DOB: Fall 1998 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XII No. 3 Fall 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

When the clock strikes midnight at the end of the century, or following other earlier critical dates, will your computer systems malfunction, interfering with your basic business operations, threatening your ability to manage client assets and exposing your firm to financial liability and litigation?

A great deal of attention has been focused on the potential impact of the century date change on financial services computer systems by regulators and the media. In view of the highly automated nature of financial services today, it is vital that securities industry firms promptly address the Year 2000 computer problem. A limited period of time is available to prepare for a successful transition to the millenium.

Accordingly, we have taken the very unusual step of reprinting in this Bulletin our memorandum regarding the critical need to prepare for Year 2000. We hope that this additional notice will underscore our concern regarding the serious nature of this problem. Year 2000 is not simply another problem for technical support - it is a management issue with implications concerning business continuation.

Year 2000 poses issues for every organization, including the Department of Banking. Our agency is currently making a transition to a new computer platform and new operating software to address Y2K and improve efficiency. As part of this process, and in response to the enactment of the National Securities Markets Improvement Act of 1966, we have asked that Connecticut registered investment advisers (versus notice filers) submit a complete and current form ADV to the agency. (Please see page 2 of this Bulletin for further information.)

The Securities Division's licensing section has noticed a recent trend reflecting an increase in the number of investment adviser applicants for state registration who lack the requisite experience. The Division is sensitive to the issue of applicants seeking entry into the industry while, at the same time, remaining committed to its objective of protecting Connecticut investors. As a result, the Division has issued an increasing number of conditional licenses to allow applicants to gain additional experience rather than denying their initial applications.

This issue of the Bulletin also features an exemptive order conforming the state's manual exemption more closely to the North American Securities Administrators Association model. This order promises to promote uniformity in the regulation of secondary market sales and facilitate compliance by the securities industry.

John P. Burke
Banking Commissioner


SPECIAL NOTICE

1999 Special Renewal Procedure for
State Registered Investment Advisers

Connecticut registered investment advisers (versus notice filers) normally renew their registrations under the Connecticut Uniform Securities Act by paying a $150 renewal invoice and making any necessary amendments to their previously filed Form ADV.

Congress' enactment of Title III of the National Securities Markets Improvement Act of 1996 (effective July 8, 1997), however, necessitated that the Division initiate an overhaul of its internal automated registration system.

Although the revamped computer system promises greater efficiency, the conversion process itself requires that we take an additional step to ensure that the conversion of data proceeds flawlessly. Therefore, to ensure that all information concerning your registration remains up to date, our renewal procedure for this year only requires that you submit a complete, current Form ADV, including all pages and schedules.

Your cooperation is appreciated.


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 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 Sanctions

Cease and Desist Orders

Brian G. Doherty (CRD # 2216310)

On July 28, 1998 the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket number CD-98-5191-S) under the Connecticut Uniform Securities Act against Brian G. Doherty of Naples, Florida. The Cease and Desist Order was based on allegations that Doherty violated Section 36b-23 of the Connecticut Uniform Securities Act by failing to disclose in a prior application for agent registration pending proceedings to revoke his license as an attorney in the State of New Hampshire, and by failing to timely amend that application to disclose the subsequent revocation. Since Respondent Doherty withdrew his initial request for a hearing on the allegations, the Order to Cease and Desist became permanent on August 24, 1998.

Stop Orders

Jetstarr International (CRD # 44427)

On September 2, 1998, the Banking Commissioner issued a Stop Order denying effectiveness to the pending business opportunity registration application of Jetstarr International under the Connecticut Business Opportunity Investment Act (Docket number SO-98-730-B). The Stop Order had been preceded by a July 24, 1998 Notice of Intent which was uncontested by the corporation. Jetstarr International maintains its principal office at 975 Imperial Golf Course Boulevard, Naples, Florida. The Commissioner's action was based on findings that the corporation's business opportunity registration application was materially incomplete; and that Jetstarr International, in failing to honor a prior settlement with the agency, wilfully violated a condition lawfully imposed by the state's business opportunity law. Jetstarr was the subject of a December 3, 1997 Order to Cease and Desist entered by the Commissioner (Docket number CD-97-729-B). The cease and desist order became permanent on March 31, 1998.

