| * * * * * * * * * * * * * * * * *
IN THE MATTER OF: WADSWORTH INVESTMENT CO., INC. (Collectively "Respondents")
|
*
*
* * * * * * * * * * * * *
*
*
*
*
*
*
* * * * |
AMENDED AND RESTATED AMENDED AND RESTATED AMENDED AND RESTATED DOCKET NO. CFNR-10-7779-S |
I. AMENDED AND RESTATED 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 the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) ("Regulations"). |
| 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 and examination into the activities of Respondents to determine if Respondents have violated, are violating or are about to violate provisions of the Act or Regulations ("Investigation"). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-27(a) of the Act. |
| 5. |
As a result of the Investigation, the Commissioner brings this administrative action pursuant to Section 36b-15(a) of the Act and Section 4-182(c) of the General Statutes of Connecticut to revoke the registration of WIC as a broker-dealer in Connecticut; revoke the registrations of Wadsworth as a broker-dealer agent and as an investment adviser agent in Connecticut; and revoke the registration of Wadsworth, Jr. as a broker-dealer agent in Connecticut.
|
| 6. |
As a result of the Investigation, the Commissioner has the authority to impose a fine against Respondents pursuant to Section 36b-27(d) of the Act. |
| 7. | As a result of the Investigation, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Revoke Registration as Broker-dealer Agent, Notice of Intent to Revoke Registration as Investment Adviser Agent, Notice of Intent to Fine and Notice of Right to Hearing against Respondents on August 11, 2010 (collectively "Order"), which Order is hereby restated and superseded. |
| 8. | Respondents requested a hearing on the matters alleged in the Order ("Hearing"). Subsequently, the Respondents and the Division requested continuances of the Hearing. The Hearing Officer continued the Hearing to a date that is to be determined. |
II. AMENDED AND RESTATED RESPONDENTS
| 9. | WIC and PTS are affiliated entities located at 879 Church Street, Route 68, Wallingford, Connecticut 06492. WIC has been registered as a broker-dealer under the Act since at least January 1, 1986. PTS has been registered as an investment adviser under the Investment Advisers Act of 1940 since October 12, 1990, and has made an investment advisory notice filing under Section 36b-6(e) of the Act ("Notice Filing"). |
| 10. | Wadsworth is a control person of WIC, as well as WIC's President and Chief Compliance Officer. Wadsworth has been registered as a broker-dealer agent of WIC under the Act since at least January 1, 1986. Wadsworth is also a control person of PTS, as well as PTS' Chief Compliance Officer and general partner. Wadsworth has been registered as an investment adviser agent of PTS under the Act since March 16, 2001. Wadsworth has also been registered as an investment adviser agent of ITS Asset Management, L.P. (CRD No. 106977) since January 2, 1996. |
| 11. |
Wadsworth, Jr. has been registered as a broker-dealer agent of WIC under the Act since November 11, 1996. Wadsworth, Jr. is also the national sales manager for PTS. |
III. AMENDED AND RESTATED STATEMENT OF FACTS
Books and Records Violations
| 12. | Pursuant to the Investigation, the Division requested certain books and records from WIC and PTS through correspondence and subpoenas. In particular, the Division requested from WIC a number of documents and required books and records including, inter alia, WIC's Written Supervisory Procedures ("WSP"), E-mail correspondence, any pre-signed blank client forms, a current list of employees and certain corporate documentation. |
| 13. | In response to the request for company E-mails, Wadsworth, on behalf of WIC, stated that WIC did not use or maintain E-mail accounts in conducting its business. However, during the Investigation the Division discovered that Wadsworth's statement was false and that WIC representatives, including Wadsworth and Wadsworth, Jr., routinely used personal and non-WIC E-mail accounts to conduct WIC business. WIC, however, did not maintain any of these business related E-mails. These business related E-mails are books and records that are required to be maintained and made available to the Commissioner on demand pursuant to Section 36b-14 of the Act and Sections 36b-31-14a and 36b-31-14f of the Regulations. |
| 14. | In response to the request for any pre-signed blank client forms, Wadsworth, on behalf of WIC, stated that WIC did not utilize or maintain such forms in conducting its business. However, during the Investigation the Division discovered that Wadsworth's statement was false and that WIC did, in fact, use and maintain such pre-signed blank client forms. |
