The lawyer involved in the case previously agreed to pay $90,000 to settle charges against him relating to illicit payments.

A Connecticut-based investment advisor has agreed to pay $575,000 to settle charges over defrauding clients and attempting to mislead a US financial watchdog while lying to other clients about the status of its investigation into his conduct.

According to the Securities and Exchange Commission order against John Rafal, he secretly paid a lawyer - Peter Hershman, who previously agreed to pay $90,000 to settle SEC charges against him - for referring a legal client's large account to Essex Financial Services, an investment advisory firm Rafal founded. Instead of disclosing the referral fee arrangement to an elderly widow who owned the account - as required by law - Rafal and the lawyer allegedly agreed to disguise the payments as legal services purportedly provided by the lawyer's organization. After other Essex Financial Services officers discovered and stopped Rafal's payment arrangement, he continued to covertly pay the lawyer using other accounts he controlled, the SEC said in a statement. 

The SEC's order also stated that while its investigation into Rafal was ongoing, he reacted to escalating rumors that he had committed a securities law violation by sending numerous emails to his clients falsely stating that the regulator has “fully investigated all matter” and “issued a 'no action' letter completely exonerating” himself and the firm. 

Additionally, the SEC alleged that Rafal attempted to throw SEC investigators off the scent. During testimony while responding to direct questions about the referral fees, he reportedly concealed the additional payments he made after Essex Financial Services terminated the initial arrangement and falsely indicated that the lawyer had returned all of the money he was previously paid. 

''Rafal misled one client by hiding referral fees, misled other clients by falsely stating the SEC's investigation was over, and then attempted to mislead those investigating him. He will now be paying the price for his deceit,'' said Stephanie Avakian, acting director of the SEC's enforcement division, adding: ''We will not tolerate attempts to mislead and we will continue to refer possible obstruction cases to the SEC's office of inspector general.''