Consent Orders

L.T. Lawrence & Co., Inc. (CRD # 31956)

On July 14, 1998, the Banking Commissioner entered a Consent Order (File No. CO-98-5100-S) with respect to L.T. Lawrence & Co., Inc., a registered broker-dealer with its principal office at One World Trade Center, Suite 8711, New York, New York. The firm consented to the Commissioner's action without admitting or denying the agency's allegations. The Consent Order alleged that, from at least February, 1995 through November, 1996, the firm: 1) incorrectly implied to Connecticut clients that its agents would not receive commissions or other similar remuneration on principal transactions; 2) charged Connecticut customers unreasonable commissions on transactions; and 3) failed to establish, enforce and maintain a system for supervising agent activities that was reasonably designed to achieve compliance with applicable securities laws and regulations.

Acknowledging that the firm had refunded to one Connecticut client all monies invested in connection with the above conduct, the Commissioner ordered that the firm 1) cease and desist from violative activity; 2) remit $12,500 to the agency, $10,000 of which constituted an administrative fine and $2,500 of which represented reimbursement for agency investigative and examination costs; 3) for two years, report to the Division on a quarterly basis concerning any complaints, actions or proceedings involving Connecticut residents; 4) for non-accredited investors domiciled in Connecticut, limit firm trading to securities which were exchange listed or approved for designation as National Market System (NMS) securities on the National Association of Securities Dealers Automated Quotation System (NASDAQ); 5) implement revised supervisory and compliance procedures designed to improve regulatory compliance; and 6) for two years, reimburse the agency up to $2,500 in the aggregate for all costs associated with any examination of firm offices.

National Securities Corporation (CRD # 7569)

On July 17, 1998, the Commissioner, jointly with the New Jersey Bureau of Securities, entered a Consent Order (Connecticut File No. CO-98-5172) with respect to National Securities Corporation, a registered broker-dealer with its principal office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington and a branch office located at 25 Melville Park Road, Melville, New York. The Consent Order alleged that a joint examination of the firm's Melville, New York branch office revealed that certain business expenses were not paid directly by the firm and therefore were not carried on the firm's books; and that certain agents employed at the Melville location used unreviewed scripted sales presentations that were materially false and misleading.

Pursuant to the Consent Order, the firm agreed to cease and desist from violative conduct; retain a consultant to review its policies and procedures in the areas of agent recruiting and training, continuing education, and organizational structure; implement the consultant's recommendations within 45 days after receiving the consultant's report; implement a telephone taping and monitoring system for the Melville office within 60 days; and pay $72,500 of a $100,000 fine upon entry of the Consent Order, such amount to be divided equally between the states of Connecticut and New Jersey. The Consent Order stipulated that if the firm complied with the telephone taping and monitoring system requirement for the Melville site, the $27,500 penalty balance would be suspended at a rate of 50% for each dollar the firm spent on the telephone system, up to a maximum cost of $55,000. If the telephone system cost less than $55,000, the remaining amount of the fine would be paid equally to Connecticut and New Jersey on the 61st day after the Consent Order was issued.

Peter Earle Butler d/b/a Glen Hill Investment Research (CRD # 37247)

