The SEC barred Connecticut investment adviser John Rafal for hiding a referral fee from a client and then attempting to thwart the SEC’s investigation. He was also pay $577,297 in penalties.

Rafal, the former president and CEO of Essex Financial Services Inc. in Essex, Connecticut, obtained a new customer with accounts valuing over $100 million from Peter D. Hershman, a Connecticut attorney, according to the SEC order. Rafal agreed to pay Hershman $50,000 annually from the advisory fees paid to Essex by the client, an elderly widow, the order said.

As part of the original agreement, Hershman was to become a registered investment adviser. But Hershman never took the test required to become an RIA, making him ineligible to receive the referral payments. Rather, between early 2011 and April 2013, Rafal and Hershman disguised the referral payments as fake invoices for legal services to the Essex client and did not disclose them to the client. When Essex stopped the arrangement, Rafal paid Hershman using other accounts, the SEC stated.

Rafal additionally attempted to conceal the SEC investigation from his other customers, falsely stating in emails to them between May 2013 and March 2014 that the SEC had completed its investigation and had cleared him and Hershman.

In the SEC settlement, John Rafal admitted guilt and agreed to pay a fine of $275,000, disgorgement of $275,000 and prejudgment interest of $27,297.72. He also was barred from the industry. The SEC additionally stated that Rafal misled the agency about additional payments he made to Mr. Hershman after Essex had ended their arrangement.

Hershman agreed to pay the SEC a settlement of $90,000 and was barred from the industry. Essex Financial Services paid the SEC more than $180,000 in disgorgement and interest.

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