DOB: Fall and Winter 1998 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XII No. 3
Vol. XII No. 4
Fall and Winter 1998

IN THIS ISSUE:

CONTRIBUTORS

Ralph A. Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric J. Wilder, Assistant Director
Marjorie Kagan, Subscription Coordinator

A WORD FROM THE BANKING COMMISSIONER

Financial services reform, following extensive changes to the federal securities laws in recent years, will be a major focus of attention again for the 106th Congress. One of the items reportedly under consideration is a review of the fees and charges collected by the Securities and Exchange Commission. Some concern has been expressed that such fees exceed the actual costs incurred by the SEC in its appropriated budget.

We hope that any adjustments Congress may make in balancing projected SEC revenues with expected SEC costs will leave the agency's operations fully funded in the future. More American families than ever are turning to the securities markets to invest for their retirement or their children's college education. It is critical that, as families entrust their financial futures to the securities markets, regulators have sufficient resources to address investor protection concerns.

E-commerce is quickly transforming the way in which many companies do business. In the securities industry, many firms have found they must offer information or trading services over the Internet to match their competition. The Internet's unique nature, however, offers challenges as well as opportunities. The Division recently took enforcement action in two cases involving alleged Internet misuse, and will continue to actively address cyberspace fraud.

In both the Stetson and Volman orders (see this Bulletin issue for more information), the Division alleged that individuals actively posted messages on Internet message boards without identifying themselves as agents of firms, and offered misleading or exaggerated information to the public about specific securities.

Stock touting and posting false information or rumors in Internet message boards is becoming a serious regulatory concern across the country, and poses special supervisory challenges for firms. Firms must consider the conduct of their agents not only when they are in the office, but also when agents are at home, at cyber cafes or anywhere else they may easily access the Internet and post anonymous messages or join in chat rooms.

We have once again reprinted in this Bulletin our memorandum regarding the essential need to ready any information systems for the Year 2000 date change, and other important dates, in order to emphasize the critical nature of this issue. Time is running short and firms should be well along in testing their systems and in verifying the Y2K compliance of critical external entities.

John P. Burke
Banking Commissioner


Commissioner Reiterates Need To Prepare For Year 2000 ("Y2K") Now

TO: All Broker-dealers, Investment Advisers and Others Subject to the Connecticut Uniform Securities Act

All Business Opportunity Sellers Subject to the Connecticut Business Opportunity Investment Act

All Persons Subject to the Connecticut Tender Offer Act

THE PROBLEM

When the clock strikes midnight on December 31, 1999, will your operations be disrupted, communications frozen and key data made unusable? Most computer systems and programs working today reflect the year in a 2-digit field. When the year 2000 comes, this date will be reflected as "00." Many systems, however, will read "00" as the year "1900." If your system makes calculations based on dates, the computer's reading of "00" as "1900" may cause serious errors and expose you to financial liability and litigation - to say nothing of its effect on your customer or client base.

The Y2K problem is not limited to one type of software or hardware. Mainframes, personal computers, networks and other items like elevators, power sources, infrastructures and phone systems all may be affected.

Although solutions may be expensive and time consuming, these factors pale in comparison to the potentially adverse consequences Y2K may have on your business and on the investing public.

WHAT TO DO: MAKE YOUR SYSTEMS Y2K COMPLIANT

1. Dedicate sufficient funding for the project.
2. Make sure all levels of management are aware of the problem, and that progress reports to management are regularly generated.
3. Dedicate sufficient staffing to the project.
4. Assess the risk

- Inventory all technology systems
- Analyze all third party vendor software and hardware projects
- Analyze all internal systems

5. Hire an outside vendor or consultant if necessary to handle technical adjustments.
6. List corrective steps to solve the problem. Examples:

- How many systems will be remediated?
- How many will be retired?
- How many will be replaced?
- What other solutions are possible?

7. Take Action

- Remediate systems
- Verify that other systems you use are Y2K compliant

8. Test Your Systems For Y2K Compliance

- Internal systems
- Test your systems with other party systems
- Industry wide testing measures

9. Prepare a contingency plan to ensure that your systems continue to operate successfully after December 31, 1999.

FOR MORE INFORMATION:

- SEC Release No. 34-39858
- SEC Release IC-23112
- SEC Release IA-1716
- SEC Release 34-39859

The Internet also offers a wide range of sites on Y2K compliance.


ORDER EXEMPTING FOREIGN MARGIN STOCK FROM REGISTRATION

WHEREAS the Commissioner of Banking (the "Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, as amended by P.A. 98-162, (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act;

WHEREAS Section 36b-16 of the Act provides, in part, that: "No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, inclusive ... [or] the security or transaction is exempted under section 36b-21 .... "

WHEREAS Section 36b-21(a) of the Act states, in pertinent part, that: "The following securities are exempted from sections 36b-16 and 36b-22 ... (8)(A) any security appearing on the list of … foreign securities approved for margin by the Board of Governors of the Federal Reserve System which is not otherwise a covered security … [or] (21) any other security that the commissioner may exempt, conditionally or unconditionally, on a finding that registration is not necessary or appropriate in the public interest or for the protection of investors";

WHEREAS Section 36b-31(a) of the Act provides that "[t]he commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of section 36b-2 to 36b-33, inclusive, including ... orders ... defining any terms whether or not used in said sections insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";

WHEREAS Section 36b-31(b) of the Act states, in part, that: "No ... order may be made, amended or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive ....";

WHEREAS the Commissioner finds that the entry of this Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;

WHEREAS the Commissioner also finds that registration of the securities described herein is not necessary or appropriate in the public interest or for the protection of investors";

