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JOHN WILLIAM RAFAL * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER No. CO-17-8312-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 (“Regulations”) promulgated under the Act;
WHEREAS, John William Rafal (“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”), an investment adviser registered with the Securities and Exchange Commission (SEC No. 801 62242) since August 7, 2003, and 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;
WHEREAS, in April 2014, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking (“Department”), conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Rafal to determine if he had violated, was violating or was about to violate provisions of the Act or any regulation or order under the Act (“First Investigation”);
WHEREAS, as a result of the First Investigation, the Division discovered that in 2010, a Connecticut attorney (“Attorney A”) referred an investment advisory account to Rafal. EFS and Rafal, on behalf of EFS, agreed to pay Attorney A an annual fee of $50,000 despite the fact that Rafal knew Attorney A was not registered as an investment adviser agent under the Act. At the direction of Rafal, EFS paid Attorney A and his law firm $25,190 in Referral Fees for two invoices in August 2012 and November 2012, respectively. On March 21, 2013, Attorney A sent EFS a third invoice for $24,570 (“Third Invoice”). In April 2013, EFS informed Rafal that it would not pay the Third Invoice and Attorney A would be required to return the Referral Fees of $25,190 to EFS because Attorney A never became registered as an investment adviser agent;
WHEREAS, Attorney A returned the Referral Fees to EFS by check dated April 17, 2013;
WHEREAS, as a result of the First Investigation, on November 23, 2015, the Commissioner entered a Consent Order with respect to 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 (“2015 Consent Order”). The 2015 Consent Order is incorporated by reference herein;
WHEREAS, in April 2016, the Division obtained new evidence, which evidence was not specifically addressed in the Consent Order (“New Evidence”). The New Evidence demonstrated that at no time prior to nor at any time following the entry of the 2015 Consent Order did Rafal disclose to the Division that in April 2013, once Rafal knew that EFS would not pay the Third Invoice and would require Attorney A to return the $25,190 in referral fees, Rafal, unbeknownst to EFS, sent Attorney A two checks out of personal accounts controlled by Rafal, one for $25,190 (the fees Attorney A had already returned to EFS) and one for $24,570 (payment of the Third Invoice);
WHEREAS, in light of the New 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 the New Evidence to the Division was a violation of the provisions of the Act or Regulations;
WHEREAS, as a result of the Second Investigation, the Division obtained evidence that Rafal violated the Act by, inter alia, making an omission of material fact to the Commissioner and engaged in a dishonest or unethical practice in the securities business within the meaning of the Regulations, and that such violations would support administrative proceedings against Rafal under Sections 36b-15 and 36b 27 of the Act;
WHEREAS, as a result of the Second Investigation and based on the New Evidence, on August 19, 2016, the Commissioner, acting pursuant to Sections 36b-15 and 36b-27 of the Act and Section 4-182(c) of the General Statutes of Connecticut, issued an 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) against Rafal (“2016 Notice”), which 2016 Notice is incorporated by reference herein;
WHEREAS, on September 1, 2016, Rafal requested a hearing on the matters alleged in the 2016 Notice;
WHEREAS, on September 2, 2016, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer, wherein the Commissioner scheduled the hearing on the matters alleged in the 2016 Notice for October 26, 2016, and appointed Department of Banking Attorney Stacey Serrano as the Hearing Officer on the matters alleged in the 2016 Notice;
WHEREAS, on October 17, 2016, Hearing Officer Serrano granted a continuance of the hearing scheduled for October 26, 2016, to December 14, 2016;
WHEREAS, on December 6, 2016, Hearing Officer Serrano granted a continuance of the hearing scheduled for December 14, 2016, to a date to be determined;
WHEREAS, in approximately May 2013, the SEC began an investigation into the referral payments made by EFS to Attorney A at the direction of Rafal (“SEC Investigation”);
WHEREAS, as a result of the SEC Investigation, on January 6, 2017, the SEC accepted Rafal’s Offer of Settlement (“SEC Offer of Settlement”), and, inter alia, barred Rafal from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. In addition, Rafal paid a civil money penalty of $275,000, disgorgement of $275,000 and prejudgment interest of $27,297.72 to the SEC (SEC Administrative Proceeding File No. 3-17760);
WHEREAS, in a related proceeding based on the SEC Offer of Settlement, on November 29, 2016 Rafal agreed to plead guilty (“Guilty Plea”) in the United States District Court for the District of Massachusetts to one count of violating 18 U.S.C. Section 1505 (obstruction of justice, a felony) (United States of American v. John William Rafal, Case No. 1:17-cr-10004);
