Acclaimed Connecticut Advisor Accused of Lying to State Investigators
An acclaimed advisor whose brokerage and advisory licenses were suspended last year by the state of Connecticut is under new scrutiny that could cost him $200,000 for misleading investigators about payments he made to get client referrals.
The state’s Department of Banking on August 19 issued a cease-and-desist order against John W. Rafal, the founder and former chief executive of Essex Financial Services, a registered investment advisor and broker-dealer owned by Essex Savings Bank. Essex Financial oversees $2.7 billion of client assets, including $1.1 billion on a discretionary basis, according to a regulatory filing in July.
Ranked 6th in Barron’s 2015 Top 100 Independent Financial Advisors poll and 2nd in the state, Rafal wrote checks from his personal accounts totaling almost $50,000 to a lawyer who referred a multi-million dollar account after his firm barred payments when discovering the lawyer was not an investment adviser agent, the order said.
Rafal signed a consent order with Connecticut last November, and was fired by Essex a month later, for ordering an employee to mischaracterize a $25,190 payment to the lawyer as being for legal fees. But in its latest proceeding, the state banking commissioner said Rafal never indicated he had personally reimbursed the lawyer for the payment the lawyer subsequently returned and had cut him another personal check for $24,750 “in direct defiance” of Essex’ instructions.
It charged Rafal with omitting material facts and dishonest or unethical business practices, and said he could be fined up to $100,000 for each regulatory violation. Rafal, who was given two weeks to request a hearing on the cease-and-desist order, did not return a call for comment.
The new evidence about Rafal’s personal payments were not addressed in his 2015 consent order and was obtained from the Securities and Exchange Commission, the state banking department said. The SEC last November sent Rafal a Wells Notice informing him that it was likely to charge him with securities violations. An SEC spokeswoman declined to comment on the status of the investigation or on Rafal’s response.
A spokesman for Rahal told AdvisorHub last December that the referral issue was a one-time event and that the executive otherwise had a “perfect regulatory record” since founding Essex Financial in 1982. Rafal began his brokerage career with Cigna Securities in 1975.
John Sylvia, a Boston-based lawyer at Mintz Levin who represented Rafal in last year’s proceedings, declined to comment other than to say that he has not discussed the new charges with the former executive.
“Theday,” an online eastern Connecticut newspaper, reported that the state last year fined Peter D. Hershman $3,500 for accepting the referral payment from Essex. “I can’t comment,” the New Haven-based lawyer said when asked about the latest charges and his relationship with Rafal.