On August 6, 1998, the Banking Commissioner entered a Consent Order (File No. CO-98-3040-S) with respect to Peter Earle Butler, an investment adviser located at 6 Glen Hill Lane, Wilton, Connecticut. The Consent Order alleged that Butler, who had been the subject of a January 31, 1994 Consent Order (the "1994 Consent Order") issued by the department (File No. CO-94-2536-S) violated certain terms and provisions of that earlier Consent Order. Such alleged violations consisted of engaging in personal securities transactions absent a written opinion of counsel regarding any actual or potential conflicts of interest raised thereby; failing to comply with certain undertakings that Butler refrain from taking a position in any security being recommended to clients; and accepting commissions or other remuneration from broker-dealers based on securities transactions effected for Butler's advisory clients. In addition to the purported violations of the 1994 Consent Order, the Commissioner claimed that Butler violated 1) Section 36b-5(a) of the Connecticut Uniform Securities Act by affirmatively disclosing in his research reports to clients that neither Glen Hill Investment Research nor its management had a position in the recommended securities when the converse was true;, 2) Section 36b-5(b) of the Act by failing to enter into written advisory contracts with clients; and 3) Section 36b-14(c) of the Act by failing to amend his Form ADV to disclose the existence of the 1994 Consent Order and to correct a purportedly misleading statement concerning the circumstances under which he would purchase or sell securities for his own account.

The obligations imposed by the August 6, 1998 Consent Order would terminate after three years. Pursuant to the latest Consent Order, Butler agreed to 1) engage a compliance auditor within 30 days to review his investment advisory operations and make recommendations; 2) within 180 days, provide the Division Director with a copy of the compliance auditor's recommendations and corrective steps implemented; 3) consult with securities legal counsel regularly concerning his investment advisory business and securities-related activities; 4) limit his investment advisory activities to institutional clients; 5) remain registered as an investment adviser under the Act as long as he transacted investment advisory business from Connecticut or with Connecticut clients; 6) notify the Division Director should his investment advisory activities become subject to exclusive Securities and Exchange Commission oversight under the National Securities Markets Improvement Act of 1996; 7) notwithstanding any change in status attributable to his becoming a federally-regulated investment adviser, keep his books and records open to inspection by the Commissioner; 8) limit his advisory research to securities that were exchange listed, traded on NASDAQ-NMS or listed on any foreign exchange; 9) provide each current advisory client with a copy of the 1998 Consent Order; 10) within 10 days, mail to all affected clients a statement disclosing and explaining discrepancies between the disclaimers in his previous research reports and his actual securities holdings during the relevant period; 11) cease and desist from engaging in violative conduct; 12) limit his compensation arrangements for investment advisory services to client-paid fees for research services and performance fees permissible under federal law; 13) for two years, report to the division on a quarterly basis concerning any securities-related complaints actions, or proceedings initiated against him; 14) within 30 days, establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information in violation of applicable law; 15) refrain, within 72 hours of any recommendation to a client, from buying or selling any securities being recommended to that client; and 16) pay an administrative fine of $25,000 to the department.

HD Brous & Co., Inc. (CRD # 22062)

On August 6, 1998, the Commissioner, jointly with the New Jersey Bureau of Securities, entered a Consent Order (Connecticut File No. CO-98-5175) with respect to HD Brous & Co., Inc., a registered broker-dealer with its principal office at 40 Cuttermill Road, Great Neck, New York and a branch office formerly located at 510 Broad Hollow Road, Melville, New York. The Consent Order alleged that a joint examination of the firm's offices revealed unapproved use of sales presentations by agents in contravention of firm policies and that such use constituted a failure by the firm to reasonably supervise the agents involved. In executing the Consent Order, the firm represented that it had taken several remedial steps, including terminating for cause certain agents and managers once located in the Melville office; closing the Melville office; and installing a telephone monitoring system in its Great Neck and New York City locations. The Consent Order included a waiver of any potential statutory or other disqualification resulting from its entry.

Pursuant to the Consent Order, the firm agreed to cease and desist from violative conduct; retain a consultant to review its policies and procedures in the areas of agent hiring and training, continuing education, approval and use of sales presentations and supervisory and organizational structure; implement the consultant's recommendations within 45 days after receiving the consultant's report; pay a $30,000 fine, to be divided equally between the states of Connecticut and New Jersey; and reimburse both regulatory bodies for the costs of a future examination, such cost not to exceed $5,000 in the aggregate.