WHEREAS, in connection with the Guilty Plea, the Department of Justice and Rafal have agreed to a sentencing disposition, subject to the approval of the Court, of 12 months probation, the first 4 months to be served in home detention, a $4,000 fine and a $100 mandatory special assessment;
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(4) of the General Statutes of Connecticut;
WHEREAS, Section 36b-27(f) of the Act provides, in relevant part, that “[a]ny time after the issuance of an order or notice provided for in subsection (a) . . . or subdivision (1) of subsection (d) of this section, the commissioner may accept an agreement by any respondent named in such order or notice to enter into a written consent order in lieu of an adjudicative hearing”;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, Rafal and the Commissioner now desire to resolve the matters alleged in the Notice without the need for further administrative proceedings, and this Consent Order is entered solely for such purpose;
WHEREAS, Rafal expressly consents to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, the Commissioner finds that 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;
AND WHEREAS, Rafal, through his execution of this Consent Order, specifically assures the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Rafal, through his 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 himself 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 his position in a hearing in which he 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, Rafal, through his execution of this Consent Order, acknowledges the following allegations of the Commissioner:
| 1. |
Rafal violated Section 36b-23 of the Act by making 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; and |
| 2. | Rafal engaged in dishonest or unethical practices in the securities business within the meaning of Section 36b-15(a)(2)(H) of the Act and Sections 36b-31-15b and 36b-31-15d of the Regulations. |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Rafal an opportunity for a hearing;
AND WHEREAS, Rafal seeks to avoid the expense of a disputed hearing and 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, Rafal, through his execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:
| 1. | Rafal 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, including, without limitation, violating Section 36b-23 of the Act and engaging in dishonest or unethical business practices within the meaning of Section 36b-15(a)(2)(H) and Sections 36b-31-15b and 36b-31-15d of the Regulations; |
| 2. | From the date this Consent Order is entered by the Commissioner, the registration of Rafal as a broker-dealer agent and investment adviser agent under the Act shall be REVOKED and Rafal, either directly or through any person, organization, entity or other device, shall be PERMANENTLY BARRED from (a) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, as such terms are defined in the Act, and notwithstanding any definitional exclusion that might otherwise be available under the Act; (b) acting in any other capacity which requires a license or registration from the Commissioner; and (c) without the consent of the Commissioner, holding any position as a director, officer, employee or independent contractor with any Connecticut-chartered bank or credit union, or any federal bank or credit union with its principal office in Connecticut, or with a holding company that holds a subsidiary that is a bank, as defined in Section 36a-2 of the General Statutes of Connecticut; and |
| 3. | No later than the date this Consent Order is entered by the Commissioner, Rafal shall remit to the Department, by wire transfer the sum of fifteen thousand dollars ($15,000) 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 Rafal 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; |
| 3. | This Consent Order shall not preclude additional proceedings by the Commissioner against Rafal for acts or omissions not specifically addressed in the Notice or for acts and/or omissions that do not arise from the facts or transactions addressed in such Notice; |
| 4. | Rafal shall not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation referenced in this Consent Order or create the impression that this Consent Order is without factual basis; |
| 5. | Rafal shall not take any position in any proceeding brought by or on behalf of the Commissioner, or to which the Commissioner is a party, that is inconsistent with any part of this Consent Order. However, nothing is [sic] this Consent Order affects Rafal’s (i) testimonial obligations or (ii) right to take any legal or factual position in litigation, arbitration, or other legal proceedings in which the Commissioner is not a party; and |
| 6. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut | , | _____/s/____________ |
| this 26th day of January 2017. | Jorge L. Perez | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, John William Rafal, state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I consent to the entry of this Consent Order.
| _____/s/_________ |
| John William Rafal |
State of: Connecticut
County of: Middlesex
On this the 19 day of January 2017, before me, the undersigned officer, personally appeared John William Rafal, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.
In witness whereof I hereunto set my hand.
_____/s/__________________________
Notary Public
Date Commission Expires: May 31, 2020