WHEREAS the Commissioner acknowledges that in January 1998, the Board of Governors of the Federal Reserve System (the "Board") amended the definition of "foreign margin stock" in Section 220.2 of Regulation T to mean "a foreign security that is an equity security that: (A) Appears on the Board’s periodically published List of Foreign Margin Stocks; or (2) Is deemed to have a ‘ready market’ under SEC Rule 15c3-1, (17 CFR 240.15c3-1) or a ‘no action’ position issued thereunder";

WHEREAS the Commissioner also acknowledges that the Board’s action was

premised on the theory that stocks having a "ready market" under SEC Rule 15c3-1, like their counterparts on the Board’s Foreign List, possessed a degree of liquidity, stability and market presence characteristic of exchange-listed securities;

WHEREAS the Commissioner believes that the Board’s development of an alternative criterion for marginability to supplement the Foreign List would bring foreign stocks satisfying SEC Rule 51c3-1 within the spirit, if not the letter, of Section 36b-21(a)(8) of the Act;

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

(1) Sections 36b-21(a)(21) and 36b-21(a)(8) of the Act shall exempt from registration any foreign stock meeting the definition of "foreign margin stock" in Section 220.2 of Regulation T (12 C.F.R. Section 220.2), including, without limitation, foreign stocks appearing on the FT/S&P Indices; and
(2) This Order shall remain in effect until vacated, modified or superseded by the Commissioner or other legal authority.
So ordered at Hartford, Connecticut
this 15th day of December, 1998
John P. Burke
Banking Commissioner


ORDER EXEMPTING CERTAIN SECONDARY SECURITIES
TRANSACTIONS FROM REGISTRATION

WHEREAS the Commissioner of Banking (the "Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, as amended by P.A. 97-220, (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act;

WHEREAS Section 36b-16 of the Act provides, in part, that: "No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, inclusive ... [or] the security or transaction is exempted under section 36b-21 .... "

WHEREAS Section 36b-21(b) states, in pertinent part, that: "The following transactions are exempted from sections 36b-16 and 36b-22 ... (15) any other transaction that the commissioner may exempt, conditionally or unconditionally, on a finding that registration is not necessary or appropriate in the public interest or for the protection of investors";

WHEREAS Section 36b-31(a) of the Act provides that "[t]he commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of section 36b-2 to 36b-33, inclusive, including ... orders ... defining any terms whether or not used in said sections insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";

WHEREAS Section 36b-31(b) of the Act states, in part, that: "No ... order may be made, amended or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive ....";

WHEREAS the Commissioner finds that the entry of this Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;

WHEREAS the Commissioner also finds that registration of the transactions described herein is not necessary or appropriate in the public interest or for the protection of investors";

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

(1) Subject to the conditions contained herein, Section 36b-21(b)(15) of the Act shall exempt from registration any nonissuer transaction by a registered agent of a registered broker-dealer in a security of a class that has been outstanding in the hands of the public for at least ninety days;
(2) The exemption hereunder shall only be available if, at the time of the transaction, the following conditions are met:
(A) The security is sold at a price reasonably related to the current market price of the security;
(B) The security does not constitute the whole or part of an unsold allotment to, or a subscription or participation by, the broker-dealer as an underwriter of the security;
(C) A nationally recognized securities manual contains (i) a description of the business and operations of the issuer; (ii) the names of the issuer's officers and directors or, in the case of a non-U.S. issuer, the corporate equivalents of such persons in the issuer's country of domicile; (iii) an audited balance sheet of the issuer as of a date within eighteen months, or in the case of a reorganization or merger where the parties to the reorganization or merger had such audited balance sheet, a pro forma balance sheet; and (iv) an audited income statement for each of the issuer's immediately preceding two fiscal years, or for the period of existence of the issuer, if in existence for less than two years, or in the case of a reorganization or merger where the parties to the reorganization or merger had such audited income statement, a pro forma income statement; and
(D) The issuer of the security has a class of equity securities listed on a national securities exchange registered under the Securities Exchange Act of 1934 or designated for trading on the National Association of Securities Dealers Automated Quotation System, unless (i) the issuer, including its predecessors, has been engaged in continuous business for at least three years or (ii) the issuer has total assets of at least two million dollars based on an audited balance sheet as of a date within eighteen months or, in the case of a reorganization or merger where the parties thereto had such an audited balance sheet, a pro forma balance sheet.
(3) The exemption hereunder shall not be available for any distribution of securities issued by a blank check company, shell company, dormant company or any issuer that has been merged or consolidated with or has bought out a blank check company, shell company or dormant company unless the issuer or any predecessor has continuously operated its business for at least the preceding five years and has had gross operating revenue in each of the preceding five years, including gross operating revenue of at least five hundred thousand dollars per year in three of the preceding five years;
(4) This Order shall remain in effect until vacated, modified or superseded by the Commissioner or other legal authority.
So ordered at Hartford, Connecticut
this 18th day of September, 1998.
John P. Burke
Banking Commissioner

Enforcement Highlights

Administrative Actions


PVI, Inc. d/b/a Photo Vend International - Notice of Intent to Issue Stop Order Denying Business Opportunity Registration Issued

On December 30, 1998, the Banking Commissioner issued a Notice of Intent to Issue a Stop Order denying the pending business opportunity registration of PVI, Inc. d/b/a Photo Vend International (Docket No. SO-98-735-B). The corporation has its principal office at Westgate Business Center, 5010 North Hiatus Road, Sunrise, Florida. The Commissioner based his action on allegations that PVI, Inc. failed to disclose, or amend its pending registration to disclose, a September 1, 1998 complaint for injunctive relief filed on behalf of the Federal Trade Commission in the United States District Court for the Southern District of Florida. The Commissioner also claimed that the registration was materially incomplete in other respects, including deficiencies in the disclosure of risk factors. PVI, Inc. was afforded an opportunity to request a hearing on the allegations in the Notice of Intent to Issue a Stop Order.

