DOB: Spring 1998 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XII No. 1 Spring 1998

  Features:

Enforcement Highlights:

Contributors:

Ralph Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric Wilder, Assistant Director
Marge Kagan, Subscription Coordinator

A WORD FROM THE BANKING COMMISSIONER

Save this date: Securities Forum '98 has been scheduled for Monday, October 19, 1998 at the Radisson Hotel in Cromwell, Connecticut. Our 10th annual conference will again feature a day-long agenda with expert speakers and challenging discussions to help you keep abreast of new regulatory developments. The department views the Securities Forum as a special opportunity for an open and productive dialogue with industry. We continue to welcome your suggestions for presentation topics. Look for more Securities Forum information in the next Bulletin and later this summer on this web site.

This issue of the Securities Bulletin features a quick reminder for federally covered investment advisers clarifying department policy on filings and reducing the number of Form ADV amendment s that must be submitted to the department. Amendment filings need only reflect changes material to Connecticut operations. Examples would include a name change, an address change, a new contact person or a change in Connecticut branch office status. In addition, federally covered investment advisers need not file financial statements with our agency. Bear in mind, however, that federally regulated investment advisers must still file Form U-4 and an appropriate fee for Connecticut-based investment adviser agents and third party solicitors.

In this post-NSMIA regulatory environment, the Division has expanded its pre-registration meetings to cover more ground and be more informative for Connecticut registered investment advisers. Division staff now discuss such practical topics as post-licensing filing requirements, what records to maintain and what to expect during a Securities Division examination. The Division also maintains an open telephone line during business hours for any questions from registrants.

State regulated investment advisers should expect that the length of the Division's examination cycle will be shortened in the wake of NSMIA. The Division hopes to be more responsive to the advisory environment and to help advisers comply with the new regulatory scheme while at the same time ensuring that adequate safeguards are in place to protect Connecticut investors.

-- John P. Burke
Banking Commissioner


A Filing Calendar
For Federally Covered Investment Advisers*

*Investment advisers subject to Securities and Exchange Commission
oversight under P.L. 104-290, the National Securities Markets Improvement Act of 1996

{Calendar}

IN THE BEGINNING ....

First Time Filers

* Executed Form ADV, all schedules as filed with the SEC, including
a) Schedule I (Declaring Eligibility for SEC Registration) and
b) Schedule E.
* Nonrefundable fees, payable to "Treasurer, State of Connecticut":
a) $250 initial filing fee
b) $100 for each Connecticut branch office listed on Schedule E.

EVERY DECEMBER ....

* Executed page 1 of Form ADV
* Nonrefundable $150 renewal notice fee payable to "Treasurer, State of Connecticut"
* (If not previously supplied): Most recent Schedule I

AS NEEDED AMENDMENTS ....

* Federally covered Advisers must update their Connecticut notice filings simultaneously with federal updates only if the amendments affect the adviserís Connecticut operations. Examples: Name change; address change; change in contact person; change in a Connecticut branch office listed on Schedule E. Note: If the adviser acquires a Connecticut branch of another broker-dealer or investment adviser or relocates a branch office in this state, include with the amended Schedule E a non-refundable fee of $100 per acquired or relocated office. Make checks payable to "Treasurer, State of Connecticut."

AND NEVER ON SUNDAY (OR ANY OTHER DAY) ....

* Financial statements
 

Enforcement Highlights

Administrative Sanctions

Cease and Desist Orders

Brian Thomas Lenihan (CRD # 306567)

On March 19, 1998 the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket number CD-98-4027-S) under the Connecticut Uniform Securities Act against Brian Thomas Lenihan of Darien, Connecticut. The Cease and Desist Order was based on allegations that Lenihan 1) transacted business as an investment adviser absent registration in purported violation of Section 36b-6 of the Act; 2) failed to enter into written investment advisory contracts with clients as mandated by law; 3) filed a false or misleading statement with the department in conjunction with registration renewal fees due; and 4) violated the antifraud provision in Section 36b-5(a) of the Act by causing investment advisory fees to be paid from the account of at least one Connecticut client without the clientís authorization or knowledge. Respondent Lenihan was afforded an opportunity for a hearing on the allegations in the Order to Cease and Desist.