| 15. | In response to the request for a current list of employees, WIC, through Wadsworth, provided a list of employees which did not include Stephen Frank, an officer of WIC, and Heidi Wayne, an employee of both WIC and PTS. |
| 16. | In response to the request for corporate documents pertaining to WIC's owners and officers, WIC refused to produce the records despite numerous warnings that a failure to produce these records could result in sanctions being imposed by the Commissioner. These corporate documents are books and records that are required to be maintained and made available to the Commissioner on demand pursuant to Section 36b-14 of the Act and Sections 36b-31-14a and 36b-31-14f of the Regulations. |
| 17. | In response to the request for the WSP, WIC did, in fact, provide the requested record. However, the WSP failed to address numerous areas of the WIC's securities business by failing to provide procedures for, inter alia, E-mail review and retention, and certain internal communications. |
Use of Pre-signed Blank Client Forms and False Signature Guarantees
| 18. |
During the Investigation, the Division discovered that PTS maintained various forms, including fee liquidation authorization forms, in substantially every customer file which were blank except for the client's signatures. Pre-signed blank client forms were also discovered by the Division in WIC's client files. |
| 19. | PTS routinely fills in the remaining information and utilizes these pre-signed blank client forms to obtain PTS management fees from third party funds. Because of PTS' and WIC's utilization of these pre-signed blank client forms, their clients have no prior knowledge that transactions have occurred, nor do the third party funds themselves have any way of knowing that the clients have not specifically authorized those transactions. |
| 20. |
In fact, on at least one occasion, PTS sent a securities liquidation form to a fund, purportedly signed by the client, notwithstanding the fact that the client had actually died months before. |
| 21. | These pre-signed blank client forms are also accessible to any employee in PTS' and WIC's office without restriction or supervision. Given this unrestricted access, the continued existence and use of these pre-signed blank client forms exposes the clients of PTS and WIC to a significant risk of fraud and increases the potential for misappropriation of client funds by WIC and PTS and/or their employees. |
| 22. | Furthermore, PTS and WIC continued to use these pre-signed blank client forms despite the fact that the United States Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA") previously warned PTS and Wadsworth that such a practice was in violation of rules and procedures. |
| 23. |
During the Investigation, the Division also determined that along with the blank pre-signed client forms PTS and WIC regularly maintained, pre-signed blank client forms which also had been signature guaranteed. A signature guarantee is a heightened signature verification used in the financial services industry to identify the signatory of a particular document. |
| 24. | The Division determined that employees of PTS regularly provide signature guarantees on PTS forms even though the employees had never seen the client, never spoken to the client, did not see the client actually sign the document and could not verify whether the signature was genuine. |
| 25. | Similar to the pre-signed blank client forms, these pre-signed blank and signature guaranteed client forms are accessible to any employee in the office without restriction or supervision, thus exposing the clients to further risk of fraud and increases the potential for misappropriation of client funds by WIC and PTS or their employees. |
Fraudulent Business Practices and Misrepresentations
| 26. | During the Investigation, the Division determined that, as regular business practice within the offices of WIC and PTS, employees of WIC and PTS, including Wadsworth, Jr., utilized false names and held themselves out to third party mutual funds as employees of other registered broker-dealers in order to gain access to client account information which otherwise would have been denied to them. |
| 27. | The employees of WIC and PTS regularly made these fraudulent calls at the direction of Wadsworth and Wadsworth, Jr. |
| 28. | During the Investigation, the Division discovered that, in addition to calling up mutual funds and employing false identities to gain information, the employees of WIC and PTS were routinely accessing these third party mutual fund's online client accounts and holding themselves out online as the clients to gain client information and engage in securities transactions in the client's account. |
| 29. | The employees of WIC and PTS engaged in these transactions despite the fact that they were not the broker of record on the mutual fund accounts and were not authorized by the mutual funds to access these accounts. |