John Michael Pagano (CRD # 2571246) - Agent Registration Summarily Suspended; Notice of Intent to Revoke Agent Registration Issued

On December 21, 1998, the Banking Commissioner summarily suspended the registration of John Michael Pagano as an agent of Fin-Atlantic Securities, Inc. and issued a Notice of Intent to Revoke Registration concerning Pagano (Docket No. SS-98-5274-S). Fin-Atlantic has its principal office at 33 N.E. 2nd Street, Suite 300, Fort Lauderdale, Florida. The Commissioner's action was based on allegations that, during an examination of Fin-Atlantic Securities, Inc., respondent Pagano was asked to surrender for inspection at least one piece of yellow paper which Pagano placed in his front left pocket, and that, following a refusal to do so, Pagano physically left the firm's sales floor with the requested items. The Commissioner alleged that such conduct constituted a dishonest or unethical practice in that it was proscribed by NASD Conduct Rule 8221. Respondent Pagano was afforded an opportunity to request a hearing on the summary suspension order and the Notice of Intent to Revoke.

Craig Leszczak (CRD # 2599233) - Agent Registration Denied for Assaulting Former Branch Manager

On November 24, 1998, the Banking Commissioner entered an order under the Connecticut Uniform Securities Act denying the registration of Craig Leszczak as a broker-dealer agent of Barron Chase Securities, Inc. (Docket number ND-98-5206). The Commissioner's action was based on findings that that, following his termination of employment with Duke & Co., Inc., a New York-based broker-dealer, the respondent assaulted the firm's branch office manager, George Costanzo, and pled guilty to attempted assault in the third degree, a Class B misdemeanor under New York law. The Commissioner further found that the misdemeanor involved an aspect of the securities business and therefore a basis to deny the respondent's registration under Section 36b-15(a)(2)(C) of the Connecticut Uniform Securities Act. The respondent did not appear or contest the proceeding.

Charles Joseph Principato, Jr. (CRD # 1757488) - Agent Registration Summarily Suspended, Notice of Intent to Revoke Registration as an Agent Issued For Alleged Unregistered Activity, Unsuitable Recommendations, Failure to Execute Trades

On November 24, 1998, the Banking Commissioner summarily suspended the registration of Charles Joseph Principato, Jr. as an agent of R.D. White & Co., Inc., a broker-dealer (Docket number NR-98-5186-S). On the same day, the Commissioner issued a Notice of Intent to Revoke respondent Principato's registration. The actions were predicated on allegations that, prior to becoming registered as an agent of R.D. White & Co., Inc. in Connecticut, Charles Principato effected securities transactions on behalf of the firm with Connecticut residents. In addition, the suspension order and Notice of Intent to Revoke alleged that respondent Principato engaged in dishonest or unethical business practices by failing to satisfy customer suitability criteria and failing to execute a customer's sell order. Respondent Principato was afforded an opportunity for a hearing on the summary suspension order and the Notice of Intent to Revoke.

Donald C. Bauman (CRD # 2226389) and Andrew N. Weber (CRD # 2364164) - Notice of Intent to Revoke Registration as an Agent Issued; Order to Cease and Desist Entered Based on Alleged Unregistered Activity

On November 2, 1998, the Banking Commissioner issued a Notice of Intent to Revoke the registrations of Donald C. Bauman and Andrew N. Weber as agents of Ladenberg, Thalman & Co., Inc., a broker-dealer. On the same day, the Commissioner issued an Order to Cease and Desist against Bauman and Weber (Docket No. CR-98-5112-S). Both actions were based on allegations that, at various times between December 1995 and May 1996, Bauman and Weber transacted business as agents of First United Equities Corporation without being registered as such under the Act. Each respondent was afforded an opportunity to request a hearing on the allegations in the Notice of Intent to Revoke Registration and the Order to Cease and Desist.

John H. Ludemann, Jr. (CRD # 2253343) - Agent Registration Summarily Suspended and Notice of Intent to Revoke Registration as an Agent Issued For Alleged Failure to Supervise

Slava Volman (CRD # 2520859) - Notice of Intent to Revoke Registration as an Agent Issued for Claimed Deletion of Firm Records; Alleged Stock Touting On Internet

On November 2, 1998, the Banking Commissioner summarily suspended the registration of John H. Ludemann, Jr. as an agent of E.C. Capital, Ltd. On the same day, the Commissioner issued a Notice of Intent to Revoke the registrations of Ludemann and Slava Volman as agents of the firm (Docket No. SS-98-5149-S). Ludemann served as the manager of compliance for E.C. Capital, Ltd. The Commissioner's action was predicated on allegations that Ludemann failed to update the firm's compliance and supervision manual or supervise the firm's agents in a manner designed to prevent certain regulatory violations by E.C. Capital, Ltd. These violations included a failure by the firm to limit its solicitation activity, in accordance with a letter agreement with the department, to exchange listed securities, NASDAQ-NMS securities, NASDAQ Smallcap Market securities sold by the firm on an agency basis, mutual funds and fixed income securities; 2) the firm's deletion of over 300 files from its computers during the course of a department examination; and 3) the employment of unregistered personnel by the firm. The Notice of Intent to Revoke claimed that Volman, an agent of E.C. Capital, Ltd., personally deleted firm computer files after department employees requested that the integrity of computer information be retained. In addition, the Notice of Intent to Revoke alleged that, from at least March 1998, Volman 1) actively posted messages on Internet message boards under the names "Dralpine", "Rest Now", "Options 555" and "IDO358" without identifying himself as an agent of E.C. Capital, Ltd.; 2) misrepresented to the public on-line that he was trading personally in specific securities; and 3) created the impression that he was an individual investor who was making money with stocks in which E.C. Capital, Ltd. made a market without having purchased any such stocks. Both respondents were afforded an opportunity to request a hearing on the allegations.