Jetstarr International and David L. MacDonald - Cease and Desist Order Made Permanent

On March 31, 1998 the Banking Commissioner entered a permanent Order to Cease and Desist (Docket number CD-97-729-B) under the Connecticut Business Opportunity Act against Jetstarr International of 975 Imperial Golf Course Boulevard, Naples, Florida, and its representative, David L. MacDonald of 11 Bliss Place, Norwich, Connecticut. The Order had been preceded by a December 3, 1997 Order to Cease and Desist and Notice of Right to Hearing which alleged that in October 1996, Jetstarr International, through MacDonald, offered unregistered non-exempt business opportunities in the Jetstarr Program to at least one purchaser-investor located in Connecticut. On February 26, 1998, a hearing was held, with settlement terms being placed on the record. Those terms included an agreement by the respondents to reimburse a Jetpack purchaser-investor $1,892 on March 2, 1998 as a gesture of good faith. The respondents agreed that a failure to observe the terms of the settlement would result in the December 3, 1997 Order to Cease and Desist becoming permanent. Since the respondents failed to honor the terms of the settlement, the Order to Cease and Desist did become permanent on March 31, 1998.

CONSENT ORDERS

Synovus Securities, Inc. (CRD # 14023)

On January 28, 1998, the Banking Commissioner entered a Consent Order (No. CO-97-5060-S) pursuant to the Connecticut Uniform Securities Act with respect to Synovus Securities, Inc., an applicant for broker-dealer registration having its principal office at 1132 Broadway, Columbus, Georgia. The Commissionerís action followed a Securities and Business Investments Division investigation which revealed indications that, from at least 1991 through 1997, the firm had transacted business as a broker-dealer absent registration and employed unregistered agents in alleged contravention of Section 36b-6 of the Act.

The Consent Order required that the firm 1) refund or credit to Connecticut customers approximately $5,423.59 in commissions earned during the period of unregistered activity; 2) cease and desist from regulatory violations; 3) implement revised supervisory procedures designed to improve regulatory compliance; 4) for two years, file with the department on a quarterly basis a report concerning any securities-related complaints, actions or proceedings involving Connecticut residents; and 5) remit $4,140 to the department, $3,000 of which constituted an administrative fine, and $1,140 of which represented reimbursement for back registration fees for the period from 1991 to 1997. Contemporaneously with the entry of the Consent Order, the firm became registered as a broker-dealer in Connecticut.

Arthur Robert Hall (CRD # 2534679)

On February 13, 1998, the Banking Commissioner entered a Consent Order (No. CO-98-4035-S) pursuant to the Connecticut Uniform Securities Act with respect to Arthur Robert Hall, a former agent of W.S. Griffith & Co., Inc. The Commissionerís action followed a Securities and Business Investments Division investigation which uncovered evidence that, from at least June 1996 through April 1997, Hall 1) violated Section 36b-4(a) of the Act by failing to purchase securities for a Connecticut client after accepting client monies and representing to the client in writing that he would invest some of the funds in securities; and 2) borrowed money from at least one Connecticut client absent the customerís consent and without notice to his employing broker-dealer.

Acknowledging that Hall had refunded to the Connecticut client all monies borrowed without authorization, the Commissioner ordered that Hall cease and desist from regulatory violations. The Commissioner also ordered that Hall be barred for ten years from acting as an agent of a broker-dealer, investment adviser or issuer; and from acting as an investment adviser or broker-dealer, notwithstanding the existence of any otherwise applicable statutory exemption or exclusion. In addition, the Consent Order barred Hall for ten years from acting as a finder for compensation, splitting commissions or receiving referral fees in connection with the recommendation, sale or purchase of securities.

First Montauk Securities Corporation (CRD # 13755)

On February 13, 1998, the Banking Commissioner entered a Consent Order (No. CO-97-5064-S) pursuant to the Connecticut Uniform Securities Act with respect to First Montauk Securities Corporation, an investment adviser and broker-dealer having its principal office at 328 Newman Springs Road, Red Bank, New Jersey. The Commissionerís action followed a Securities and Business Investments Division investigation which uncovered indications that, at various times between 1995 and 1997, the firm engaged unregistered investment adviser agents in alleged violation of Section 36b-6(c) of the Act.

The Consent Order required that the firm cease and desist from regulatory violations; implement revised supervisory procedures designed to improve compliance; and pay $3,690 to the department, $190 of which represented past due registration fees, $2,500 of which constituted an administrative fine, and $1,000 of which represented reimbursement for division investigative costs.