| 30. | By engaging in these online transactions using the client's identity, WIC and PTS denied both the clients and the mutual funds the ability to appropriately and effectively monitor the accounts, including the suitability of a particular trade within an account, since it was impossible to determine who actually effected the transaction. |
False Statements
| 31. | On May 22, 2008, pursuant to the Investigation, the Division interviewed Wadsworth, Jr. on the record regarding certain aspects of the Investigation, including his use of false names to fraudulently obtain client information from mutual funds. In response, Wadsworth, Jr. told the Division that he had never used false names himself to obtain information from mutual funds, and that he had never directed any employee to use false names to obtain information from mutual funds. In fact, Wadsworth, Jr. had used false names himself with mutual funds and directed others to use false names with the mutual funds. |
| 32. | During the Investigation, the Division determined that as a regular part of Wadsworth's marketing of PTS, Wadsworth represented that he had many decades of experience in securities and that there had never been a complaint filed against him. Wadsworth also made such claims in an opinion piece written by him for a local paper and in numerous responses to the Division during the course of the Investigation. In fact, there had been a number of complaints made about Wadsworth to WIC and PTS, as well as various regulators. Furthermore, Wadsworth knew his statement about the absence of complaints was false because he, himself, had responded to the complaints in their various venues. |
Undisclosed Custody of Client Funds
| 33. | Through the use of the pre-signed blank and signature guaranteed client forms and the use of the client's online account access with the third party mutual funds, PTS is able to automatically obtain possession and take custody of client funds. |
| 34. | PTS, however, failed to disclose on their Notice Filing, filed with the Commissioner through the Investment Adviser Registration Depository, that it maintains custody of client funds. In fact, in response to the direct question regarding whether or not PTS maintained custody of client funds, PTS responded "no". |
WIC's Ownership Changes and Failure to Notify the Commissioner
| 35. | WIC, in its filings with the Commissioner submitted through the CRD, also submitted information regarding the direct and beneficial owners of WIC. The submission made by WIC states that the majority owner of WIC is the Wadsworth Family, LLC; a Connecticut registered Limited Liability Company. Wadsworth Family, LLC, however, was dissolved on September 30, 2010. To date, no amendment to WIC's filings with the Commissioner have been made regarding this change in ownership. |
Unregistered Securities Offerings
| 36. | During the Investigation, the Division also determined that from at least June 29, 2006 to the present, WIC, PTS and Wadsworth, from Connecticut, offered shares in a purported private offering investment opportunity named DECA ONE ("DO Shares") through letters and private communications with eighty-one potential investors. The DO Shares were never registered in Connecticut, nor were they covered securities, nor were they exempt from registration. |
Misrepresentations and Omissions to Clients
| 37. | During two in-person client seminars ("Seminars") and by letters dated November 2006 and March 2007 ("Letters"), WIC, PTS and Wadsworth made certain representations and recommendations to customers and clients of WIC and PTS. WIC, PTS and Wadsworth, inter alia, recommended to all of their clients that they transfer all of their holdings out of the Oppenheimer Fund Family ("Oppenheimer Funds"') into the AIM Fund Family ("AIM Funds"). In both the Seminars and the Letters, WIC, PTS and Wadsworth represented to their investors that: (a) the Oppenheimer Funds were the only fund family that will "not trade an account on the day PTS submits a trade", which forces PTS to wait a full day to implement their clients' instructions and results in delays which cost their clients tens of thousands of dollars; (b) PTS had a major buy in the High Yield Bond Category but that the Oppenheimer Funds refused to implement that buy instruction; (c) all other investors had signed the documents to exit the Oppenheimer Funds and enter the AIM Funds; and (d) Wadsworth and his family would be making the switch out of the Oppenheimer Funds into the AIM Funds. |
