A former advisor was barred from the industry and fined over $575,000 as part of a settlement of an SEC fraud investigation, officials said.
Essex Financial Services founder John W. Rafal agreed to admit wrongdoing in connection with a secret referral scheme involving an elderly widow with assets over $100 million, the SEC announced Monday. He has also pleaded guilty to obstructing the agency’s investigation.
“Rafal misled one client by hiding referral fees, misled other clients by falsely stating the SEC’s investigation was over, and then attempted to mislead those investigating him,” Stephanie Avakian, acting director of the SEC’s Enforcement Division, said in a statement. “He will now be paying the price for his deceit.”
SEC investigators said Rafal, 66, disguised nearly $50,000 in payments to a lawyer for the widow as fees for legal services rather than disclosing it to her, as required under the law, according to the agency. Rafal made the payments between early 2011 and April 2013, investigators said.
Rafal then tried to tamp down “damaging rumors” he had violated securities law by telling his clients in emails that the regulator had “fully investigated all matters” and found no misconduct, according to SEC officials.
Later, he told investigators that the lawyer involved in the scheme, Peter Hershman, had returned all of the payments, according to the SEC. Rafal had sent Hershman checks secretly even after the company detected the payments and ordered them returned, investigators said.
Rafal pleaded guilty in December to obstructing the proceedings of a federal agency. His agreement with federal prosecutors, which is subject to a judge’s approval, calls for four months of home confinement, four months of probation and a $4,000 fine.
“Mr. Rafal is gratified to put this matter, which has been pending for several years, behind him,” his attorney, John Sylvia of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, said in a statement. “No client lost any money as a result of Mr. Rafal’s actions and Mr. Rafal is looking forward to opening a new chapter in his professional life.”
-
Dupree Financial Group was censured for shortfalls that firm's founder insists were not indicative of a lax compliance culture.
October 7 -
The former RIA and fund advisor was cited for multiple fiduciary violations in a day-trading scheme, pocketing profitable trades from a pooled account while burdening clients with the losses.
October 5 -
The first-ever case of its kind is putting other broker-dealers on notice about the regulator's enhanced abilities to identify patterns of abuse.
September 28
Essex Financial, which reported the undisclosed payments to the SEC in July 2013, agreed to pay over $180,000 to settle charges related to the scheme, according to the regulator. The company fired Rafal in November 2015, the SEC’s complaint shows.
“We are pleased to have reached a settlement with the SEC regarding events that transpired several years ago, at a time when John Rafal was our president and chief executive officer,” Essex Financial Chairman Doug Paul said in a statement.
Paul said the company’s board immediately retained outside counsel to conduct an investigation when learning of Rafal’s actions. Essex then alerted the SEC and took remedial action, he said.
“We take any compliance matter very seriously, and our responsive measures show that we are committed to the highest standards of business conduct,” Paul said. “We are happy to have this matter behind us now and we look forward to continued growth and success.”
Hershman, the lawyer involved in the case, agreed to pay over $90,000 to settle the SEC’s charges against him, officials said. The regulator also barred Hershman from the industry and permanently suspended him and Rafal from appearing before the SEC as attorneys.
Hershman’s lawyer didn’t respond to a call seeking comment.
Rafal’s federal charge carries a maximum punishment of up to five years in prison and a $250,000 fine. A U.S. District Court judge in Massachusetts scheduled a Jan. 20 hearing on his plea deal with federal prosecutors.