San Clemente Securities, Inc. (CRD # 21895)

On March 11, 1998, the Banking Commissioner entered a Consent Order (No. CO-97-3061-S) pursuant to the Connecticut Uniform Securities Act with respect to San Clemente Securities, Inc. of 1031 Calle Recodo, Suite B, San Clemente, California. The Consent Order followed a December 3, 1997 Order to Cease and Desist which alleged that Peter Liounis, a representative of the firm and also a named party, sold shares of Sports Vision Technology, Inc. common stock to at least one person in Connecticut at a time when Liounis was not registered as an agent of the firm and at a time when the stock in question was neither registered under the Act nor the subject of a claim of exemption. Since Liounis did not request a hearing on the allegations, the Cease and Desist Order became permanent as to him on March 4, 1998.

The Consent Order with San Clemente Securities, Inc. required that the firm 1) review and revise its supervisory procedures to ensure regulatory compliance; 2) cease and desist from violative conduct; and 3) remit $2,500 to the department, $1,000 of which constituted an administrative fine and $1,500 of which represented reimbursement for agency investigative costs.

Stipulation and Agreements

Levesque Securities, Inc. and Levesque Beaubien Geoffrion Inc. (CRD # 1747)

On January 12, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-97-4081-S) under the Connecticut Uniform Securities Act with Levesque Securities Inc. and Levesque Beaubien Geoffrion Inc., both of 1155 rue Metcalfe, Montreal, Quebec, Canada. The Stipulation and Agreement followed an investigation by the Securities and Business Investments Division. That investigation uncovered evidence that, from at least 1996, in servicing the accounts of Canadian citizens temporarily in Connecticut, as well as United States citizens residing in the state, the firms transacted business as a broker-dealer absent registration under the Connecticut Uniform Securities Act and employed unregistered agents.

Pursuant to the Stipulation and Agreement, the firms agreed to 1) refrain from violative conduct; 2) review, revise and implement supervisory and compliance procedures designed to prevent and detect regulatory violations; and 3) remit ten thousand dollars to the department, $5,000 of which would constitute reimbursement for agency investigative costs and $5,000 of which would be allocated to the departmentís Investor Education Fund.

Jackson National Financial Services, Inc. (CRD # 29604)

On January 28, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-97-5063-S) under the Connecticut Uniform Securities Act with Jackson National Financial Services, Inc., a broker-dealer with its principal office at 5901 Executive Drive, Lansing, Michigan. The Stipulation and Agreement followed an investigation by the Securities and Business Investments Division. That investigation uncovered evidence that, from approximately May 1997 to September 1997, the firm had transacted business from five Connecticut locations without registering those locations as branch offices under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to 1) review, revise, and implement supervisory procedures designed to ensure compliance with Connecticutís securities laws; 2) refrain from engaging in violative conduct; 3) provide quarterly reports to the department for two years describing any complaints, actions or proceedings involving Connecticut residents; and 4) remit $1,000 to the agencyís Investor Education Fund.

Natwest Securities Corporation (CRD # 18238)

On February 23, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-97-5073-S) under the Connecticut Uniform Securities Act with Natwest Securities Corporation, a broker-dealer with its principal office at 175 Water Street, New York, New York. The Stipulation and Agreement followed an investigation by the Securities and Business Investments Division. That investigation uncovered evidence that, from approximately August 1997 to November 1997, the firm had transacted business from a Connecticut location without registering that location as a branch office under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to 1) implement revised branch office procedures designed to ensure regulatory compliance; 2) provide quarterly reports to the department for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents; and 3) remit $1,000 to the department, $500 of which would constitute reimbursement for agency investigative costs, and $500 of which would be allocated to the departmentís Investor Education Fund.

Far Hills Securities, LLC f/k/a Far Hills Securities, Inc. (CRD # 32243)

On February 25, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-97-3091-S) under the Connecticut Uniform Securities Act with Far Hills Securities, LLC of 575 Fifth Avenue, 28th Floor, New York, New York. The Stipulation and Agreement followed an investigation by the Securities and Business Investments Division. That investigation uncovered evidence suggesting that, from approximately June 1995 to May 22, 1996, the firm transacted business as a broker-dealer absent registration and later misrepresented in writing the extent of its prior trading activity in Connecticut.