| 38. | The Seminars and Letters, however, failed to disclose, inter alia, that: (a) the Oppenheimer Funds were in the process of terminating the agreements of both WIC and PTS to sell the Oppenheimer Funds due to troubling business practices at both WIC and PTS; (b) the Oppenheimer Fund's method of implementing order instructions had been in existence since at least 2002, and had not changed; (c) the Oppenheimer Fund's method of implementing order instructions saved PTS' clients money in many circumstances; (d) the Oppenheimer Fund did not refuse to execute the buy instruction into the High Yield Bond Category; (e) not every investor had signed the documents to exit the Oppenheimer Funds and enter the AIM Funds; (f) investors would be paying substantial fees to make the switch out of the Oppenheimer Funds into the AIM Funds; and (g) Wadsworth and his family would not be paying any fees to make the switch into the AIM Funds. |
Unregistered Personnel
| 39. | During the Investigation, the Division discovered that Dale Aldieri ("Aldieri") (CRD No. 1230340), on behalf of WIC, routinely approved new account forms, issued compliance directives and memoranda to WIC's registered personnel, and held himself out as WIC's Chief Compliance Officer. At no point was Aldieri registered as a General Securities Principal with FINRA, nor had WIC provided evidence that Aldieri had taken and successfully passed an examination as principal given by the SEC or by a securities self-regulatory organization. |
Notice
| 40. | On June 9, 2009, January 5, 2010 and May 24, 2011, the Commissioner gave WIC, Wadsworth and Wadsworth, Jr. written notice pursuant to Section 4-182(c) of the General Statutes of Connecticut that they each may have engaged in conduct which, if proven, would constitute a basis for the suspension or revocation of their registrations in Connecticut, and gave them the opportunity to show compliance with all lawful requirements for the retention of their registrations in Connecticut. |
IV. AMENDED AND RESTATED STATUTORY AND REGULATORY BASIS
FOR ORDER TO CEASE AND DESIST,
REVOCATION OF REGISTRATIONS AS A BROKER-DEALER,
A BROKER-DEALER AGENT AND AS AN INVESTMENT ADVISER AGENT
AND ORDER IMPOSING FINE
a. Wilful Violation of Section 36b-l4(a) of the Act and
Section 36b-31-14a of the Regulations by WIC -
Failure to Maintain Books and Records
| 41. | Paragraphs 1 through 40, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 42. |
WIC's failure to maintain complete and accurate books and records and make such records available to the Commissioner, as more fully described in paragraphs 13 and 16, constitutes a wilful violation of Section 36b-14(a) of the Act and Section 36b-31-14a of the Regulations. Such wilful violation forms a basis for an order to cease and desist to be issued against WIC pursuant to Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of WIC pursuant to Section 36b-15(a) of the Act, and the imposition of a fine against WIC pursuant to Section 36b-27(d) of the Act. |
b. Wilful Violation of Section 36b-14(d) of the Act and
Section 36b-31-14f of the Regulations by WIC -
Failure to Provide Books and Records When Requested
| 43. | Paragraphs 1 through 42, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 44. |
WIC's failure to make its required books and records available to the Commissioner when so requested, as more fully described in paragraphs 13 and 16, constitutes a wilful violation of Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations. Such wilful violation forms a basis for an order to cease and desist to be issued against WIC pursuant to Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of WIC pursuant to Section 36b-15(a) of the Act, and the imposition of a fine against WIC pursuant to Section 36b-27(d) of the Act. |
c. Wilful Violation of Section 36b-31-6f of the Regulations by WIC -
Failure to Enforce and Maintain Adequate Supervisory Procedures
| 45. | Paragraphs 1 through 44, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 46. |
WIC's failure to provide procedures for, inter alia, E-mail review and retention and certain internal communications, as more fully described in paragraph 17, and WIC's allowance of Aldieri to act as its Chief Compliance Officer, as more fully described in paragraph 39, constitute wilful violations of Section 36b-31-6f of the Regulations, which forms a basis for an order to cease and desist to be issued against WIC pursuant to Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of WIC pursuant to Sections 36b-15(a) of the Act, and the imposition of a fine against WIC pursuant to Section 36b-27(d) of the Act. |
d. Violations of Section 36b-4 of the Act by Respondents -
Fraud in Connection with the Offer and Sale of any Security
| 47. | Paragraphs 1 through 46, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 48. |
