COMMONWEALTH OF PENNSYLVANIA BEFORE THE

BANKING AND SECURITIES COMMISSION

IN THE MATTER OF

2018 AUG 15 Mi 9: 30

MALAGUTI WEALTH MANAGEMENT, LLC ROBERT MALAGUTI

ADMINISTRATIVE PROCEEDING Docket No.: 180012 (SEC-OSC)

RESPONDENTS

NOTICE OF RIGHT TO APPEAL

You are hereby notified that you have the right to appeal the attached Adjudication issued by the Presiding Officer of the Department of Banking and Securities.

If you wish to appeal the attached Adjudication you may file a petition for review with the Prothonotary of the Commonwealth Court of Pennsylvania that complies with the format and timing requirements of the applicable Pennsylvania Rules of Appellate Procedure. Pa. R.A.P. 1511-1561. Failure to file a petition for review within 30 days of the mailing date of this Order will result in the attached Adjudication becoming final and unappealable. You may reach the Commonwealth Court at 717-255-1650.

Please be advised that this Notice of Right to Appeal is not intended to and does not constitute legal advice.

Redacted

FINDINGS OF FACT

3. Paragraphs 1 and 2 are incorporated herein by reference as if set forth in their

entirety.

4. From in or about August 2014 until the present, MWM has been registered pursuant

to Section 30l(c) ofthe 1972 Act, 70 P.S. § 1~30l(c), as an investment adviser.

5. From in or about August 2014 until th6 present, Malaguti has been registered

pursuant to Section 30l(c) of the 1972 Act, 70 P.S. § 1-301(c), as an investment adviser

representative of MWM.

6. From in or about April 2014 until the present, Malaguti was the managing member,

president, and chief compliance officer ofMWM.

7. As the managing member, president, and chief compliance officer of MWM,

Malaguti acted as an "affiliate'' of MWM within the meaning of Section 1 02(b) of the 1972 Act,

70 P .S. § 1-1 02(b ), and, as such, caused MWM to commit the herein stated acts which violated the

1972 Act.

8. From in or about September 20 14 until March 20 17, MWM contracted with a

subadvisor ("Subadvisor") to manage MWM's advisory accounts.

9. The contract between MWM and the Subadvisor stated that the Subadvisor would

manage MWM' s client accounts on a discretionary basis.

10. MWM did not have discretionary authority from MWM's advisory clients to place

orders for the purchase and sale of securities.

11. There was no advisory contract between the Subadvisor and MWM's advisory

clients granting the Subadvisor discretionary authority to place orders for the purchase and sale of

securities.

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12. On April 11, 2018, the Bureau issued an Order to Show Cause ("Order") to

Respondent MWM and Respondent Malaguti pursuant to 1 Pa. Code § 3 5 .14. See, Exhibit A.

13. The Notice to Answer and Request a Hearing attached to the Bureau's Order

provided that the Respondents had thirty (30) days to file their answer from the date of the Order.

Respondents' answer was therefore due on May 11, 2018. 1 Pa. Code§ 35.37. See, Exhibit A.

14. Pursuant to the General Rules of Administrative Practice and Procedure

("GRAPP"), 1 Pa. Code§§ 31.1-35.251, orders "shall be served by the office of the agency by

mail ... by mailing a copy thereof to the person to be served, addressed to the person designated in

the initial pleading or submittal at his principal office or place of business." 1 Pa. Code§ 33.31.

15. The Pennsylvania Rules of Civil Procedure provide that "(i]f a rule of civil

procedure authorizes original process to be served by mail, a copy of the process shall be mailed

to the defendant by any form of mail requiring a receipt signed by the defendant or his authorized

agent. Service is complete upon delivery of the mail." Pa.R.C.P. Rule 403. ''Ifthe mail is returned

with notation by the postal authorities that the defendant refused to accept the mail, the plaintiff

shall have the right of service by mailing a copy to the defendant at the same address by ordinary

mail with the return address of the sender appearing thereon. Service by ordinary mail is complete

if the mail is not retumed to the sender within fifteen days after mailing." Pa.R.C.P. Rule 403(1).

16. On the Uniform Application for Investment Adviser Registration (Form ADV),

Respondent MWM and Respondent Malaguti indicate a principal place of business at 2243 Slater

Hill Lane West, York, Pennsylvania 17406 ("P.P.B. Address").

17. On April 11, 2018, the Bureau mailed the Order via certified mail to both

Respondent MWM and Respondent Malaguti at the P.P.B. Address.

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18. On April 11, 20 18, the Bureau mailed the Order via ordinary, first-class mail to

both Respondent MWM and Respondent Malaguti at the P.P.B. Address.