Without admitting or denying the agencyís allegations, the firm entered into a Stipulation and Agreement with the agency. Pursuant to the Stipulation and Agreement, the firm agreed to 1) refrain from engaging in violative conduct; and 2) remit $5,000 to the department, $3,000 of which would constitute an administrative assessment, $1,000 of which would represent reimbursement for division investigative costs; and $1,000 of which would cover the cost of future examinations to be conducted by the department.

Licensing Actions

Axiom Capital Management, Inc. (CRD # 26580) - Summary Suspension Order Vacated

On January 16, 1998, the Banking Commissioner entered an Order vacating a January 9, 1998 summary suspension order against Axiom Capital Management, Inc. of 399 Park Avenue, 27th Floor, New York, New York (Docket number NS/SS-98-5086-S). The summary suspension order, and its accompanying Notice of Intent to Suspend Registration as a Broker-dealer, had alleged that the firm failed to comply with a subpoena duces tecum issued to it on December 3, 1997. In vacating the summary suspension order and withdrawing the Notice of Intent to Suspend Registration as a Broker-dealer, the Commissioner acknowledged the firmís subsequent demonstration of cooperation in conjunction with the agencyís investigation.

SFI Investments, Inc. (CRD # 21663) - Broker-dealer Registration Denied

On January 14, 1998, the Banking Commissioner issued an Order denying the broker-dealer registration of SFI Investments, Inc. (Docket No. ND-97-3058-S). The last known address for the firm was 88 Pine Street, 16th Floor, New York, New York. The Commissioner found that SFI Investments, Inc., which had been the subject of a March 27, 1997 Consent Order by the department, wilfully violated the Consent Order by remitting to the agency a check for $7,532 which was returned twice for insufficient funds and by failing to cure the deficiency after notice. The check represented the disgorgement of commissions earned, past due registration fees and an administrative fine mandated by the Consent Order. The March 27, 1997 Consent Order had been predicated on allegations of unregistered broker-dealer activity by the firm. SFI Investments Inc. did not appear or contest the Commissionerís denial of its registration.

First United Equities Corporation (CRD # 36398) - Broker-dealer Registration Revoked

On February 17, 1998, the Banking Commissioner issued an Order revoking the broker-dealer registration of First United Equities Corporation of 200 Garden City Plaza, Suite 518, Garden City, New York (Docket No. NR-97-4069-S). The Commissionerís action was based on findings that 1) at various times during 1995 and 1996, the firm employed Donald Curtis Bauman, David Pesso, Garvey Fox, Andrew Neal Weber, James John McLaughlin, Francesco V. Mollo, Joseph P. Mannino, Victor Labi and Steven Mark Cohen as agents at a time when those individuals were not registered as such under the Act; 2) the firm offered and sold unregistered non-exempt securities of Leadville Mining and Milling Corporation in wilful violation of Section 36b-16 of the Act; 3) the firm engaged in dishonest or unethical practices in the securities business by engaging in conduct proscribed by National Association of Securities Dealers Rule 2110, by falsely representing that the US Golf IPO was oversubscribed and by failing to establish adequate written supervisory procedures; and 4) by mischaracterizing Peter Scott Antonelliís agent compensation as a "consulting fee," the firm failed to keep and maintain true and accurate records in contravention of Section 36b-31-14a(a) of the Regulations under the Act.

R.D. White & Co., Inc. (CRD # 7011) - Notice of Intent to Revoke Broker-dealer Registration Issued

