Securities Violations: Thomas Doncaster's Charges and Notice of Intent to Cease and Desist, Summaries of Business

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STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 1 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 STATE OF WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS SECURITIES DIVISION IN THE MATTER OF DETERMINING Whether there has been a violation of the Securities Act of Washington by: Thomas Doncaster, Respondent ) ) ) ) ) ) ) ) Order Number S-06-137-08-SC01 STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS ) THE STATE OF WASHINGTON TO: Thomas Doncaster STATEMENT OF CHARGES Please take notice that the Securities Administrator of the State of Washington has reason to believe that Respondent, Thomas Doncaster, has violated the Securities Act of Washington and that his violations justify the entry of an order of the Securities Administrator under RCW 21.20.390 to cease and desist from such violations, under RCW 21.20.110(1) to impose fines, and under RCW 21.20.110(7) to charge costs. The Securities Administrator finds as follows: TENTATIVE FINDINGS OF FACT Respondent 1. Thomas Doncaster (“Doncaster”) is a registered securities salesperson in the State of Washington. His Financial Industry Regulatory Authority securities salesperson identification number is 1926394. Doncaster is the owner of Doncaster Insurance and Financial Services, Inc. (“Doncaster Financial”) of Kennewick, Washington. From February 1989 to STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 2 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 October 2002 Doncaster was licensed to sell securities through NYLife Securities, Inc; from October 2002 to May 2008 through Centaurus Financial, Inc.; and since May 2008 through Independent Financial Group, LLC. Nature of the Conduct Unsuitable Sales, False Account Applications and Forged Signatures 2. Doncaster made unsuitable investment recommendations for the purchase of variable annuities to at least three clients and filed false account applications for at least three clients so that the company underwriting the variable annuity would issue the contracts to these clients. Additionally, at least one client’s signature has been forged on an account application and replacement notice form. Investor A 3. Investor A, an elderly woman from Kennewick, Washington, has been a client of Doncaster since 2004. In September 2006 Doncaster sold Investor A a $100,000 variable annuity with a Minimum Guaranteed Income Benefit. The variable annuity application form submitted to ING by Doncaster showed Investor A’s date of birth as February 21, 1930 when in fact her true date of birth was February 21, 1920, making her 86 at the time of purchase. 4. Had Doncaster provided ING with the accurate date of birth for Investor A, the application was a candidate for rejection by ING because of Investor A’s age. According to ING’s prospectus, the variable annuity contract purchased by Investor A was generally not offered to applicants over the age of 80. 5. The application also stated that the annuitant had to be under the age of 80 at the time of purchase to get the Minimum Guaranteed Income Benefit rider. A Minimum Guaranteed Income Benefit rider offers, for a fee, the annuitant the benefit of a guaranteed STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 5 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Client Communication 16. Doncaster provided written correspondence, including letters and emails, to numerous clients that were not approved by the firm he was working for at the time. This correspondence included letters that Doncaster knew or should have known would not be approved by the firm. Investor D 17. Investor D, a retired man from Richland, Washington, first became client of Doncaster in 2000. At the time, Investor D, who was on disability and in poor health, had sold a house and went to Doncaster to invest the proceeds of the sale. In July 2000 Doncaster sold Investor D an $80,000 variable annuity. On August 7, 2000, Investor D sent a letter to Doncaster stating that a local credit union was offering a three year certificate of deposit earning a 7% per year return and that any investment with Doncaster should earn more than that. Doncaster provided Investor D with a letter dated August 10, 2000 regarding investing through Doncaster stating that “It is my estimate that if we allow the account to grow and re-invest for the next three years, your balance should be approximately $112,000.” 18. Doncaster provided Investor D with a projection of what his account would be worth in three years when Doncaster did not have the ability predict how the securities market, and specifically, how Investor D’s investments would perform during that three year period. 19. Doncaster did not seek approval from the firm prior to delivery of the letter to the investor. Doncaster knew that he needed prior approval to make such promises and guarantees, and Doncaster knew that he would not receive approval to send the information to his clients based upon prior experience. In 1998 Doncaster sought approval from his investment adviser at the time, NY Life Insurance Company (“NY Life”), to provide a client account statements that Doncaster created. NY Life declined to approve the request because it violated a company STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 6 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 policy that requires all account statements provided to clients to be created by the firm, not the representative. Investor E 20. Investor E, an elderly man from Kennewick, Washington, has been a life insurance client of Doncaster beginning in 1995. Beginning in January 1999 and continuing through at least December 1999, Investor E purchased over $120,000 in variable annuities from Doncaster. Some of those funds came from the proceeds of an insurance settlement when his business was destroyed by a fire. On February 4, 2000, Doncaster provided a letter to Investor E, when the current account balance was $118,013.93, that stated, in part: “It is my projection that your portfolio will be worth $150,000.00, four years and three months from today. This is also taking into account that we will be redeeming $975.00 per month and having you spend that as you desire. The deal is this ---- if I am correct, then I’ll expect for you to send me a check for the amount over $150,000.00. If I am incorrect, I’ll make up the difference for any short fall to the $150,000.00.” 