19. The United States Postal Service ("USPS") tracking information indicates that, on

April 13, 2018, the USPS attempted delivery of the certified mailing addressed to Respondent

Malaguti, but that no authorized recipient was available at the P.P.B. Address. See, Exhibit B.

20. USPS tracking information indicates that, on April16, 2018, the USPS attempted

delivery of the certified mailing addressed to Respondent MWM, but that the USPS was unable to

deliver the mailing because of a problem with the P.P .B. Address. See, Exhibit B.

21. The ordinary, first-class mailings sent to both Respondent MWM and Respondent

Malaguti at the P.P.B. Address were not retmned to the Bureau as undeliverable within fifteen

days after mailing.

22. On April 26, 2018, the Order was served via ordinary, first-class mail on both

Respondent MWM and Respondent Malaguti.

23. GRAPP provides that "[a] respondent failing to file [an] answer within the time

allowed shall be deemed in default, and relevant facts stated in the order to show cause may be

deemed admitted." 1 Pa. Code§ 35.37.

24. On May 29, 2018, the Bureau docketed and issued a Motion to Deem Facts

Admitted and Entry of Default Judgment related to the Bureau's Order against Respondent MWM

and Respondent Malaguti. See, Exhibit C.

25. Given that more than thirty days have transpired since the date of service of the

Order and no Answer has been filed, the Bureau requests that the facts as set forth in the Order be

deemed admitted pursuant to 1 Pa. Code§ 35.37, that a final order be entered with prejudice, and

that the penalties requested by the Bureau in the Order be imposed.

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CONCLUSIONS OF LAW

1. By engaging in the acts and conduct set forth in paragraphs 3 through 25 of the

Findings of Fact, Respondent MWM and Respondent Malaguti engaged in dishonest or unethical

practices in the securities business by placing an order to purchase or sell a security for the account

of a client without authority to do so, which acts and conduct for a basis to deny, suspend, revoke,

or condition the registration of Respondent MWM and Respondent Malaguti or censure

Respondent MWM and Respondent Malaguti pursuant to Section 305(a)(ix) of the 1972 Act, 70

P.S. § l-305(a)(ix), and Regulation 305.019(c)(3)(iv), 10 Pa. Code § 305.019(c)(3)(iv),

promulgated thereunder.

ORDER '!'!>'\.

AND NOW, this ) 5 day of ~~~w.0t, 2018, the Commissions finds that it is necessary -- u

and appropriate in the public interest, for the protection of investors, and consistent with the

purposes fairly intended by the policy and provisions of the 1972 Act, to issue the following Order:

1. Pursuant to Section 602.1(c)(1) ofthe 1972 Act, 70 P.S. § 1-601(c)(l), Respondent

MWM and Respondent Malaguti are ORDERED to pay $25,000.00 to the "Commonwealth of

Pennsylvania" within thirty (30) days from the date of this Order, which amount represents an

administrative assessment;

2. Respondent MWM and Respondent Malaguti are ORDERED to comply with the

1972 Act, and with the regulations promulgated thereunder, and in particular Section 305(a)(ix) of

the 1972 Act, 70 P.S. § l-305(a)(ix), and Regulation 305.019(c)(3)(iv), 10 Pa. Code §

305.0 19( c )(3)(iv), promulgated thereunder;

3. Should Respondent MWM and Respondent Malaguti fail to comply with any and

all provisions of this Order, the Commission may impose additional sanctions and costs and seek

other appropriate relief subject to Respondents' right to a hearing pursuant to the 1972 Act; and

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Redacted

Exhibit A

COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF BANKING AND SECURITIEs20 13 flPR I I A;; 0: 0 I

COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF BANKING AND SECURITIES, BUREAU OF SECURITIES COMPLIANCE AND EXAMINATIONS Docket No. : 18 ()0 \ )_ (SEC"OSC)

v. MALAGUTI WEALTH MANAGEMENT, LLC : ROBERT MALAGUTI

NOTICE TO ANSWER AND REQUEST A HEARING

You have the right to challenge the attached Order to Show Cause ("Order") by filing an Answer, in wnting, with the Docket Clerk within 30 days of the date of this Order as required by 1 Pa Code§ 35.37. Xfyou do not file an Answer within 30 days, then you will waive your right to a hearing and the Banldng and Securities Commission ("Commission") may enter a final order against you.

Your Answer must be in writing. Your Answer must specifically admit or deny the allegations in the Order, set forth the facts you rely upon, and state concisely the law upon which you 1·ely. General denials of the allegations set forth in the Order are not sufficient; you must support yom denials with specific facts. Faihue to support your denials with specific facts may cause the Commission to deem the facts in the Order as admitted and to enter a final order against you, without a hearing.