On March 13, 1998, the Banking Commissioner issued a Notice of Intent to Revoke the broker-dealer registration of R.D. White & Co., Inc. of 26 Broadway, Suite 745, New York, New York (Docket number NR-98-5072-S). The Notice was predicated on allegations that the firm 1) wilfully transacted business as a broker-dealer absent registration under the Connecticut Uniform Securities Act from at least May 1996 to July 1996; 2) wilfully employed Joseph Anthony Falco, Lawrence Richard Dugo, Charles Richard Skaar, Carlton Perry Fletcher, Joseph Anthony Salino and Charles Joseph Principato as agents at a time when none of them were registered to transact securities business on behalf of the firm in Connecticut; 3) filed a materially false or misleading statement with the department on August 13, 1996 denying that Principato had offered or sold securities to Connecticut residents while employed by R.D. White & Co., Inc.; 4) engaged in a dishonest or unethical practice during March 1997 by employing a cold caller not registered with the NASD; 5) engaged in dishonest or unethical practices by guaranteeing to customers at least $40,000 in capital gains earnings from the purchase and sale of Egghead, Inc. and SIMS Communications, Inc. common stock; 6) engaged in dishonest or unethical practices by using advertising in a deceptive or misleading manner; 7) wilfully violated Section 36b-14 of the Connecticut Uniform Securities Act and Section 36b-31-14f of the Regulations thereunder by failing to make its records available to the Commissioner; 8) engaged in a dishonest or unethical business practice by splitting an agentís commissions with an unregistered employee; and 9) engaged in dishonest or unethical business practices by failing to establish adequate written supervisory procedures.

R.D. White & Co., Inc. was afforded an opportunity for a hearing on the allegations in the Notice of Intent to Revoke


QUARTERLY STATISTICAL SUMMARY

January 1, 1998 through March 31, 1998

Registration &
Notice Filings
Securities Business
Opportunities
YTD
Coordination Registrations (initial) 58 n/a 58
Coordination Registrations (renewal) 8   8
Qualification Registrations (initial) 7   7
Qualification Registrations (renewal) 0   0
Investment Company Notices (initial) 412   412
Investment Company Notices (renewal) 433   433
Regulation D and Section 4(2) Filings 429 n/a 429
Other Exemption or Exclusion Notices 49 8 49 (SE)
8 (BO)
Business Opportunity Registrations (initial) n/a 7 7
Business Opportunity Registrations (renewal) n/a 4 4
 
 
Licensing &
Branch Office Registration

Broker-Dealers

Investment Advisers

Issuers

YTD

Firm Initial Registrations Processed 110 17 n/a 110 (BD)
17 (IA)
Firm Notice Filings Processed n/a 38 n/a 38 (IA)
Firms Registered as of 3/31/98 2,317 534 n/a n/a
Firms Filing Notice as of 3/31/98 n/a 557 n/a n/a
Agent Initial Registrations Processed 11,719 242 24 11,719 (BD)
242 (IA)
24 (IS)
Agents Registered as of 3/31/98 91,998 4,204 181 n/a
Branch Offices Registered as of 3/31/98 1,279 476 n/a n/a
Branch Office Notice Filings as of 3/31/98 n/a 25 n/a n/a
Examinations Conducted 0 0 n/a 0 (BD)
0 (IA)
 
 
Investigations Securities Business
Opportunities
YTD
Investigations Opened 59 1 59 (SE)
1 (BO)
Investigations Closed 39 1 39 (SE)
1 (BO)
Investigations in Progress
as of 3/31/98
- 0 n/a
Referrals from Attorney General 3 0 3 (SE)
0 (BO)
Referrals from Other Agencies 3 0 3 (SE)
0 (BO)
Subpoenas Issued 17 0 17 (SE)
0 (BO)
 
 
Administrative Enforcement
Actions
Number Parties YTD
(#/Parties)
Securities
Consent Orders 4 4 4/4
Stipulation and Agreements 4 5 4/5
Cease and Desist Orders 1 1 1/1
Denial, Suspension & Revocation Orders 3 3 3/3
Conditional Licensing Orders 0 0 0/0
Other Notices and Orders 3 3 3/3
Referrals (Civil) 2 2 2/2
Referrals (Criminal) 1 1 1/1
Business Opportunities
Consent Orders 0 0 0/0
Stipulation and Agreements 0 0 0/0
Cease and Desist Orders 1 2 1/2
Other Notices and Orders 0 0 0/0
Referrals (Civil) 0 0 0/0
Referrals (Criminal) 0 0 0/0
 
 
Monetary Sanctions $ Assessed YTD
Consent Orders and
Stipulation and Agreements (Securities)
$ 31,470 $ 31,470
Formal Administrative Fines (Securities) 0 0
_________ _________
Totals $31,470 $31,470
 
 
Reimbursement to the
Investing Public
Voluntary Restitution Offers;
Other Monetary Relief
YTD
Securities $ 361,153 $361,153
Business Opportunities 0 0
________ ________
Totals $ 361,153 $ 361,153


Securities Division