Gregory Small (CRD # 1502327) and David Lee Stetson (CRD # 1096635) - Orders to Cease and Desist Entered Based on Failure to Supervise, Internet Touting Allegations

On November 2, 1998, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. SS-98-5149-S) against Gregory Small, the Chairman, Chief Executive Officer and a manager of E.C. Capital, Ltd., and David Lee Stetson, an agent of the firm. The Cease and Desist Order alleged that Small executed at least one sale of securities for the account of a Connecticut resident without being registered as a broker-dealer agent under the Connecticut Uniform Securities Act; failed to take steps to ensure the integrity of 300 computer files which were deleted by firm personnel during the course of a department examination; and made a false or misleading statement to the department concerning the identity of the person responsible for deleting the files. In addition, the Cease and Desist Order claimed that Stetson, while an agent of the firm, actively posted messages on Internet message boards relating to stocks in which E.C. Capital, Ltd. made a market without identifying himself as an agent of the firm; that such Internet messages contained exaggerations concerning the stocks; and that the messages created the impression that Stetson was an individual investor with no professional interest in the securities. Both respondents were afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist.

David Pesso (CRD # 2502076); Garvey Fox (CRD # 2166036); James J. McLaughlin, Jr. (CRD # 2372549); Joseph Mannino (CRD # 2448660); and Steven M. Cohen (CRD # 1585810) - Claimed Unlicensed Activity Prompts Cease and Desist Order

On November 2, 1998, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-98-5112-S) under the Connecticut Uniform Securities Act against David Pesso, Garvey Fox, James J. McLaughlin, Jr., Joseph Mannino and Steven M. Cohen. All five individuals were associated with First United Equities Corporation, a broker-dealer. The Order to Cease and Desist alleged that, at various times between January 1995 and April 1997, Pesso, Fox, McLaughlin, Mannino and Cohen transacted business as agents of First United Equities Corporation without being registered as such under the Act. Each respondent was afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist. Since neither Joseph Mannino nor James McLaughlin, Jr. requested a hearing within the time prescribed, the Order to Cease and Desist became permanent as to each of them on November 23, 1998.

H.K. Laurence, Inc. Directed to Cease and Desist from Alleged Unregistered Activity

On November 2, 1998, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-98-5076-S) under the Connecticut Uniform Securities Act against H.K. Laurence, Inc. of 7100 W. Camino Real, Suite 40, Camino Real Centre, Boca Raton, Florida. The Order to Cease and Desist alleged that the firm had entered into a December 27, 1996 agreement with Merit Capital Associates, Inc. to act as a branch office of that brokerage firm; that, notwithstanding the agreement, the respondent acted independently with respect to the hiring and supervision of employees, the handling of customer complaints and the treatment of customer records; that between January 1997 and May 1997, the respondent effected securities transactions for the accounts of Connecticut based persons from an inventory account held at Bear, Sterns Securities Corporation for its own benefit; and that, in so doing, the firm transacted business as a broker-dealer absent registration in violation of Section 36b-6(a) of the Act. The respondent was provide with an opportunity to request a hearing on the allegations in the Order to Cease and Desist.

Wise Choice Discount Brokerage Corporation (CRD # 39924) - Notice of Intent to Deny Registration as Broker-dealer and Order to Cease and Desist Issued Based on Alleged Unregistered Activity

Olawande Adefarati Agunloye, Sr. (CRD # 2429760) - Notice of Intent to Deny Registration as Agent and Order to Cease and Desist Issued

On November 2, 1998, the Banking Commissioner issued a Notice of Intent to Deny the pending broker-dealer registration of Wise Choice Discount Brokerage Corporation of 30 Broad Street, 47th Floor, New York, New York. On the same day, the Commissioner issued a Notice of Intent to Deny the registration of Olawande Adefarati Agunloye, Sr. as an agent of Wise Choice Discount Brokerage Corporation. Agunloye is the president of the firm. An Order to Cease and Desist was also entered against both parties on November 2, 1998 (Docket No. ND-98-5218-S). The Commissioner's action against the firm was based on allegations that: 1) the firm contravened an August 14, 1996 agreement with the agency, prepared in conjunction with an earlier registration application, to limit its sales activity to exchange and NASDAQ-NMS securities; 2) from January, 1998, the firm transacted business as a broker-dealer in Connecticut while unregistered; 3) on December 30, 1997, the State of Alabama had denied the firm's broker-dealer registration based on a materially incomplete application; 4) on March 30, 1998, the U.S. District Court for the Southern District of New York had entered a temporary restraining order against the firm based on claims that the firm had engaged in fraudulent conduct; 5) on June 4, 1998, the NASD had canceled the firm's membership for failing to comply with written requests to submit financial information; 6) on April 22, 1998, the State of Illinois issued an Order of Prohibition against the firm based upon a failure to respond to that agency's information requests; 7) on May 12, 1998, the State of Maryland revoked the firm's registration; 8) on May 21, 1998, the State of Indiana summarily suspended the firm's registration for failing to maintain required records; and 9) the firm employed Agunloye as an unregistered agent.

The Commissioner also alleged that Agunloye 1) transacted business as an agent of the firm while unregistered; 2) was subject to a March 30, 1998 temporary restraining order entered by the U.S. District Court for the Southern District of New York; and 3) was the subject of a May 12, 1998 revocation order issued by the State of Maryland. The Order to Cease and Desist was uncontested and became permanent as to both parties on December 22, 1998.