The conduct of WIC, PTS, Wadsworth, and Wadsworth, Jr., as more fully described in paragraphs 18 through 30, inclusive, and paragraphs 37 and 38, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. The conduct of WIC, PTS, Wadsworth, and Wadsworth, Jr., as more fully described in paragraphs 18 through 30, inclusive, also constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly engaging in a dishonest or unethical practice. Such conduct constitutes a wilful violation of Section 36b-4 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the Act, the revocation of the registrations in Connecticut of WIC, Wadsworth and Wadsworth, Jr. pursuant to Section 36b-15(a) of the Act, and the imposition of a fine against Respondents under Section 36b-27(d) of the Act. |
e. Violations of Section 36b-5 of the Act by PTS -
Fraudulent Investment Adviser Activity
| 49. | Paragraphs 1 through 48, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 50. |
The conduct of PTS, as more fully described in paragraphs 18 through 30, 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 employing a device, scheme or artifice to defraud the other person, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon such other person. Such conduct constitutes a violation of Section 36b-5 of the Act, which forms a basis for an order to cease and desist to be issued against PTS under Section 36b-27(a) of the Act, and the imposition of a fine against PTS under Section 36b-27(d) of the Act. |
f. Dishonest and Unethical Practices by WIC, Wadsworth and Wadsworth, Jr.
| 51. | Paragraphs 1 through 50, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 52. |
The conduct of WIC, as more fully described in paragraphs 18 through 30, inclusive, is conduct which constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a of the Regulations, which forms a basis for an order to cease and desist to be issued against WIC under Section 36b-27(a) of the Act, and the revocation of the registration in Connecticut of WIC pursuant to Section 36b-15(a) of the Act. |
| 53. | The conduct of Wadsworth, as more fully described in paragraphs 18 through 30, inclusive, is conduct which constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15b of the Regulations, which forms a basis for an order to cease and desist to be issued against Wadsworth under Section 36b-27(a) of the Act, and the revocation of the registration in Connecticut of Wadsworth pursuant to Section 36b-15(a) of the Act. |
| 54. | The conduct of Wadsworth, Jr., as more fully described in paragraphs 18 through 30, inclusive, is conduct which constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15b of the Regulations, which forms a basis for an order to cease and desist to be issued against Wadsworth, Jr. under Section 36b-27(a) of the Act, and the revocation of the registration in Connecticut of Wadsworth, Jr. pursuant to Section 36b-15(a) of the Act. |
g. Violation of Section 36b-23 of the Act by Wadsworth and Wadsworth, Jr. -
Making a Statement in an Investigation that is
False or Misleading in a Material Respect
| 55. | Paragraphs 1 through 54, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 56. |
Wadsworth's statements to the Division, as more fully described in paragraphs 13, 14,15 and 32, were, at the time and in light of the circumstances under which they were made, false or misleading in a material respect, which constitutes a wilful violation of Section 36b-23 of the Act. Such wilful violation forms a basis for an order to cease and desist to be issued against Wadsworth under Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of Wadsworth under Section 36b-15(a) of the Act, and the imposition of a fine against Wadsworth under Section 36b-27(d) of the Act. |
| 57. | Wadsworth, Jr.'s statements to the Division, as more fully described in paragraph 31, were, at the time and in light of the circumstances under which they were made, false or misleading in a material respect, which constitutes a wilful violation of Section 36b-23 of the Act. Such wilful violation forms a basis for an order to cease and desist to be issued against Wadsworth, Jr. under Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of Wadsworth, Jr. under Section 36b-15(a) of the Act, and the imposition of a fine against Wadsworth, Jr. under Section 36b-27(d) of the Act. |
h. Violation of Section 36b-23 of the Act by PTS-
Filing a Materially False Document
| 58. | Paragraphs 1 through 56, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 59. |
PTS' denial that it maintained custody of client funds in a document filed with the Commissioner, as more fully described in paragraph 34, was a statement that is, at the time and in light of the circumstances under which it was made, false or misleading in a material respect, which constitutes a violation of Section 36b-23 of the Act. Such violation forms a basis for an order to cease and desist to be issued against PTS under Section 36b-27(a) of the Act, and the imposition of a fine against PTS under Section 36b-27(d) of the Act. |
