On February 14, 2011, the Commissioner entered into a Stipulation and Agreement with Websafety, Inc., an issuer of common stock located at 2201 West Royal Lane, Suite 200, Irving, Texas. The Stipulation and Agreement stated that Websafety, Inc., had made a late Rule 506 notice filing under Section 36b 21(e) of the Connecticut Uniform Securities Act, and that the company’s newly retained legal counsel had brought the matter to the Division’s attention. Pursuant to the Stipulation and Agreement, Websafety, Inc., agreed to pay a $500 fine to the Department and to refrain from selling securities in Connecticut absent compliance with Section 36b-16 of the Act.
Order to Cease and Desist and Notice of Intent to Fine
On February 16, 2011, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against (1) CherryHomes Joint Venture (“CherryHomes JV”) of 3609 Williams Drive, Suite 105, Georgetown, Texas; (2) CherryHomes JV’s joint venture manager, MidAmerica Resources, Inc. (“MRI”), of 3943 Irvine Boulevard, Suite 439, Irvine, California; (3) Thomas C. Hanscome, president of MRI; (4) Air-Byrd/River Joint Venture (“River JV”) of 10695 Wild Road Court, McKinney, Texas; (5) River JV’s joint venture manager, Air-Byrd Operations LLC (“AB Operations”), of P.O. Box 263, Prosper, Texas; (6) River JV president Lance David Brooks of 10695 Wild Road Court, McKinney, Texas; and (7) Regal Royalty Resource of 10695 Wild Road Court, McKinney, Texas. CherryHomes JV and River JV were formed for the purported purpose of oil and gas development in Texas and Kansas, respectively.
The action alleges that, starting in 2006, Brooks, Hanscome and MRI offered and sold unregistered CherryHomes JV Units to at least one elderly Connecticut investor in violation of Section 36b-16 of the Connecticut Uniform Securities Act and at a time when Brooks and Hanscome were not registered as agents of issuer under the Act. The action also alleges that insufficient disclosure was made concerning the material terms of the offering, including its risks.
In addition, the action alleges that, from at least 2006, Brooks and AB Operations made multiple sales of unregistered River JV Units to at least one elderly Connecticut investor at a time when respondents Brooks and AB Operations were not registered to sell securities in any capacity under the Act. The action added that insufficient disclosure was provided to investors. In particular, the summary offering memorandum failed to disclose that on January 7, 2005, the Commonwealth of Pennsylvania announced that it had entered a Summary Order to Cease and Desist against AB Operations and Brooks for violations of that state’s securities laws stemming from Brooks’ cold-calling Pennsylvania residents to invest in a separate joint venture managed by AB Operations.
The action further alleges that Regal Royalty Resource was an investment vehicle whose purpose was to enable investors to acquire precious metals, and that Brooks and Regal Royalty Resource sold unregistered securities to at least one elderly Connecticut investor while Brooks was not registered to sell securities in Connecticut. According to the action, investors received no disclosures concerning the investment risks involved or Regal Royalty Resource’s ability to make the precious metals purchases, nor did investors receive independent credible evidence that the purchases had, in fact, been made.
The respondents were afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist and Notice of Intent to Fine.
On February 17, 2011, the Banking Commissioner entered a Consent Order with respect to S&E Investment Group, a general partnership located at 670 Tennis Club Drive, Fort Lauderdale, Florida. The Consent Order had been preceded by a June 24, 2010 Order to Cease and Desist and Notice of Intent to Fine alleging that from at least July 1993 forward, the firm sold unregistered partnership interests to at least one Connecticut investor, notwithstanding the investor’s lack of experience in financial and business matters. The June 24, 2010 action had also alleged that the firm violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act by failing to make material disclosures to investors, including disclosures regarding risk, how investor funds would be invested and financial information on the respondent.
The Consent Order acknowledges that S&E Investment Group had provided documentation to the agency indicating that the firm was unable to pay the fine that otherwise would have been assessed against it pursuant to the June 24, 2010 action and the Consent Order. The Consent Order barred S&E Investment Group from transacting securities or investment advisory business in Connecticut for ten years and directed it to cease and desist from regulatory violations. In addition, the Consent Order acknowledges that, to facilitate the resolution of the matter, Stefanie DeLuca, Managing General Partner of the firm, agreed to refrain for five years from accepting investment funds from public or private investors without first advising the Division in writing and retaining securities legal counsel to oversee compliance with state securities laws.