Stipulation and Agreements

Pruco Securities Corporation (CRD # 5685)

On August 19, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-98-5164-S) under the Connecticut Uniform Securities Act with Pruco Securities Corporation of 751 Broad Street, Newark, New Jersey. The Stipulation and Agreement was based on allegations that from approximately May 1993 to May 1998, the firm transacted business from four places of business in Connecticut without registering each location as a branch office under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to 1) complete an internal review of its supervisory and compliance procedures within 120 days and file a summarizing report with the Division Director; 2) provide quarterly reports to the department for one year describing any complaints, actions or proceedings involving Connecticut residents; and 3) pay a fine of $6,000 to the agency.

Spires Financial, L.P. (CRD # 38209)

On August 28, 1998, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-98-5220-S) under the Connecticut Uniform Securities Act with Spires Financial, L.P. of 5487 San Felipe, Suite 4545, Houston, Texas. The Stipulation and Agreement was based on allegations that between March 1998 and July 1998, the firm transacted broker-dealer business from a Connecticut location without registering that site as a branch office under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to 1) implement revised procedures designed to ensure regulatory compliance; 2) provide quarterly reports to the department for two years describing any complaints, actions or proceedings involving Connecticut residents; and 3) pay $1,000 to the department, $500 of which represented an administrative penalty and $500 of which constituted reimbursement for agency investigative costs.

Licensing Actions

San Clemente Securities, Inc. (CRD # 21895) - Broker-dealer Registration Revoked

On July 8, 1998, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order revoking the broker-dealer registration of San Clemente Securities, Inc. (Docket No. CD-97-3061-S) The firm, now or formerly of 1031 Calle Recodo, Suite B, San Clemente, California, had been the subject of a December 3, 1997 Order to Cease and Desist alleging that it sold unregistered securities through an unregistered agent. On March 11, 1998, the Commissioner entered a Consent Order resolving the matters raised by the Order to Cease and Desist. Among other things, the Consent Order required that the firm remit $2,500 to the agency, $1,000 of which would constitute a fine and the balance of which would represent reimbursement for investigative costs. That portion of the monetary sanction representing costs was payable by May 30, 1998. The Consent Order contained a proviso that a failure to make payment would result in the immediate revocation of the firm's broker-dealer registration and that the firm voluntarily waived its right to notice and hearing in conjunction therewith. Since the firm failed to make payment of the $1,500 balance, its broker-dealer registration was revoked on July 8, 1998.

Meyers Pollack Robbins, Inc. (CRD # 13436) - Notice of Intent to Revoke Broker-dealer Registration Issued

On August 8, 1998, the Banking Commissioner entered a Notice of Intent to Revoke the broker-dealer registration of Meyers Pollack Robbins, Inc. under the Connecticut Uniform Securities Act (Docket number NR-98-5011-S). The firm is located at One World Trade Center, 91st Floor, Suite 9151, New York, New York. The Commissioner's action was based on allegations that the firm 1) engaged in dishonest or unethical practices in the securities business by employing unregistered cold callers and by using sales presentations, specifically business cards which mischaracterized agents' status as officers, in a manner as to be deceptive or misleading; 2) employed unregistered agents; 3) violated state record-keeping requirements by altering at least seven documents, including "agreements to purchase" from their original condition; 4) sold unregistered non-exempt shares of Grandma Lees, Inc., Software of Excellence International, Inc. and El Misti Gold, Ltd. in contravention of Section 36b-16 of the Act; 5) failed to maintain adequate supervisory procedures; and 6) had been the subject of a November 13, 1997 revocation order and cease and desist order by the State of Massachusetts. The firm was afforded an opportunity for a hearing on the Notice of Intent to Revoke.

