DOB: News Bulletin 2063 - September 5, 2003

The Department of Banking News Bulletin

Bulletin # 2063
Week Ending September 5, 2003

This bulletin constitutes the only official notification you will receive from this office concerning any of the following applications. Any observations you may have are solicited. Any comments should be in writing to John P. Burke, Commissioner of Banking, at the Connecticut Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800 or via E-mail to john.burke@ct.gov. Written comments will be considered only if they are received within ten days from the date of this bulletin.


CREDIT UNION DIVISION ACTIVITY
Field of Membership

On September 3, 2003, pursuant to Section 36a-462(d) of the Connecticut General Statutes, as amended by Section 15 of Public Act 03-196, Corporate America Family Credit Union, Elgin, Illinois, filed an application to expand its field of membership to include employees of Mastercraft Tool and Machine Company, Inc., Southington, Connecticut, and employees of Electrical Energy Systems Corporation, Southington, Connecticut.

Conversion

On September 5, 2003, pursuant to Section 36a-468b of the Connecticut General Statutes, approval was granted to Stamford Credit Union, Inc., Stamford, CT to convert from a Connecticut credit union to a federal credit union.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY
Securities Forum 2003

The Securities and Business Investments Division, in conjunction with the Securities Advisory Council to the Department, is sponsoring its fifteenth annual Securities Forum conference on Monday, October 27, 2003 at the Sheraton Stamford Hotel in Stamford, Connecticut. An outstanding agenda of panel presentations will help broker-dealers, investment advisers, banks, credit unions and other financial industry professionals keep abreast of the very latest in regulatory developments. Securities and Exchange Commissioner Harvey J. Goldschmid is slated to present the keynote address. Securities Forum 2003 registration includes course materials and a luncheon. For further information, call the agency at (860) 240-8232, or log onto our website at www.ct.gov/dob/pages/sf2003.htm to download the registration form.

Investment Advisory Firm Assessed $1,200 for Unregistered
Investment Advisory Activity

On September 3, 2003, the Banking Commissioner entered into a Stipulation and Agreement with Newsholme Financial Group, Inc. of 40 Triangle Center, Suite 215, Yorktown Heights, New York. The investment advisory firm became subject to SEC oversight on June 30, 2003 when its assets under management exceeded $25 million. The Stipulation and Agreement alleged that from approximately 2002 until June 30, 2003, Newsholme Financial Group, Inc. transacted business as an investment adviser in Connecticut absent registration under Section 36b-6(c) of the Connecticut Uniform Securities Act and engaged an unregistered investment adviser agent. In entering into the Stipulation and Agreement, the Commissioner noted that the firm had brought its unregistered activity to the department's attention in conjunction with an application for state registration that was filed prior to the time the firm became eligible for SEC registration. The Stipulation and Agreement required that the firm pay $1,200 to the department. Of that amount, $1,000 constituted an administrative fine and $200 represented past due investment adviser and investment adviser agent registration fees.

Broker-Dealer Fined for $262,402 for Failing to
Maintain Analyst Independence

On September 2, 2003, the Banking Commissioner entered a Consent Order with respect to Lehman Brothers Inc. of 745 Seventh Avenue, New York, New York. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The agency investigation leading up to the Consent Order focused on the firms' research practices for the period 1999 through 2001, and was part of similar investigations conducted by a multi-state task force and a joint task force of the SEC, the New York Stock Exchange and the National Association of Securities Dealers. The global resolution capping the investigations resulted in $25 million allocated to the states; $25 million representing the disgorgement of commissions and fees; $25 million to be earmarked for the procurement of independent research by the respondent; and $5 million to be used for investor education. The respondent also agreed to abide by certain undertakings designed to separate its investment banking and research functions.

In entering the Consent Order, the Commissioner found that the respondent had 1) violated Section 36b-4(b) of the Act by failing to ensure that analysts who issued research were adequately insulated from pressures and influence from covered companies and investment banking; 2) violated Section 36b-4(b) of the Act by issuing research reports that were not based on principles of fair dealing and good faith and that contained exaggerated or unwarranted claims and opinions; and 3) failed to establish, enforce and maintain an adequate supervisory system.

The Consent Order directed the respondent to cease and desist from regulatory violations and fined the respondent $262,402.

Broker-Dealer Fined for $262,402 for Failing to
Maintain Analyst Independence

On September 2, 2003, the Banking Commissioner entered a Consent Order with respect to Morgan Stanley & Co., Incorporated of 1585 Broadway, New York, New York. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The agency investigation culminating in the entry of the Consent Order focused on the firms' research practices for the period 1999 through 2001, and was part of similar investigations conducted by a multi-state task force and a joint task force of the SEC, the New York Stock Exchange and the National Association of Securities Dealers. The global resolution capping the investigations resulted in $25 million allocated to the states; $25 million representing the disgorgement of commissions and fees; and $75 million to be earmarked for the procurement of independent research by the respondent. The respondent also agreed to abide by certain undertakings designed to separate investment banking and research functions.