Settlements

William Edward Starks (CRD # 1711218) Permanently Barred by Commissioner;

On December 16, 1998, the Banking Commissioner entered a Consent Order (No. CO-98-5078-S) permanently barring William Edward Starks from acting as a broker-dealer, investment adviser, broker-dealer agent, investment adviser agent or agent of issuer in or from Connecticut, and from acting as a finder for compensation, splitting commissions or receiving referral fees in connection with any recommendation, sale or purchase of securities. The Consent Order also directed Starks to cease and desist from regulatory violations.

The Consent Order followed a Securities and Business Investments Division investigation which uncovered evidence that, while registered as a broker-dealer agent of Dean Witter Reynolds, Inc. under the Connecticut Uniform Securities Act, Starks 1) failed to honor a commitment to purchase securities for a Connecticut client after accepting client funds; and 2) borrowed money from a Connecticut client without the client's permission and without notice to his employing broker-dealer. The agency claimed such conduct violated the antifraud provisions of the state's securities laws.

New Times Securities Services, Inc. (CRD # 34154) - Consent Order Conditioning Registration as a Broker-dealer Issued

On December 10, 1998 the Banking Commissioner issued a Consent Order (File No. CO-98-5013-S) under the Connecticut Uniform Securities Act conditioning the broker-dealer registration of New Times Securities Services, Inc. of 534 Broadhollow Road, Suite 275, Melville, New York. The Consent Order was based on allegations that 1) between January 1997 and June 1997, the firm transacted business as a broker-dealer absent registration and employed unregistered agents; 2) that the firm filed with the agency a false or misleading statement concerning the firm's prior unregistered activity; and 3) notwithstanding notice from the Division that to do so would be contrary to law, New Times Securities Services, Inc. continued to transact business in an unregistered capacity during calendar year 1998. In conjunction with the Consent Order, New Times Securities Services, Inc. furnished proof to the division that the firm had replaced its former compliance person and hired a full-time in-house Director of Compliance.

The Consent Order fined the firm $100,000 and directed New Times Securities Services, Inc. to retain a consultant to review the firm's supervisory and compliance procedures on an ongoing basis for two years, with written assessments being prepared every six months during that time frame. In addition, the Consent Order restricted the Connecticut business of the firm to the purchase, sale and redemption of investment company securities; governmental issues; exchange-listed options; exchange-listed securities and NASDAQ-NMS securities. The Consent Order also mandated that, for two years, the firm provide quarterly written reports to the division concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

Axiom Capital Management, Inc. (CRD # 26580) - Broker-dealer Registration Suspended for 90 Days; Firm Assessed $35,000

On December 10, 1998, the Banking Commissioner entered a Consent Order (No. CO-98-5086-S) with respect to Axiom Capital Management, Inc., a securities broker-dealer with its principal office at 399 Park Avenue, 27th Floor, New York, New York. The Consent Order alleged that 1) from approximately January 1995 to April 1995, the firm employed an unregistered agent who sold an unregistered security to Connecticut residents in violation of the Connecticut Uniform Securities Act; and 2) that, during the period of a summary suspension issued by the Commissioner on January 9, 1998, the firm failed to implement procedures reasonably designed to ensure compliance with the summary suspension order.

The Consent Order suspended the firm's Connecticut registration for 90 days commencing on December 15, 1998. During the suspension period, however, the firm would be permitted to execute unsolicited purchase and sale orders for existing customers and, with the prior written approval of the agency, existing Connecticut clientele of agents hired during the suspension period. Any associated commissions or similar remuneration would be contributed to the department's Investor Education Fund at the conclusion of the suspension period. The Consent Order also fined the firm $25,000 and required that it reimburse the agency $5,000 for investigative costs as well as contribute an additional $5,000 to the agency's Investor Education Fund. In addition, the Consent Order required that the firm retain an independent consultant to review firm supervisory and compliance procedures, prepare a written report on those procedures and ensure implementation of revised procedures. Other provisions included: 1) a requirement that, for two years, the firm report to the department quarterly concerning any securities-related complaints, actions or proceedings involving Connecticut residents; 2) a mandate that all officers and all managers exercising supervisory authority over Connecticut sales activity, excepting Maria Wilson (CRD number 1751312) complete the Regulatory Element of the Securities Industry Continuing Education Program; and 3) a requirement that the firm reimburse the department up to $2,500 for the costs of an examination to be conducted within 18 months.

EDI Financial, Inc. (CRD # 15699) - Consent Order Conditioning Registration as a Broker-dealer Entered; Firm Suspended for 90 Days; Fined $20,000; Assessed Costs of $5,000

On December 4, 1998, the Banking Commissioner entered a Consent Order conditioning the pending broker-dealer registration of EDI Financial, Inc. ("EDI") of 4514 Cole Avenue, Suite 760, Dallas, Texas (Docket No. CO-98-5205-S) and fining it $20,000 plus an additional $5,000 in costs. The Commissioner's action was preceded by an August 11, 1998 Notice of Intent to Deny Registration as Broker-dealer, Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing which alleged that the firm had engaged in broker-dealer activity absent registration and filed a false or misleading statement with the Commissioner in connection with its broker-dealer application by failing to identify three securities transactions it conducted without being registered as a broker-dealer. The firm had requested a hearing on the August 11, 1998 action, which the Consent Order resolved informally.

The Consent Order provided that the firm's broker-dealer registration would be made effective on January 1, 1999, but suspended for 90 days from that date. During the suspension period, the firm could only execute unsolicited purchase or sales orders for the two existing customers previously identified to the department. Commissions attributable to such unsolicited purchases or sales would, after deducting ticket charges imposed by EDI's clearing firm, be contributed to the department's Investor Education Fund at the end of the suspension period. The Consent Order also called for the firm to retain a consultant within 30 days to review the firm's supervisory and compliance procedures; prepare a written report on the adequacy of those procedures; and ensure that revised procedures were implemented.