i. Wilful Violation of Section 36b-31-14e(a) of the Regulations by WIC -
Failure to Promptly File a Correcting Amendment
| 60. | Paragraphs 1 through 59, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 61. |
WIC's failure to update the Commissioner regarding its ownership changes, as more fully described in paragraph 35, constitutes a wilful violation of Section 36b-31-14e(a) of the Regulations, and such wilful violation forms a basis for an order to cease and desist to be issued against WIC pursuant to Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of WIC pursuant to Section 36b-15(a) of the Act, and the imposition of a fine against WIC pursuant to Section 36b-27(d) of the Act. |
j. Wilful Violations of Section 36b-16 of the Act by WIC, PTS and Wadsworth -
Offer and Sale of Unregistered Securities
| 62. | Paragraphs 1 through 61, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 63. |
WIC, PTS and Wadsworth effected the offer and sale of the DO Shares, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 36. The offer and sale of such securities absent registration constitutes a wilful violation of Section 36b-16 of the Act, and such wilful violation forms a basis for an order to cease and desist to be issued against WIC, PTS and Wadsworth pursuant to Section 36b-27(a) of the Act, the revocation of the registrations in Connecticut of WIC and Wadsworth pursuant to Section 36b-15(a) of the Act, and the imposition of a fine against WIC, PTS and Wadsworth pursuant to Section 36b-27(d) of the Act. |
k. Wilful Violation of Section 36b-31-15e of the Regulations by WIC -
Allowing an Unregistered Chief Compliance Officer
| 64. | Paragraphs 1 through 63, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 65. |
WIC's behavior in allowing Aldieri to act as WIC's Chief Compliance Officer without providing evidence that Aldieri had currently taken and successfully passed an examination as principal given by the SEC or by a securities self-regulatory organization, as more fully described in paragraph 39, constitutes a wilful violation of Section 36b-31-15e of the Regulations. Such wilful violation forms a basis for an order to cease and desist to be issued against WIC pursuant to Section 36b-27(a) of the Act, the revocation of the registration in Connecticut of WIC pursuant to Section 36b-15(a) of the Act, and for the imposition of a fine against WIC pursuant to Section 36b-27(d) of the Act. |
V. AMENDED AND RESTATED ORDER TO CEASE AND DESIST,
NOTICE OF INTENT TO REVOKE REGISTRATIONS AS A BROKER-DEALER,
A BROKER-DEALER AGENT AND AS AN
INVESTMENT ADVISER AGENT, 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, WIC has committed at least one violation of Section 36b-14(a) of the Act, at least one violation of Section 36b-14(d) of the Act, at least one violation of Section 36b-4 of the Act, at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-31-14a of the Regulations, at least one violation of Section 36b-31-14f of the Regulations, at least one violation of Section 36b-31-6f of the Regulations, at least one violation of Section 36b-31-14e(a) of the Regulations, at least one violation of Section 36b-31-15e of the Regulations, and has engaged in conduct that constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a of the Regulations;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, PTS has committed at least one violation of Section 36b-4 of the Act, at least one violation of Section 36b-5 of the Act, at least one violation of Section 36b-23 of the Act, and at least one violation of Section 36b-16 of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Wadsworth has committed at least one violation of Section 36b-4 of the Act, at least one violation of Section 36b-23 of the Act, at least one violation of Section 36b-16 of the Act, and has engaged in conduct that constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15b of the Regulations;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Wadsworth, Jr. has committed at least one violation of Section 36b-4 of the Act, at least one violation of Section 36b-23 of the Act, and has engaged in conduct that constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15b of the Regulations;
WHEREAS, the Commissioner has reason to believe that such acts or conduct constitute grounds for revoking WIC's registration in Connecticut as a broker-dealer, Wadsworth's registrations in Connecticut as a broker-dealer agent and an investment adviser agent, and Wadsworth, Jr.'s registration in Connecticut as a broker-dealer agent, pursuant to Section 36b-15 of the Act;
WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist, the issuance of an order revoking the registrations of WIC, Wadsworth and Wadsworth, Jr. in Connecticut and the imposition of a fine against Respondents 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, notice is hereby given to WIC, Wadsworth and Wadsworth, Jr. that the [sic] their respective registrations in Connecticut shall be revoked, subject to each Respondents' [sic] right to request a hearing on the allegations set forth above;
WHEREAS, notice is hereby given to Respondents that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation;
WHEREAS, the Commissioner ORDERS that WIC CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) failing to maintain complete and accurate books and records and make such records available to the Commissioner, (2) failing to make its required books and records available to the Commissioner when so requested, (3) failing to maintain and enforce adequate supervisory procedures, (4) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, and engaging in any dishonest or unethical practice, (5) engaging in dishonest or unethical practices in the securities business, (6) failing to promptly file correcting amendments to its application for registration as a broker-dealer, (7) offering or selling unregistered securities in Connecticut, and (8) allowing unregistered Chief Compliance Officers;
WHEREAS, the Commissioner ORDERS that PTS CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, (1) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, and engaging in any dishonest or unethical practice, (2) 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, employing a device, scheme or artifice to defraud the other person, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon such other person, (3) filing documents with the Commissioner that contain statements which are, at the time and in light of the circumstances under which they are made, false or misleading in a material respect, and (4) offering or selling unregistered securities in Connecticut;
WHEREAS, the Commissioner ORDERS that Wadsworth CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, (1) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, and engaging in any dishonest or unethical practice, (2) engaging in dishonest or unethical practices in the securities business, (3) making statements to the Division which are, at the time and in light of the circumstances under which they are made, false or misleading in a material respect, and (4) offering or selling unregistered securities in Connecticut;
WHEREAS, the Commissioner ORDERS that Wadsworth, Jr. CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, and engaging in any dishonest or unethical practice (2) engaging in dishonest or unethical practices in the securities business, and (3) making statements to the Division which are, at the time and in light of the circumstances under which they were made, false or misleading in a material respect;
AND WHEREAS, pursuant to Sections 36b-15(f) and 36b-27 of the Act, Respondents will be afforded an opportunity for a hearing on the allegations set forth above.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, each 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.
This Amended and Restated Order to Cease and Desist shall remain in effect and become permanent against any Respondent that fails to appear at any such hearing.
The Commissioner shall issue an order revoking the registration in Connecticut of WIC, Wadsworth and Wadsworth, Jr. if any such Respondent fails to appear at any such hearing.
The Commissioner may order that the maximum fine be imposed upon any Respondent that fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | ________/s/________ | |
| this 1st day of June 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 1st day of June 2011, the foregoing Amended and Restated Order to Cease and Desist, Amended and Restated Notice of Intent to Revoke Registration as a Broker-dealer, Amended and Restated Notice of Intent to Revoke Registration as a Broker-dealer Agent, Amended and Restated Notice of Intent to Revoke Registration as an Investment Adviser Agent, and Amended and Restated Notice of Intent to Fine was sent by certified mail, return receipt requested, to Wadsworth Investment Co., Inc., 879 Church Street, Route 68, Wallingford, Connecticut 06492, certified mail no. 7010 1870 0001 3618 8799; Portfolio Timing Service d/b/a PTS Asset Management, 879 Church Street, Route 68, Wallingford, Connecticut 06492, certified mail no. 7010 1870 0001 3618 8805; William F. Wadsworth, 879 Church Street, Route 68, Wallingford, Connecticut 06492, certified mail no. 7010 1870 0001 3618 8812; William F. Wadsworth, Jr., 141 Four Mile Road, West Hartford, Connecticut 06107, certified mail no. 7010 1870 0001 3618 8829; and Stephen Frank, P.O. Box 129, North Conway, New Hampshire 03860, certified mail no. 7010 1870 0001 3618 8836.
| ______/s/__________ | |
| Jesse B. Silverman | |
| Prosecuting Attorney |