities laws and regulations. Such conduct forms a basis for (a) the revocation of Spear's investment adviser registration pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(K) and 36b-15(e)(2) of the Act; (b) an order to cease and desist against Spear under Section 36b-27(a) of the Act; and (c) an order imposing fine against Spear pursuant to Section 36b-27(d) of the Act. |
CONSENT TO ENTRY OF SANCTIONS
| 1. | Spear, 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; and |
| 2. | No later than the date this Consent Order is entered by the Commissioner, Spear shall remit to the agency, via certified bank check made payable to "Treasurer, State of Connecticut", the sum of five thousand dollars ($5,000) which shall constitute an administrative fine. |
CONSENT ORDER
NOW THEREFORE,
the Commissioner enters the following:
| 1. | The Findings and 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 Spear, its officers, directors, agents, employees or representatives based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance with the terms hereof is not being observed or if any representation made by Spear and reflected herein is 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 June, 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Gregory R. Spear, state on behalf of Spear Capital Management, 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 Spear Capital Management, Inc.; that Spear Capital Management, Inc. agrees fully and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Spear Capital Management, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
| Spear Capital Management, Inc. | |
| By: | ______/s/_________________ |
| Gregory R. Spear | |
| President |
On this 14th day of June 2011, personally appeared Gregory R. Spear, 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 Spear Capital Management, Inc. and acknowledged the same to be his free act and deed, before me.
_____/s/__________________________
Notary Public
My Commission Expires: Feb. 28, 2013