In entering the Consent Order, the Commissioner found that the respondent had 1) violated Section 36b-4(b) of the Act by failing to disclose that it paid other investment banks $2.7 million in underwriting fees at the direction of issuers to provide research coverage; and 2) failed to establish, enforce and maintain an adequate supervisory system to detect and prevent improper conflicts of interest.

The Consent Order mandated that the respondent cease and desist from regulatory violations and fined the respondent $262,402.

Notice of Intent to Deny Registration as Broker-dealer Agent Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending registration of James Wilder Korth as a broker-dealer agent of J.W. Korth & Company. The Notice of Intent to Deny alleged that, on January 21, 1998, the United States District Court for the Southern District of Florida found that James Wilder Korth had violated Sections 17(a)(1) and 17(b) of the Securities Exchange Act of 1934 as well as Rule 17a-4(j) thereunder in refusing to provide the SEC with access to books and records required by law, and that the court had permanently enjoined the respondent from violating the federal securities laws (Securities and Exchange Commission v. J.W. Korth & Co., et al., 991 F.Supp. 1468; 1473-1474 (1998)). Respondent Korth was provided with an opportunity to request a hearing on the Notice of Intent to Deny Registration as Agent.

Notice of Intent to Deny Registration as Broker-dealer Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending broker-dealer registration of J.W. Korth & Company. The firm maintains its principal office at 32841 Middlebelt Road, Suite 400, Farmington Hills, Michigan. The Notice of Intent to Deny alleged that, on January 21, 1998, the United States District Court for the Southern District of Florida found that the firm and its managing general partner, James Wilder Korth, violated Sections 17(a)(1) and 17(b) of the Securities Exchange Act of 1934 as well as Rule 17a-4(j) thereunder in refusing to provide the SEC with access to books and records required by law, and that the court had permanently enjoined J.W. Korth & Company from violating the federal securities laws (Securities and Exchange Commission v. J.W. Korth & Co., et al., 991 F.Supp. 1468; 1473-1474 (1998)). Respondent J.W. Korth & Company was provided with an opportunity to request a hearing on the Notice of Intent to Deny Registration as Broker-dealer.

Notice of Intent to Deny Registration as Investment Adviser Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending investment adviser registration of Absolute Capital Management, LLC. The firm maintains its principal office at 101 Pennsylvania Boulevard, Pittsburgh, Pennsylvania. The Notice of Intent to Deny alleged that respondent's managing director, Phillip Brenden Gebben, had been ordered by the U.S. District Court for the Central District of Illinois to disgorge $10,208.50 in profits and to pay a $10,000 civil penalty for violating the antifraud provisions in Section 10(b) of the Securities Exchange Act of 1934 and Section 17(b) of the Securities Act of 1933 in conjunction with promotional Internet postings and the distribution of certain advisory literature (Securities and Exchange Commission v. Gorsek et al., 222 F.Supp. 2d 1124, 1126 (2002)). The Notice of Intent to Deny also claimed that such conduct constituted a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(a) of the Regulations under the Connecticut Uniform Securities Act and therefore a basis to deny the firm's investment adviser registration in Connecticut. The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Investment Adviser.

Notice of Intent to Deny Registration as Agent Issued;
Notice of Intent to Fine Issued

On September 5, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending registration of Frederick Strong Moseley IV as a broker-dealer agent of Landers, Lane & Moseley Capital Partners LLC. On the same day, the Banking Commissioner issued a Notice of Intent to Fine with respect to respondent Moseley. Both the Notice of Intent to Deny Registration and the Notice of Intent to Fine were based on allegations that respondent Moseley, a control person of Triumph Capital Group, Inc. failed to disclose in his agent application that Triumph Capital Group, Inc. had been found guilty of racketeering for state-law bribery and obstruction of justice; racketeering conspiracy for state-law bribery and obstruction of justice; bribery concerning programs receiving federal funds; wire fraud/theft of honest services; and obstruction of justice. Respondent Moseley was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Agent. A hearing on the Notice of Intent to Fine has been set for November 18, 2003.

Notice of Intent to Deny Registration as Broker-dealer Issued

On September 5, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending broker-dealer registration of Landers, Lane & Moseley Capital Partners LLC. The firm maintains its principal office at 1177 High Ridge Road, Stamford, Connecticut. The Notice of Intent to Deny Registration as Broker-dealer was based on allegations that 1) Frederick Strong Moseley IV, a control person of respondent Landers, Lane & Moseley Capital Partners LLC, was also a control person of Triumph Capital Group, Inc.; and 2) Frederick Strong Moseley IV wilfully violated the Connecticut Uniform Securities Act by failing to disclose in his agent application that Triumph Capital Group, Inc. had been found guilty of racketeering for state-law bribery and obstruction of justice; racketeering conspiracy for state-law bribery and obstruction of justice; bribery concerning programs receiving federal funds; wire fraud/theft of honest services; and obstruction of justice. Respondent Landers, Lane & Moseley Capital Partners LLC was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Broker-dealer.

 Dated: Tuesday, September 9, 2003

John P. Burke
Commissioner