Connecticut Securities Bulletin Winter 2018

State of Connecticut Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXII No. 4 - Winter 2018

Features

Quarterly Statistical Summaries

Enforcement and Other Highlights

Administrative Actions

Consent Orders

Stipulation and Agreements

ADMINISTRATIVE ACTIONS

Voya Financial Advisors, Inc. (CRD No. 2882) - Amended Order to Cease and Desist, Amended Order to Make Restitution and Amended Notice of Intent to Fine Issued

On November 13, 2018, the Banking Commissioner issued an Amended and Restated Order to Cease and Desist, Amended and Restated Order to Make Restitution, Amended and Restated Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-18-8430-S) against Voya Financial Advisors, Inc. f/k/a ING Financial Partners, Inc. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act and maintains its principal office at 699 Walnut Street, Suite 1000, Des Moines, Iowa 50309. The action had been preceded by an April 23, 2018 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-18-8430-S).

The original action was an outgrowth of an investigation into the firm's failure to exercise supervisory controls over various agents overseen remotely from the firm's Grafton, Massachusetts office. Among the agents was Connecticut agent Dale Joseph Quesnel, Sr. (CRD No. 2231152) who allegedly engaged in improper selling away, and sold $1.9 million of securities issued by Overtime Marketing, LLC, Overtime Sports Southeast, LLC and Overtime Sports Southwest, LLC (the "Overtime Entities") as well as $250,000 of securities issued by Floridel, LLC. The action seeks restitution for those who invested in the Overtime Entities and in Floridel, LLC while Quesnel was associated with Voya Financial Advisors, Inc. The original action also cited alleged misconduct by Texas agent Daniel Tapia (CRD No. 2219749) who, despite Voya Financial Advisors, Inc.'s objection, paid Quesnel $35,000 for securities research for Tapia's business, Rembrandt Financial Group, LLC. The action also alleged that Voya Financial Advisors, Inc. failed to supervise the activities of Florida agent Stephen Mark Ruff (CRD No. 1527170) who, contrary to the firm's request, failed to completely sever his ties with Floridel, LLC. In addition, the action alleged that Voya Financial Advisors, Inc. was remiss in supervising Connecticut agent Eric Olojugba (CRD number 2925206) who failed to amend his Form U4 to reflect his outside business activity.

The amended action added additional claims supporting the firm’s alleged supervisory deficiencies. The amended action alleged that the firm also failed to detect agent Quesnel's outside business activity involving his serving as treasurer of a Connecticut tax district, and his transferring funds from the tax district's bank account to his own bank account at Rockville Bank, an account over which Voya Financial Advisors, Inc. had oversight. The amended action also alleged that Voya Financial Advisors, Inc. failed to exercise adequate supervisory controls over Grafton Branch supervisor John J. McDonnell Jr. (CRD No. 4369031) who invested $300,000 in Floridel and signed multiple documents on behalf of Floridel. McDonnell was also named as a defendant in two lawsuits involving Floridel. More specifically, Voya Financial Advisors, Inc. allegedly failed to follow its own policies and procedures regarding such outside business activity by McDonnell.

The firm was afforded an opportunity for a hearing on the amended action.

CONSENT ORDERS

S P Consulting, LLC and Steven A. Posa d/b/a S P Financial Services Sanctioned for Unregistered Investment Advisory Activity

On December 21, 2018, the Banking Commissioner entered a Consent Order (No. CO-18-8382-S) with respect to Steven A. Posa of Bonita Springs, Florida and S P Consulting, LLC, a dissolved Connecticut limited liability company formerly located at 20 Summer Glen, Bristol, Connecticut. Posa was a founding member of S P Consulting, LLC. The Consent Order alleged that, from approximately August 2013 through June 2015, Posa, individually and on behalf of S P Consulting, LLC provided investment advisory services while unregistered to at least one Connecticut advisory client. Such conduct allegedly violated Section 36b-6(c) of the Connecticut Uniform Securities Act.

The Consent Order acknowledged that, under the oversight of their legal counsel, Posa and S P Consulting, LLC had paid the client $72,269.32 as reimbursement for advisory fees previously remitted and losses resulting from advisory services rendered during the period of unregistered activity.

The Consent Order directed Posa and S P Consulting, LLC to cease and desist from regulatory violations and fined Posa $7,500.

LPL Financial LLC Fined $499,000 as Part of Global Settlement Alleging Supervisory Deficiencies

On November 15, 2018, the Banking Commissioner entered a Consent Order (No. CO-18-8453-S) with respect to LPL Financial LLC, a Connecticut-registered broker-dealer having its principal place of business at 75 State Street, 22nd Floor, Boston, Massachusetts 02109. The Consent Order was the result of a multistate investigation and global settlement that focused on the firm’s failure to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, nonexempt securities to firm customers from approximately October 1, 2006 through May 1, 2018. The unregistered sales were partially attributable to a third party compliance data feed not being fully utilized to detect the problem.

Among other things, the Consent Order alleged that the firm 1) violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered, nonexempt securities in Connecticut; 2) violated Section 36b-31-6f of the Regulations under the Act by failing to maintain adequate supervisory systems; and 3) violated Sections 36b-14(a)(2) and 36b-14(a)(3) of the Act by failing to maintain books and records necessary to ensure full and proper compliance with Blue Sky laws, rules and regulations.