21. This letter is both a projection of future account value and offers a guarantee to the client on the future performance of the investment recommended by Doncaster. Doncaster did not have the ability predict how the securities market and specifically, how Investor E’s investments would perform during that time period. Providing a guarantee, prediction or projection of investment performance to a client for type of investment is a prohibited practice according the Field Supervision Manual and Registered Representatives Handbook of NY Life in place at the time of the offer. 22. Doncaster did not seek or receive approval from the firm, NY Life, prior to delivery to the investor. Doncaster knew that he needed prior approval to make such promises and guarantees, and Doncaster knew that he would not receive approval to send the information to clients based upon his firm’s policies and prior experience. STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 7 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Investor F 23. Investor F, an elderly woman formerly of Kennewick, Washington, has been a client of Doncaster since 1989. Investor F and her now deceased husband had purchased multiple investment products from Doncaster over the years. Between February 2000 and March 2001, Doncaster prepared and sent Investor F at least eight account statements reflecting current balances and rates of return on a number of these investments. 24. Doncaster did not seek or receive prior approval from NY Life prior to providing the account statements to Investor F. 25. In December 2005, Doncaster was sent a letter from John Marcheso, his supervisor while with Centaurus, stating that all email and written correspondence required prior approval from his office prior to sending to the client. 26. Doncaster sent multiple emails in 2006 to clients without prior approval from his firm at the time using his personal email account in violation of the policies and procedures of the firm. Doncaster knew that he needed prior approval before providing clients with written communication and he failed to obtain that approval. Deceptive Advertising and Promotion 27. Doncaster provided misleading information to clients and potential clients regarding the securities licenses that he possessed on multiple occasions. Newspaper advertisements that ran in the Tri-City Herald from August 2006 through at least June 2007 by Doncaster stated in part: Tom Doncaster is a Registered Representative with Centaurus Financial, Inc. an independent broker/dealer, member NASD & SIPC. REGISTERED INVESTMENT ADVISOR STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 1 0 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 by WAC 460-22B-090(14) and is a ground for the suspension of a securities salesperson license and a fine pursuant to RCW 21.20.110(1)(b). 5. In displaying a diploma from Ashwood University and generic awards, Respondent, Thomas Doncaster, committed a dishonest or unethical business practice as defined by WAC 460-22B-090(16) and is grounds for the suspension of a securities salesperson license and a fine pursuant to RCW 21.20.110(1)(b). 6. In submitting false or misleading client information forms, Respondent, Thomas Doncaster, caused Centaurus Financial, Inc.’s books and records to be inaccurate in violation of NASD Conduct Rule 3110. Such conduct is a dishonest or unethical business practice as defined by WAC 460-22B-090(19) and is grounds for the suspension of a securities salesperson license and a fine pursuant to RCW 21.20.110(1)(b). 7. In placing newspaper advertising with misleading information regarding his licensing status as an investment adviser representative Thomas Doncaster violated 21.20.040(3). Such conduct is a dishonest or unethical business practice as defined by WAC 460-22B-090(16) and is grounds for the suspension of a securities salesperson license and a fine pursuant to RCW 21.20.110(1)(b). NOTICE OF INTENT TO ORDER THE RESPONDENT TO CEASE AND DESIST Pursuant to RCW 21.20.390, and based on the above Tentative Findings of Fact and Conclusions of Law, the Securities Administrator intends to order that Thomas Doncaster cease and desist from violations of RCW 21.20.010, RCW 21.20.702, RCW 21.20.040, and WAC 460-22B-090. NOTICE OF INTENT TO IMPOSE FINES STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 1 1 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Pursuant to RCW 21.20.110(1), and based upon the Tentative Findings of Fact and Conclusions of Law, the Securities Administrator intends to order that Respondent, Thomas Doncaster, shall be liable for and pay a fine of $65,000. NOTICE OF INTENT TO CHARGE COSTS Pursuant to RCW 21.20.110(7), and based upon the Tentative Findings of Fact and Conclusions of Law, the Securities Administrator intends to order that Respondent, Thomas Doncaster, shall be liable for and pay the costs, fees, and other expenses incurred in the conduct of the investigation of this matter in an amount not less than $5,000. AUTHORITY AND PROCEDURE This Statement of Charges is entered pursuant to the provisions of Securities Act and is subject to the provisions of Chapter 21.20 RCW and RCW 34.05. The Respondent, Thomas Doncaster, may make a written request for a hearing as set forth in the NOTICE OF OPPORTUNITY TO DEFEND AND OPPORTUNITY FOR HEARING accompanying this order. If the Respondent does not request a hearing, the Securities Administrator intends to adopt the above Tentative Findings of Fact and Conclusions of Law as final, and enter a final order to cease and desist, to impose fines, and to charge costs to the Respondent. // // // // // STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER ORDER TO CEASE AND DESIST, TO IMPOSE FINES, AND TO CHARGE COSTS 1 2 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 // 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SIGNED and ENTERED this 26th day of January 2010. __________________________________ MICHAEL E. STEVENSON Securities Administrator Approved by: Presented by: _________________________________ __________________________________ Suzanne Sarason Tyler Letey Chief of Compliance and Examination Financial Legal Examiner Reviewed By: __________________________________ Martin Cordell Financial Legal Examiner Supervisor