Connecticut Advisor Banned From Securities Industry For Life

April 22--The founder and former president of Essex Financial Services has been banned for life from working in the securities industry as part of a plea agreement involving charges that he obstructed a federal investigation.

John W. Rafal, 67, of Old Lyme was sentenced Thursday in U.S. District Court in Boston by Judge Nathaniel M. Gorton to one year of probation, with four months in home detention and a fine of $4,000. In addition, Rafal was ordered to pay the U.S. Securities and Exchange Commission nearly $600,000 in penalties.

According to a news release from the U.S. Attorney's Office in Massachusetts, Rafal was accused of "attempting to conceal secret and improper referral payments he made in order to secure the business of a wealthy client."

Rafal had served as chief executive of Essex Financial until 2013, when he stepped down to vice chairman. In 2015, after the state Banking Commission cited Rafal for "dishonest and unethical" practices related to the unrevealed referral fees, Essex Financial, owned by Essex Savings Bank, fired him.

A January summary of the case provided by the SEC offered a few details not previously disclosed, including the fact that Rafal's violations started with a tempting offer in 2010 by longtime friend Peter Hershman, a Branford attorney, to steer the account of a wealthy widow with more than $100 million in assets to Essex Financial.

In 2011, Hershman asked for, and Rafal agreed to, an annual fee of $50,000 for the referral, a payment that would have been legal had Hershman been a registered financial investment adviser representative and if the fee had been disclosed to the client. Because neither was the case, the payment represented a conflict of interest, according to the SEC.

"Rafal knew that this undisclosed payment violated federal and state regulations," the U.S. Attorney's Office said. "After Rafal had already paid a portion of the fee, his company discovered the payments, stopped them, and directed Rafal to have the attorney return the money that had already been paid."

But Rafal then secretly paid the referral fee out of his own private checking account, according to SEC documents. And, when rumors took root in 2013 that Rafal was under SEC investigation for securities law violations, he sent out emails to clients falsely stating that he had been completely absolved of the allegations.

"When Rafal's emails were discovered by senior officials at Essex, they instructed Rafal to retract the emails immediately," according to the SEC overview.

According to documents, Rafal then compounded his mistakes by testifying in May 2015 to SEC staff that he had returned all monies previously paid to Hershman, never revealing that he had been paying his friend under the table.

"Rafal intentionally misled the commission staff to believe that Hershman was no longer in possession of any money or compensation for Hershman's referral ... to Essex," according to the SEC documents.

Rafal has said in the past that he wants to put the incident behind him. An attorney for Rafal, John Sylvia of the law firm Mintz, Levin, Cohn, Ferry, Glovsky and Popeo, said Friday in an email response to a reporter's inquiry that the former top-ranked financial adviser was looking forward to starting anew.

"Mr. Rafal is glad to have this matter resolved and looks forward moving on with his life," Sylvia said. He previously emphasized to the online publication Investment News: "No client lost any money as a result of Mr. Rafal's actions."

Essex Financial, which didn't respond to an email inquiry from The Day on Friday, has said in the past that it conducted an independent review of Rafal's actions and cooperated fully with the SEC, changing its procedures to make sure nothing of the kind happens again.

"We take any compliance matter very seriously," Doug Paul, chairman of Essex Financial Services, told Investment News in January. "We are happy to have this matter behind us now and we look forward to continued growth and success."

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