The Consent Order also restricted the firm for two years from effecting transactions in securities other than investment company securities; governmental issues; exchange-listed options; exchange-listed securities; and securities listed on the National Market System of NASDAQ. In addition, the Consent Order required that, for two years, the firm apprise the agency quarterly in writing concerning any securities-related complaints, actions or proceedings. Finally, the Consent Order required that EDI pay the expenses of one or more examinations to be conducted by the Securities and Business Investments Division within 18 months of the entry of the Consent Order.

In light of the Consent Order, the August 11, 1998 Order to Cease and Desist against the firm was withdrawn.

Vincent M. Giaquinto (CRD # 833331) Permanently Barred

On November 13, 1998, the Banking Commissioner entered a Consent Order (File No. CO-98-5078-S) with respect to Vincent M. Giaquinto, a former broker-dealer agent of American Express Financial Advisors, Inc. The Consent Order claimed that, from approximately December 1989 through February 1998, Giaquinto violated Section 36b-4 of the Connecticut Uniform Securities Act by 1) engaging in a scheme to misappropriate customer funds earmarked for investment in mutual funds and insurance policies; 2) overstated the value of investments; and 3) created statements reflecting fictitious investments purportedly owned by Connecticut residents in an effort to misappropriate those funds and use them for his own personal use. The total amount of the alleged misappropriation exceeded $2 million.

The Consent Order directed Giaquinto to cease and desist from regulatory violations and permanently barred him from acting as a broker-dealer, broker-dealer agent, agent of issuer, investment adviser or investment adviser agent within or from Connecticut. In addition, Giaquinto was permanently barred from acting as a finder for compensation, splitting commissions or receiving referral fees in connection with any recommendation, sale or purchase of securities.

Madison Capital Markets Corp. (CRD # 3059) Fined $10,000

On November 4, 1998, the Banking Commissioner entered a Consent Order (File No. 98-5128-CO) with respect to Madison Capital Markets Corp., a registered broker-dealer with its principal office at 360 Madison Avenue, New York, New York. The Consent Order was based on allegations that from at least October, 1997 through November, 1997, agents of the firm used scripted sales presentations that had not been approved by management and which contained materially false and misleading statements; that the firm employed an unregistered agent who attempted to effect Connecticut securities transactions; and that the firm failed to establish, enforce and maintain an adequate supervisory system.

The Consent Order fined Madison Capital Markets Corp. $10,000 and directed the firm to refrain from violative conduct. In addition, the Consent Order required that the firm engage an independent consultant to review the firm's supervisory and compliance procedures. The Consent Order also mandated that, for two years, the firm file quarterly reports with the Division concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

D.H. Blair & Co., Inc. (CRD # 06833) - $2.25 Million Earmarked for Investor Claims

On October 15, 1998, the Banking Commissioner entered a Consent Order (File No. CO-98-5257-S) with respect to D.H. Blair & Co., Inc., a registered broker-dealer with its principal office at 44 Wall Street, New York, New York. On April 17, 1998, the firm had sold its assets to Barington Capital Group L.P. and ceased broker-dealer operations. The firm consented to the Commissioner's action without admitting or denying the agency's allegations. The Consent Order was issued in conjunction with an October 5, 1998 Agreement (the "Multi-state Agreement") between D.H. Blair & Co., Inc. and the states of Connecticut, Indiana and Missouri prescribing an NASDR-sponsored Mediation/Arbitration procedure for claims associated with the wrongdoing alleged in the Consent Order. The Consent Order had alleged that on August 13, 1997, NASDR had censured the firm and fined it $2 million after finding that the firm improperly priced certain securities and failed to make adequate disclosures. This conduct purportedly violated Section 36b-4(a) of the Connecticut Uniform Securities Act.

The Consent Order directed D.H. Blair & Co., Inc. to voluntarily escrow $2.25 million in accordance with the Multi-State Agreement to resolve investor claims pursuant to an NASDR mediation/arbitration process. The mediation/arbitration process would cover unsettled claims concerning trades executed between January 1, 1996 and June 30, 1998 which were not currently in litigation or arbitration. The Multi-state Agreement reserved to the Commissioner the right to request that unsettled pre-January 1, 1996 claims be submitted to mediation/arbitration. To be eligible for mediation/arbitration, a customer would have to be an accountholder as of record on December 31, 1997. Eligible customers would have 60 days following their receipt of a prescribed Notice to file a claim for mediation/arbitration. The Multi-State Agreement gave D.H. Blair & Co., Inc. 30 days thereafter to settle the claim, with mediation/arbitration ensuing only if the parties could not reach agreement.

The Consent Order also permitted the firm to withdraw its Connecticut broker-dealer registration following the cessation of its broker-dealer business. Absent a withdrawal, the firm's registration would not be renewed and would expire on December 31, 1998. In addition, the Consent Order 1) contained a general release which excepted from its scope solicitation-related sales practices of individuals, and facts not known by the Commissioner or not otherwise provided by the firm or to the Multi-state Committee as of the date of the Consent Order; 2) preserved private remedies of non-parties to the Consent Order; and 3) stated that its terms, the self-regulatory organization actions mentioned therein and any related state actions would not operate to restrict the business of the firm or its affiliates or preclude use of the limited offering exemption in Connecticut.

Conditional Registrations

Terrion Group, Ltd. - Consent Order Conditioning Registration as an Investment Adviser Issued

On December 15, 1998, the Banking Commissioner issued a Consent Order (File No. CO-98-5273-S) under the Connecticut Uniform Securities Act conditioning the investment adviser registration of Terrion Group, Ltd. of 510 Hearthstone Drive, Windsor, Connecticut. The Consent Order was predicated on deficiencies in securities-related experience and training.