EDI Financial, Inc. (CRD # 15699) - Notice of Intent to Deny Broker-dealer Registration and to Fine Issued; Order to Cease and Desist Entered

On August 11, 1998, the Banking Commissioner entered a Notice of Intent to Deny the pending broker-dealer registration of EDI Financial, Inc. under the Connecticut Uniform Securities Act (Docket number ND-98-5205-S). On the same day, the Commissioner issued a Notice of Intent to Fine the firm, and entered an Order to Cease and Desist. The firm is located at 4514 Cole Avenue, Suite 760, Dallas, Texas. The Commissioner's action was based on allegations that the firm 1) violated an April 10, 1995 Consent Order of the Commissioner by transacting business as a broker-dealer absent registration and 2) filed an application for registration that contained false or misleading statements concerning the firm's unregistered activity. Respondent EDI Financial, Inc. was afforded an opportunity for a hearing on the Notice of Intent to Deny Registration, the Notice of Intent to Fine and the Order to Cease and Desist.

E. C. Capital, Ltd. (CRD # 37447) - Amended Notice of Intent to Revoke Registration as a Broker-dealer and Amended Order Summarily Suspending Broker-dealer Registration Issued

On August 28, 1998, the Banking Commissioner issued an amended order summarily suspending the broker-dealer registration of E.C. Capital, Ltd. under the Connecticut Uniform Securities Act and an amended Notice of Intent to Revoke Registration (Docket number SS-98-5419-S). Administrative action had been initially commenced against the firm on April 23, 1998 when the Commissioner summarily suspended the firm's broker-dealer registration and provided Notice of Intent to revoke that registration based on allegations that, during an examination and investigation of E.C. Capital, Ltd., the firm deleted and failed to later make available approximately 300 computer files after examiners requested that the integrity of computer information be maintained. In addition to the claims asserted in the original action, the amended notice and order alleged that the respondent violated a letter agreement with the agency by soliciting NASDAQ Smallcap Market stocks; employed unregistered agents, which included cold callers as well as the firm's chairman and CEO, Gregory Small; and failed to establish and implement adequate supervisory procedures.

Craig Leszczak (CRD # 2599233) - Notice of Intent to Deny Broker-dealer Agent Registration Issued

On August 28, 1998, the Banking Commissioner entered a Notice of Intent to Deny (Docket number ND-98-5206) the pending registration of Craig Leszczak as an agent of Barron Chase Securities, Inc. (CRD number 18969). The Commissioner's action was based on allegations 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 alleged 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 was afforded an opportunity for a hearing on the allegations in the Notice of Intent to Deny Registration.

Conditional Registrations

Robert Steven Ritson (CRD # 1726737), FFP Securities, Inc. (CRD # 6337) and FFP Advisory Services (CRD # 27900) - Consent Order Conditioning Registration as an Agent and as an Investment Adviser Agent Issued

On July 24, 1998, the Commissioner entered a Consent Order (File No. CO-98-5147-S) conditioning Robert Steven Ritson's registration as a broker-dealer agent of FFP Securities, Inc. and as an investment adviser agent of FFP Advisory Services, Inc. under the Connecticut Uniform Securities Act. Both FFP Securities, Inc. and FFP Advisory Services, Inc. maintain their principal office at 15455 Conway Road, Chesterfield, Missouri. The firms agreed to the entry of the Consent Order solely as a condition to their employment of Ritson as an agent and investment adviser agent, respectively, in Connecticut, and the Consent Order stated that it did not allege any regulatory violations by the firms.

The Consent Order noted that on February 5, 1991, the Commissioner had entered Findings of Fact, Conclusions of Law and an Order directing Ritson to cease and desist from violations of Connecticut's securities laws. That cease and desist order allegedly could serve as a basis for denying Ritson's agent and investment adviser agent applications.

