John Rafal, who founded CT-based Essex Financial Services, has agreed to admit wrongdoing and pay more than $575,000 to settle SEC charges that he defrauded a client and then compounded his scheme by attempting to mislead SEC investigators while lying to other clients about the status of the SEC’s investigation.

Rafal is no longer affiliated with Essex Financial Services, which agreed to pay more than $180,000 in disgorgement and interest to settle charges related to Rafal’s misconduct.        

Meanwhile, the SEC’s Office of Inspector General, whose agents conducted a parallel investigation along with the U.S. Attorney’s Office for the District of Massachusetts, today announced a criminal case against Rafal for obstructing the proceedings of a federal agency.

WHAT RAFAL DID WRONG AS PER THE SEC.    Rafal secretly paid lawyer Peter Hershman for referring a legal client’s large account to Essex Financial Services.  Instead of disclosing the referral fee arrangement to the elderly widow who owned the account, as required by law, Rafal and Hershman agreed to disguise the payments as legal services purportedly provided by the lawyer’s firm. Further wrongdoings included:

• After other Essex officers discovered and stopped Rafal’s payment arrangement, Rafal continued to secretly pay the lawyer using other accounts he controlled.
• While the SEC’s investigation was ongoing, Rafal reacted to escalating rumors that he had committed a securities law violation by sending emails to Essex clients falsely stating that the SEC had “fully investigated all matters” and “issued a ‘no action’ letter completely exonerating” him and the firm.
• Rafal tried in vain to throw SEC enforcement investigators off the track.  During testimony while responding to direct questions about the referral fees, Rafal concealed the additional payments he made after Essex halted the arrangement and falsely indicated that the lawyer had returned all the money he was previously paid.

Peter D. Hershman, the lawyer involved in the payment scheme, agreed to pay more than $90,000 to settle SEC charges against him for aiding and abetting Rafal’s securities law violations. 

Both Rafal and Hershman also agreed to be barred from the securities industry and from serving as an officer or director of a publicly-traded company, and they agreed to be permanently suspended from appearing and practicing before the SEC as attorneys.