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A&F FINANCIAL SECURITES, INC. * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER DOCKET NO. CO-11-7793-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, Respondent is a broker-dealer registered in Connecticut under the Act since February 22, 2007, with its principal office located at 6901 Jericho Turnpike, Suite 217, Syosset, New York 11791;
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 Respondent to determine if it had violated, was violating or was about to violate provisions of the Act or Regulations (“Investigation”);
WHEREAS, as a result of the Investigation, the Division obtained evidence that, from at least September 2008, (1) Respondent charged its Connecticut customers a per transaction fee in addition to a commission and/or markup or markdown, which fee was categorized as “Postage and Handling Charges” on customer trade confirmations sent from Respondent’s clearing firm. While the “Postage and Handling Charges” included the ticket charge assessed by the clearing firm for execution of the trade and for postage expense, despite various disclosures in customer documentation generated by the clearing firm, it was not clearly disclosed that the remainder of the fee charged would be credited as revenue to, and constitute actual profit to, Respondent. The Commissioner has reason to believe that such conduct violates certain provisions of the Act and Regulations, and would support administrative proceedings against Respondent under Sections 36b-15 and 36b-27 of the Act;
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, 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, 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, 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 Respondent reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
AND WHEREAS, Respondent, through its execution of this Consent Order, represents and agrees that none of the alleged violations in this Consent Order shall occur in the future, and agrees to the language in this Consent Order.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Respondent, through its execution of this Consent Order, voluntarily waives 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 itself 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 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. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, Respondent, through its execution of this Consent Order, acknowledges the following allegations of the Commissioner, without admitting or denying them, yet admits that sufficient evidence exists for the Commissioner to issue: (a) an order to cease and desist, (b) an order revoking Respondent’s registration as a broker-dealer in Connecticut, and (c) 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. | Respondent violated Section 36b-4(b) of the Act and engaged in dishonest and unethical practices in connection with the offer and sale of any security, by failing to disclose to its Connecticut customers that the transactional “Postage and Handling Charges” it charged them included a profit to Respondent and that the fee was not based on the costs of handling a particular transaction. Respondent’s omission was material to investors, and Respondent’s failure to adequately disclose the nature of these charges made Respondent’s limited explanation misleading; and |
| 2. | The conduct of Respondent in failing to disclose to its Connecticut customers that the transactional “Postage and Handling Charges” it charged them included a profit to Respondent and that the fee was not based on the costs of handling a particular transaction is conduct proscribed by Financial Industry Regulatory Authority (formerly NASD) Conduct Rules 2210, 2430, and 2440. Such conduct constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations. |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Respondent an opportunity for a hearing;
AND WHEREAS, Respondent acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Respondent, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | Respondent, 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; |
| 2. | Within forty-five (45) days from the date this Consent Order is entered by the Commissioner, Respondent shall provide the Division with proof, with respect to all transactions effected from September 23, 2008 to the present, that Respondent has: (a) reimbursed each Connecticut customer the difference between the amount of the “Postage and Handling Charges” paid by the Connecticut customer for each transaction and the actual amount of Respondent’s ticket and clearing charge and the postage fee assessed by Respondent’s clearing firm; (b) amended its customer trade confirmations and/or pre-confirmations to provide each of Respondent’s Connecticut customers with additional disclosure acceptable to the Division which adequately describes the “Postage and Handling Charges” appearing on the trade confirmations and/or pre-confirmations; and (c) sent correspondence to each Connecticut customer who received the reimbursement explaining that the “Postage and Handling Charges” reimbursement was a result of an investigation conducted by the Division; |
| 3. | No later than the date this Consent Order is entered by the Commissioner, Respondent shall provide to the Division for review and approval the letter that will be sent to those Connecticut customers eligible for the “Postage and Handling Charges” reimbursement described in paragraph 2 of Section IV Consent to Entry of Sanctions of this Consent Order; and |
| 4. | No later than the date this Consent Order is entered by the Commissioner, Respondent shall remit to the Department of Banking by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut”, or by wire transfer, the sum of twenty thousand dollars ($20,000) as an administrative fine. |
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 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; and |
| 3. | This Consent Order shall become final when issued. |
| Issued at Hartford, Connecticut, | _______/s/_________ | |
| this 18th day of July 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Nicholas Tsikitas, state on behalf of A&F Financial Securities, 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 A&F Financial Securities, Inc.; that A&F Financial Securities, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that A&F Financial Securities, Inc. consents to the entry of this Consent Order.
| A&F Financial Securities, Inc. | |
| By: | ________/s/______________ |
| Name: Nicholas Tsikitas | |
| Title: CEO |
State of: New York
County of: Nassau
On this the 7th day of July 2011, before me, Ian J. Frimet, the undersigned officer, personally appeared Nicholas Tsikitas, who acknowledged himself to be the CEO of A&F Financial Securities, Inc., a corporation, and that he, as such CEO, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as CEO.
In witness whereof I hereunto set my hand.
_____/s/__________________________________
Notary Public/Commissioner of the Superior Court
Date Commission Expires: February 8, 2013