Pursuant to the Consent Order, Terrion Group, Ltd. agreed to 1) refrain from having custody of client funds or securities for two years; 2) for two years, limit its investment advice to securities of domestic or foreign issuers listed on the New York Stock Exchange, the American Stock Exchange and/or the National Market System of NASDAQ; corporate debt securities; municipal securities; securities issued by investment companies subject to regulation under the Investment Company Act of 1940; and United States government securities; 3) absent written permission from the Division Director, refrain from sharing in commissions or other remuneration earned by any broker-dealer or any agent executing securities transactions as a result of recommendations made by Terrion Group, Ltd.; 4) for two years, refrain from acting as a finder for compensation, splitting commissions or receiving referral fees in conjunction with the offer, sale or purchase of securities; and 5) for two years, report to the division on a quarterly basis concerning any securities-related complaints, actions or proceedings initiated against the firm.

On the same day, Terrion Group, Ltd. became registered as an investment adviser under the Connecticut Uniform Securities Act.

Criminal Proceedings

James Americus Pabilonia Arrested

On December 22, 1998, the Eastern District Major Crime Squad of the Connecticut State Police arrested James A. Pabilonia at his Willimantic home. Pabilonia was charged with 17 counts of fraud in the sale of securities; 21 counts of unregistered agent activity; racketeering; 4 counts of second degree forgery; 24 counts of first degree larceny; 10 counts of second degree larceny; 16 counts of third degree larceny; 20 counts of money laundering in the second degree; 10 counts of conspiracy to commit larceny; 4 counts of conspiracy to commit second degree larceny; 6 counts of conspiracy to commit third degree larceny; 10 counts of conspiracy to commit money laundering; and 1 count of unlawfully concealing a codicil. Pabilonia was held on $500,000 bond, with arraignment set for December 23, 1998 at Superior Court in Norwich, Connecticut.

Pabilonia (CRD number 839841), who used various aliases including James A. Pabilonia, Sr. and James Leslie Pabilonia, did business under the name World Financial Securities, Inc., and was the subject of a September 5, 1997 Order to Cease and Desist issued by the department. The Order to Cease and Desist (Docket number CD-97-4037-S) had alleged that in late 1996, Pabilonia effected securities transactions on behalf of Primex Prime Electronic Execution, Inc., a Chicago-based broker-dealer, at a time when he was not registered as an agent of that firm under the Connecticut Uniform Securities Act. The Order to Cease and Desist also had claimed that Pabilonia used Internet and print advertising to promote World Financial Securities, Inc., an assumed name under which he conducted business and for which no Form DBA-1 had been filed under the Connecticut Uniform Securities Act Regulations. In addition, the department had alleged that Pabilonia filed a materially false or misleading statement with the agency concerning his agent and branch office registration status. The allegations in the Order to Cease and Desist were resolved informally through an April 6, 1998 Consent Order (Docket No. CD-97-4037-S) which barred Pabilonia for ten years from transacting business as a broker-dealer, agent, investment adviser or investment adviser agent in or from Connecticut.

William Edward Starks (CRD # 1711218) - Chief State's Attorney Announces Sentencing

On December 18, 1998, the Office of the Chief State's Attorney announced that William Edward Starks had been sentenced in New London Superior Court for a term of ten years in prison, with execution suspended after eighteen months on charges of embezzlement. Starks had been convicted of Larceny in the First Degree and two counts of Forgery in the Second Degree for, among other things, stealing blank checks from an 80 year old Dean Witter client and cashing those checks after forging the client's signature. The sentencing also mandated that Starks make restitution in the amount of $100,000 which represented one third of the $300,000 embezzled. The matter had been referred to the office of the Chief State's Attorney by the Department of Banking which permanently barred Starks from the securities industry in Connecticut on December 16, 1998 (Consent Order No. CO-98-5078-S).


RECAP OF THIRD QUARTER ENFORCEMENT ACTIONS

Party No. Action Date Case
Jetstarr International
(CRD 44427)
975 Imperial Golf Course
Boulevard, Naples, FL
Stop Order Denying
Business Opportunity Registration
9/2/1998 SO-98-730-B
E.C. Capital, Ltd.
(CRD 37447)
300 Old Country Rd., Suite 241
Mineola, NY
Amended Notice of Intent To Revoke Registration as A Broker-dealer

Amended Summary Suspension Order

8/28/1998 SS-98-5419-S
Craig Leszczak
(CRD 2599233)
Notice of Intent to Deny
Broker-dealer Agent Registration
8/28/1998 ND-98-5206
EDI Financial, Inc.
(CRD 15699)
4514 Cole Ave., Suite 760
Dallas, TX
Notice of Intent to Deny
Broker-dealer Agent Registration

Notice of Intent to Fine

Order to Cease and Desist

8/11/1998 ND-98-5205-S
Meyers Pollack Robbins Inc.
(CRD 13436)
1 World Trade Center,
91st Floor, Suite 9151
New York, NY
Notice of Intent to Revoke
Broker-dealer Agent Registration
8/8/1998 NR-98-5011-S
Brian G. Doherty
(CRD 2216310)
Order to Cease and Desist 7/28/1998 CD-98-5191-S
San Clemente Securities, Inc.
(CRD 21895)
1031 Calle Recodo, Suite B
San Clemente, CA
Broker-dealer Registration Revoked 7/8/1998 CD-97-3061-S

