Week Ending September 14, 2012
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 Howard F. Pitkin, Banking Commissioner, at the Connecticut Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800 or via E-mail. Written comments will be considered only if they are received within ten days from the date of this bulletin.
Declaratory Ruling Issued
On September 11, 2012, the Commissioner issued a Declaratory Ruling in response to the Petition of Persels & Associates, LLC for Declaratory Ruling Regarding Application of Attorney Exemption under Debt Negotiation Statutes, ruling as follows:
Section 36a-671c(1) of the 2012 Supplement to the General Statutes provides an exemption from Sections 36a 671 to 36a-671d, inclusive, only for a natural person who: (a) is an attorney admitted to the practice of law in Connecticut; and (b) is not retained to perform, and does not perform, debt negotiation services, as defined in Section 36a-671 of the 2012 Supplement to the General Statutes, as the primary purpose of the representation, which shall be determined on a case-by-case basis in light of all of the facts and circumstances.
In addition, the Department will take a no-action position for a law firm that is a partnership, limited liability company or professional corporation engaging or offering to engage in debt negotiation services, as defined in Section 36a-671 of the 2012 Supplement to the General Statutes, to be performed and performed exclusively by an attorney admitted to the practice of law in Connecticut who is: (a) a partner or shareholder of the law firm, as the case may be; and (b) the only contact with the debtor and the debtor’s mortgagee(s) or creditor(s), as the case may be; and provided that the firm is not retained to perform, and does not perform, debt negotiation services as the primary purpose of the representation, which shall be determined on a case-by-case basis in light of all of the facts and circumstances.
Based on the information set forth in its Petition, and for the reasons set forth in the Declaratory Ruling, Persels would require licensure.
The Petition and the Declaratory Ruling is available on the Department’s website, www.ct.gov/dob
CONSUMER CREDIT DIVISION ACTIVITY
Temporary Order to Cease and Desist, Notice of Intent to Issue
Order to Cease and Desist and Notice of Intent to Impose Civil Penalty
On August 21, 2012, the Commissioner issued a Temporary Order to Cease and Desist, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing (“Notice”) in the Matter of: WJE Enterprises, Inc. d/b/a Federal Modification Group and Distressed Property Experts, LLC d/b/a Federal Modification Group, (“Respondents”) both of Westland, Michigan. The Notice was the result of an investigation by the Consumer Credit Division. The Notice alleges that Respondents offered to engage in debt negotiation in this state without the required license, in violation of Section 36a-671(b) of the Connecticut General Statutes, in effect prior to October 1, 2011, and engaged in debt negotiation in this state without the required license, in violation of Section 36a-671(b) of the Connecticut General Statutes, in effect prior to October 1, 2011. The Commissioner also found that the public welfare required the issuance of a Temporary Order to Cease and Desist against Respondents. Respondents were afforded an opportunity to request a hearing with regard to the allegations set forth in the Notice.
SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY
On August 31, 2012, the Banking Commissioner entered a Consent Order with respect to Deer Hill Financial Group, LLC of Danbury, Connecticut, and Stephen Burton Blankenship, the firm’s sole managing member and control person. Stephen Blankenship was previously registered as a broker-dealer agent under the Connecticut Uniform Securities Act.
The Consent Order alleged that, at various times from April 2002 to November 2011, Stephen Blankenship and Deer Hill Financial Group, LLC transacted business as investment advisers while unregistered in violation of Section 36b-6(c) of the Act and that Stephen Blankenship transacted business as an unregistered investment adviser agent of Deer Hill Financial Group, LLC. The Consent Order also alleged that Stephen Blankenship violated the antifraud provisions in Sections 36b-4(a) and 36b-5(a) of the Act by 1) convincing broker-dealer customers to transfer their funds to Deer Hill Financial Group, LLC with the promise that Deer Hill Financial Group, LLC would invest the monies in established securities and generate a higher rate of return; 2) later misappropriating at least $600,000 in customer and client funds; 3) misrepresenting to customers and clients that their money had been invested in established securities generating profits when, in reality, no such investments had been made; 4) making unauthorized withdrawals of customer and client funds which he then used for his personal purposes or to reimburse other customers and clients for unauthorized account withdrawals that he had made; and 5) creating and forwarding to customers and clients fictitious account statements reflecting incorrect account values, incorrect deposit sources and nonexistent investments. In addition, the Consent Order alleged that Deer Hill Financial Group, LLC violated the antifraud provisions in Section 36b-5(a) of the Act through its role in the conduct described above.
Although Stephen Blankenship’s broker-dealer agent registration had been withdrawn in late 2011, Connecticut law preserves the Commissioner’s ability to institute revocation or suspension proceedings within one year after the withdrawal becomes effective.
The Consent Order revoked Stephen Blankenship’s broker-dealer agent registration and permanently barred him from 1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; and 2) directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut. The Consent Order also permanently barred Deer Hill Financial Group, LLC, and its existing and future representatives, agents, employees, affiliates, subsidiaries and successors in interest from transacting securities or investment advisory business in or from the state.
On September 7, 2012, the Securities and Exchange Commission filed a Complaint for Injunctive and Other Relief in U.S. District Court for the District of Connecticut against Deer Hill Financial Group, LLC and Stephen Blankenship. The SEC action was based on allegations of securities fraud and unregistered activity. On September 12, 2012, in a parallel criminal proceeding brought by the U.S. Attorney for the District of Connecticut, Stephen Blankenship waived his right to indictment and pleaded guilty to charges of mail fraud and wire fraud.
Dated: Tuesday, September 18, 2012
Howard F. Pitkin