The Answer and any othe1 documents must be filed with the Docket Clerk:

Linnea Freeberg, Docket Clerk Department ofBanldng and Securities 17 North Second Street, Suite 1300 Hanisburg, PA 17101

Further, you must serve a copy of the Answer and any other documents on the pe1son who signed the Order by providing a copy to his or her colUlsel indicated below:

David Mm1·en Assistant Counsel Department of Banking and Securities 17 North Second Street, Suite 1300 Hm1'is burg, P A 171 0 1

Once you file your Answer, you will be notified of pertinent information such as the name ofthe presiding officer designated by the Commission to hear this matter and, if a hearing is scheduled, the date, time, and location of the headng. You have the right to be represented by an attomey.

The heal'ing and all othm procedural matters will be govemed by the Pennsylvania Administrative Agency Law, 2 Pa.C,S, §§ 501-508, 701-704, and the General Rules of Administrative Practice and Procedure, 1 Pa. Code§§ 31.1-35.251.

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Fll._E.I) COMMONWEALTH OF PENNSYLVANIA

DEPARTMENTOFBANiaNGANDS:ECURITIESzOIBAPR II All 9: Ol

COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF BANKING AND SECURITIES, BUREAU OF SECURITIES COMPLIANCE AND EXAMINATIONS

v. MALAGUTI WEALTH MANAGEMENT, LLC : ROBERT MALAGUTI

Docket No.: 18 (:)0 (;( (SEC-OSC)

ORDER TO SHOW CAUSE

You, Malaguti Wealth Management, LLC ("MWM") and Robert Malaguti ("Malaguti"),

are notified that the Department of Banking and Securities («Department"), through the Bureau of

Securities Compliance and Examinations ("Bureau") hereby ORDERS YOU TO SHOW

CAUSE why the Banking and Securities Commission ('1Commission") should not impose the

sanctions and remedies described below Specifically, this proceeding is instituted pursuant to 1

Pa. Code§ 35.14 to determine:

(1) whether the allegations set forth below are true; and

(2) if these allegations are true, whether there has been a violation of the Pennsylvania

Securities Act of 1972 (''1972 Act") or of the regulations promulgated iheretmder;

and

(3) if so, whether the sanctions and 1emedies proposed by the Bureau should be

imposed by the Commission.

The Bureau alleges the following facts and violations of law fm the purpose of tentatively

framing the issues for consideration by the Commission. The Commission may consider this

Redacted

8. From in or about April2014 until the ptesent, Malaguti was the managing member,

president, and chief compliance officer ofMWM.

9. As the managing member, president, and chief compliance officer of MWM,

Malaguti acted as an "affiliate" ofMWM within the meaning of Section 102(b) of the 1972 Act,

70 P .S, § 1 • 1 02(b ), and, as such, caused MWM to commit the herein stated acts which violated the

1972 Act.

10. From in or about September 2014 until March 2017, MWM contracted with a

subadvisor ("Subadvisor'') to manage MWM's advisory accounts.

11. The contract between MWM and the Sub advisor stated that the Subadvisol' would

manage MWM's client accounts on a discretionary basis

· 12. MWM did not have discretionary authol'lty fi:om MWM's advisory clients to place

orders for the purchase and sale of securities.

13. The1e was no advisory contl.act between the Subadvisor and MWM's advisory

clients granting the Subadvisor discretionary authority to place orders for the purchase and sale of

secUI'ities.

COUNTS

Conduct Forming Basis to Deny, Suspend, Revoke, or Condition the Registration of or

Cens11re MWM and Malaguti pursuant to Section 305(a)(ix) of the 1972 Act, 70 P.S. § 1-

305(a)(b:), and Regulation 305.019(c)(3)(iv), 10 Pa. Code§ 305.019(c)(3)(iv), Promulgated

Thereunder

11 Counts

14. Paragraphs 1 through 13 al'e incorp01ated herein by reference as if set forth in their

entilety.

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15. By engaging in the acts and conduct set forth in paragraphs 6 through 13 above,

MWM and Malaguti engaged in dishonest or unethical practices in the securities business by

placing an order to purchase or sell a security for t11e account of a client without authority to do

so, which acts and conduct form a basis to deny, suspend, revoke, Ol' condition the registration of

MWM and Malaguti or censure MWM and Malaguti pursuant to Section 305(a)(ix) of the 1972

Act, 70 P.S. § l-305(a)(ix), and Regulation 305.019(c)(3)(iv), 10 Pa. Code§ 305 019(c)(3)(iv)>

promulgated thereunder.