The Consent Order directed the firm to cease and desist from regulatory violations and to pay a $499,000 penalty to the state, representing Connecticut’s share of the global settlement. In addition, the Consent Order required the firm to 1) offer to repurchase from investors affected securities held in LPL accounts; and 2) implement a “top-to-bottom” review of firm operations, policies, procedures and practices.

STIPULATION AND AGREEMENTS

Romano Brothers and Company (CRD No. 3215) Assessed $5,040 for Prior Unregistered Activity

On December 11, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8476-S) with Romano Brothers and Company, an applicant for broker-dealer registration located at 1560 Sherman Avenue, Suite 1300, Evanston, Illinois. The Stipulation and Agreement alleged that the firm self-reported that it had previously transacted business as a broker-dealer in Connecticut while unregistered in contravention of Section 36b-6(a) of the Connecticut Uniform Securities Act. Three Connecticut clients were involved, the first two beginning their relationship with the firm after inheriting assets from a deceased customer who did not reside in Connecticut.

In resolution of the matter, the firm agreed to refrain from violative conduct, implement procedures designed to improve regulatory compliance and pay $5,040 to the agency. Of that amount, $2,500 constituted an administrative fine and $2,540 represented reimbursement for past due registration fees.

The firm became registered in Connecticut on December 11, 2018.

Renaissance Institutional Management LLC (CRD No. 136113)

On October 30, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8431-S) with Renaissance Institutional Management LLC, a broker-dealer located at 800 Third Avenue, New York, New York 10022. The firm is affiliated with Renaissance Technologies LLC, an SEC-registered investment adviser that manages certain private investment funds sold to financially sophisticated investors. The Stipulation and Agreement indicated that, in early 2018, the firm self-reported to the department that 1) it had acted as an intermediary in bringing together prospective investors and certain private investment funds managed by its advisory affiliate; and 2) at the time of such activity, the firm was not registered as a broker-dealer in Connecticut.

The firm has since filed an application for broker-dealer registration in Connecticut and has become registered as a broker-dealer in the state.

The Stipulation and Agreement acknowledged that the firm also voluntarily extended a rescission offer totaling approximately $100 million to those Connecticut entities and individuals who purchased fund shares during the preceding two year period. The average amount invested by each of the financially sophisticated Connecticut purchasers was approximately $1 million.

Pursuant to the Stipulation and Agreement, the firm agreed to refrain from regulatory violations and to implement revised supervisory and compliance procedures designed to improve its monitoring of state broker-dealer licensing requirements. The firm also agreed to pay a $3,500 fine to the department.

STATISTICAL SUMMARY

Licensing At A Glance

at the end of the quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Broker-dealers Registered

2,127

2,131

2,125

2,061

Broker-dealer Agents Registered

168,467

170,151

172,973

166,612

Broker-dealer Branch Offices Registered

2,568

2,571

2,570

2,530

Investment Advisers Registered

509

519

526

483

SEC Registered Advisers Filing Notice

2,192

2,214

2,238

2,165

Investment Adviser Agents Registered

14,113

14,333

14,553

14,380

Exempt Reporting Advisers

130

129

130

138

Agents of Issuer Registered

17

7

6

5

Conditional Registrations

0

1

0

0

Securities and Business Opportunity Filings

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Offerings Reviewed

44

33

32

31

140

Investment Company Notice Filings

494

505

479

7,617

9,095

Exemptions and Exemptive Notices

961

1,029

1,094

1,071

4,155

Examinations

Broker-dealers

32

26

27

29

114

Investment Advisers

39

41

30

33

143

Securities Investigations

Opened

20

20

18

19

77

Closed

13

11

21

14

59

Ongoing as of End of Quarter

77

87

84

90

Subpoenas issued

6

9

7

12

34

Matters referred from Attorney General

0

1

1

2

4

Matters referred from Other Agencies

3

1

4

2

10

Business Opportunity Investigations

Investigations Opened

0

0

0

0

0

Investigations Closed

2

1

0

0

3

Ongoing as of End of Quarter

1

0

0

0

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

0

0

0

0

0

Notices of Intent to Suspend (Licensing)

0

0

0

0

0

Notices of Intent to Revoke (Licensing)

0

1

0

0

1

Denial Orders (Licensing)

0

0

0

0

0

Suspension Orders (Licensing)

0

0

0

0

0

Revocation Orders (Licensing)

0

0

1

0

1

Notices of Intent to Fine

0

7

2

1

10

Orders Imposing Fine

2

1

13

0

16

Cease and Desist Orders

0

7

2

1

10

Notices of Intent to Issue Stop Order

0

0

0

0

0

Activity Restrictions/Bars

2

0

2

0

4

Stop Orders

0

0

0

0

0

Vacating/Withdrawal/ Modification Orders

0

0

0

0

0

Restitutionary Orders

0

4

2

1

7

Injunctive Relief Obtained

0

0

0

0

0

Proceedings and Settlements

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Administrative Actions

2

9

10

1

22

Consent Orders

2

3

5

2

12

Stipulation and Agreements

4

4

1

2

11

Monetary Relief*

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Monetary Sanctions Imposed

$240,485

$731,900

$915,000

$515,040

$2,402,425

Portion attributable to settlements

$40,485

$31,900

$35,000

$515,040

$622,425

Attributable to Court-Ordered Penalties

0

0

0

0

0

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$874,895

$75,750

$167,983

$100,252,269

$101,370,897

Cents eliminated

Securities Referrals

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Criminal Matters

1

0

0

1

2

Civil (Attorney General)

0

0

1

0

1

Other Agency Referrals

0

0

1

0

1