ADMINISTRATIVE PROCEEDINGS

SETTLEMENTS

Party No. Action Date Case
Spires Financial, L.P.
(CRD 38209)
5487 San Felipe, Suite 4545
Houston, TX
Stipulation & Agreement; $500 Fine,
$500 Costs for Unregistered Branch Activity
8/28/1998 ST-98-5220-S
Pruco Securities Corporation
(CRD 5685)
751 Broad St.
Newark, NJ
Stipulation & Agreement; $6,000 Fine for Unregistered Branch Activity 8/19/1998 ST-98-5164-S
HD Brous & Co., Inc.
(CRD 22062)
40 Cuttermill Rd.
Great Neck, NY
Consent Order; $30,00 Fine in Joint Action With New Jersey for Failure to Supervise Agent Sales Presentations 8/6/1998 CO-98-5175
Peter Earle Butler d/b/a Glen Hill Investment Research
(CRD 37247)
6 Glen Hill Lane
Wilton, CT
Consent Order; $25,000 Fine for Violating 1/31/1994 Consent Order and for Disclosure Deficiencies to Advisory Clients 8/6/1998 CO-98-3040-S
National Securities Corporation
(CRD 7569)
1001 Fourth Ave.
Suite 2200, Seattle, WA
Consent Order; $100,000 Fine in Joint Action with New Jersey for Record-Keeping Violations; Misleading Sales Scripts 7/17/1998 CO-98-5172
L.T. Lawrence & Co., Inc.
(CRD 31956)
1 World Trade Center, Suite 8711
New York, NY
Consent Order; $10,000 Fine, $2,500 Costs
for Unreasonable Commissions
7/14/1998 CO-98-5100-S

CRIMINAL

Party No. Action Date Case
Richard Scarso
(CRD 806883)
Sentenced to 16 years Imprisonment for Securities Fraud, 1st and 2nd Degree Larceny, Forging of Mutual Fund Statements
5/18/1998

OTHER

Party No. Action Date Case
James F. Berger, Jr. d/b/a
Berger Advisory Service

(CRD 3099946)   
750 Summer St.
Stamford, CT
Consent Order Conditioning Registration as an Investment Adviser 9/8/1998 CO-98-5229-S
Ronald Salvatore Gambardella d/b/a Retirement Savings and
Cash Management Services
Company

(CRD 3070161)
26 Ingleside Drive
Hamden, CT
Consent Order Conditioning Registration as an Investment Adviser 8/6/1998   CO-98-5211-S
Robert Steven Ritson
(CRD 1726737)
Consent Order Conditioning Registration as an Agent and Investment Adviser Agent 7/24/1998 CO-98-5147-S

1998 YEAR END SUMMARY

Securities
Filings
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
to Date
Coordinations (Initial) 58 63 53 56 230
Coordinations (Renewal) 8 11 6 5 30
Qualifications (Initial) 7 4 5 2 18
Qualifications (Renewal) 0 0 0 0 0
Regulation D/Section 4(2) Filings 429 448 436 367 1,680
Other Exemption/Exclusion Notices 49 30 35 11 125
Investment Company Notices, Initial 412 358 343 308 1,421
Investment Company Notices, Renewal 433 224 4 5,839 6,500
 
 
Exams 1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Broker-dealers 19 13 25 36 93
Investment Advisers 25 18 6 8 57
 
 
Business
Opportunities
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Initial Registration 7 16 11 9 43
Renewal Registration 4 22 23 0 28
Exemptions & Exclusions 8 10 0 2 20
Cases Opened 1 1 1 4 7
Cases Closed 1 1 2 1 5
Cases in Progress, 12/31/98 - - - - 7
Attorney General Referrals 0 1 0 1 2
Referrals from Other Agencies 0 0 0 0 0
Subpoenas 0 0 0 0 0
Stop Orders 0 0 1 0 1
Cease & Desist Orders 1 0 0 0 1
Other Notices 0 0 0 1 1
Voluntary Restitution $0 $2,995 $4,500 $7,050 $14,545
 
 
Licensing
(Sales)

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year
to Date

Broker-dealer
Initial Registrations Processed
110 88 66 87 351
Broker-dealers
Registered, 12/31/98
- - - - 2,259
Broker-dealer Branch Offices
Registered, 12/31/98
- - - - 1,395
Broker-dealer Agent
Initial Registrations Processed
11,719 9,081 8,669 6,942 36,411
Broker-dealer Agents
Registered, 12/31/98
- - - - 98,750
Agent of Issuer
Registrations Processed
24 3 21 12 60
Agents of Issuer
Registered, 12/31/98
- - - - 137
 
 
Licensing -
Advisory

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year
to Date

Investment Adviser
Initial Registrations Processed
17 17 19 10 63
Investment Advisers
Registered, 12/31/98
- - - - 455
Investment Adviser Branches
Registered, 12/31/98
- - - - 499
Investment Adviser Agent
Initial Registrations Processed
242 179 190 189 800
Investment Adviser Agents
Registered, 12/31/98
- - - - 3,774
SEC Adviser
Notices Processed
38 33 17 25 113
SEC Advisers
Filing Notice, 12/31/98
- - - - 744
SEC Adviser Branches
Filing Notice, 12/31/98
- - - - 73
 
 
Securities
Investigations
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Opened 59 60 49 37 205
Closed 39 64 55 37 195
In Progress, 12/31/98 - - - - 91
Attorney General Referrals 3 3 2 1 9
Referrals from Other Agencies 3 3 1 3 10
Subpoenas 17 18 24 17 76
 
 
Securities
Enforcement
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Denial Orders 1 0 0 1 2
Suspension Orders 1 2 1 5 9
Revocation Orders 1 1 1 0 3
Cease & Desist Orders 1 0 2 12 15
Consent Orders 4 5 4 7 20
Stipulation & Agreements 4 1 2 0 7
Monetary Sanctions $31,470 $58,030 $109,500 $170,000 $369,000
Voluntary Restitution $361,153 $1,423,980 $6,407,433 $224,523 $8,417,089
Conditional Licenses 0 2 3 3 8
Other Notices & Orders 3 2 5 8 18
Criminal Referrals 1 2 0 2 5
Civil Referrals 2 0 0 0 2

Securities Division