SANCTIONS AND REMEDIES

WHEREAS, the Bureau respectfully requests the penalties and relief pursuant to its

authority under the 1972 Act:

1. That an order be issued pursuant to Section 305 of the 1972 Act, 70 P.S. § 1-305,

that the registration ofMWM and Malaguti be suspended, revoked, or conditioned, or that MWM

and Malaguti be censured.

2. That an order be issued pursuant to Section 512 of the 1972 Act, 70 P.S. § 1-512,

which bats, conditionally or unconditionally, and either permanently or for such period of time as

may be determined, MWM and Malaguti :fi:om:

a. Representing an issuer offering or selling seclll'ities in this State;

b. Acting as a pwmoter, officer, director 01 pa1tner of an issuer (or an

individual occupying a similru· status or performing similru· functions)

offering or selling securities in ibis State or of a person who controls or is

controlled by such issuer;

c. Being registered as a brolcer"dealer, agent, investment adviser or investment

adviser repwsentative under Section 301 of the 1972 Act;

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Redacted

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Exhibit B

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RedactedRedacted

Exhibit C

FIL.En COMMONWEALTH OF PENNSYLVANIA

DEPARTMENT OFBANIQNGAND SECURJTriliMB NAY 29 AIJI 8: 08

r '\ ~:·~ f'P.n 1 i it: Ill 01

COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF BANIQNG AND SECURITIES, BUREAU OF SECURITIES COMPLIANCE AND EXAMINATIONS Docket No.: 180012 (SEC-OSC)

v. MALAGUTI WEALTH MANAGEMENT, LLC: ROBERT MALAGUTI

MOTION TO DEEM FACTS ADMITTED AND ENTRY OF DEFAULT JUDGMENT

The Commonwealth of Pennsylvania Department ofBanlcing and Securities, through the

Bureau of Securities Compliance and Examinations ("Bureau"), and its counsel, files this Motion

to Deem Facts Admitted and Entry of Default Judgment (11Motion") as set forth in 1 Pa. Code §

3 5.3 5. In support of its position, the Bureau states the following:

L On April 11, 2018, the Bureau issued an Order to Show Cause ("Order,) to

Malaguti Wealth Management, LLC ("MWM,) and Robert Malaguti (''Malaguti") (collectively,

"Respondents») pursuant to 1 Pa. Code§ 35.14.

2. The Notice to Answer and Request a Hearing attached to the Bureau's Order

provides that the Respondents had thirty (30) days to file their answer from the date of the Order.

Respondents' answer was the1efore due on May 11,2018, 1 Pa. Code§ 35.37,

3. Pursuant to the General Rules of Administrative Practice and ProcedU1'e, 1 Pa. Code

§§ 31.lw35,251, orders "shall be served by the office of the agency by mail. .. by mailing a copy

thereof to the person to be served, addressed to the person designated in the initial pleading 01'

submittal at his principal office or place of business." 1 Pa, Code§ 33 .31.

4. The Pennsylvania Rules of Civil Procedure provide that "[i]f a rule of civil

procedure authodzes original process to be served by mail, a copy of the process shall be mailed

to the defendant by any fonn of mail requiring a receipt signed by the defendant or his authorized

agent. Service is complete upon delivery of the mail." Pa.R.C.P, Rule 403. ''If the mail is returned

with notation by the postal authmities that the defendant refused to accept the mail, the plaintiff

shall have the l'ight of service by mailing a copy to the defendant at the same address by o1·dinary

mail with the return address of the sender appearing thereon. Service by ordinary mail is complete

if the mail is not returned to the sender withln fifteen days after mailing," Pa.R.C.P, Rule 403(1 ).

5. On the Uniform Application for Investment Adviser Registration (Fonn ADV),

MWM and Malaguti indicate a principal place of business at 2243 Slater Hill Lane West, York,

Pennsylvania 17406 ("P.P.B. Addl'essn).

6. On April 11, 2018, the Bureau mailed the Order via certified mail to both

Respondent MWM and Respondent Malaguti at the P .P .B. Addt·ess.

7, On April 11, 2018, the Bureau mailed the Order via ordinary, first-class mail to

both Respondent MWM and Respondent Malaguti at the P.P.B. Address,

8. The United States Postal Service ("USPS,) tracking information indicates that, on

April 13, 2018, the USPS attempted delivery of the certified mailing addressed to Respondent

Malaguti, but that no authorized recipient was available at the P.P.B. Address, See Exhibit A.

9. USPS tracking information indicates that, on Aprll16, 2018, the USPS attempted

delivery of the certified mailing addressed to Respondent MWM, but that the USPS was unable to

deliver the mailing because of a problem with the P .P .B, Address. See Exhibit A.

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Exhibit A

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