The Consent Order 1) precluded Ritson, during his association with FFP Securities, Inc. and FFP Advisory Services, Inc., from being involved in the day-to-day supervision of agents or investment advisers or the management or supervision of himself; 2) limited Ritson's sales activities, during his association with FFP Securities, Inc., to variable annuities; investment company shares; and firm-approved limited partnership interests offered and sold exclusively to "accredited investors" as defined in Rule 501(a) of federal Regulation D; 3) restricted Ritson's advisory activities, during his association with FFP Advisory Services, Inc., to the foregoing securities products and to securities traded on a national securities exchange or on NASDAQ-NMS; 4) prohibited Ritson, during his association with FFP Advisory Services, Inc., from having custody of client funds or securities or holding or exercising discretionary trading authority over client accounts; 5) designated Nancy Rannenberg, branch office manager, as Ritson's supervisor, and required that FFP Securities, Inc. and/or FFP Advisory Services, Inc. notify the Division Director concerning the identity of Rannenberg's successor within five business days following her cessation of supervisory activities; 6) required that Ritson, during his association with FFP Securities, Inc., obtain prior written approval from the firm with respect to any personal accounts established at another securities brokerage firm; 7) mandated that, for eighteen months, FFP Securities, Inc. and FFP Advisory Services, Inc. notify the Division Director quarterly regarding any securities-related complaints, actions or proceedings involving Ritson; and 8) prescribed specific oversight procedures to be followed by FFP Securities, Inc. with respect to Ritson's securities-related communications, order tickets and monthly statements.

Contemporaneously with the Commissioner's entry of the Consent Order, Ritson became registered as an agent of FFP Securities, Inc. and an investment adviser agent of FFP Advisory Services, Inc.

Ronald Salvatore Gambardella (CRD # 3070161) d/b/a Retirement Savings and Cash Management Services Company - Consent Order Conditioning Registration as an Investment Adviser Issued

On August 6, 1998 the Banking Commissioner issued a Consent Order under the Connecticut Uniform Securities Act conditioning the investment adviser registration of Ronald Salvatore Gambardella of 26 Ingleside Drive, Hamden, Connecticut. The Consent Order was predicated on deficiencies in securities-related experience and training.

Pursuant to the Consent Order, Mr. Gambardella agreed to 1) refrain from having custody of client funds or securities for two years; 2) for two years, limit his investment advice to securities 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; United States government securities; and insurance products subject to regulation by the Connecticut Insurance Commissioner; 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 Mr. Gambardella; 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 complaints, actions or proceedings initiated against him.

On the same day, Ronald Salvatore Gambardella became registered as an investment adviser in Connecticut.

James F. Berger, Jr. (CRD # 3099946) d/b/a Berger Advisory Services - Consent Order Conditioning Registration as an Investment Adviser Issued

On September 8, 1998 the Banking Commissioner issued a Consent Order (File No. CO-98-5229-S) under the Connecticut Uniform Securities Act conditioning the investment adviser registration of James F. Berger, Jr. of 750 Summer Street, Stamford, Connecticut. The Consent Order was predicated on deficiencies in securities-related experience and training.

Pursuant to the Consent Order, Mr. Berger agreed to 1) refrain from having custody of client funds or securities for two years; 2) for two years, limit his investment advice to securities 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; commercial paper; certificates of deposit; United States government securities; and insurance products subject to regulation by the Connecticut Insurance Commissioner; 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 Mr. Berger; 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 him.

On the same day, James F. Berger, Jr. became registered as an investment adviser under the Connecticut Uniform Securities Act.

Criminal Proceedings

Richard Scarso (CRD # 806883) Sentenced

On May 18, 1998, Richard Scarso of Norwalk, Connecticut was sentenced in Ansonia/Milford Superior Court to 16 years imprisonment, with execution suspended after nine years, and five years of probation. Scarso had pled guilty on March 27, 1998 to twelve counts of larceny in the first degree; one count of larceny in the second degree; 17 counts of forgery in the second degree; and one count of fraud in the sale of securities. The Enforcement Section of the Division assisted in an investigation by the Statewide Prosecution Bureau/Economic Crime Unit of the Chief State's Attorney's office. That investigation revealed that between May, 1994 and April 1997, Scarso had defrauded thirteen of his investment clients of $1,378,871.98 by encouraging them to liquidate legitimate investments and reinvest their funds into what they believed were mutual funds with a very high rate of return. In reality, the funds were transferred into Scarso's personal account, with clients receiving altered mutual fund statements for accounts that did not exist. Scarso's sentence included a requirement that he make restitution to his victims.


QUARTERLY STATISTICAL SUMMARY

July 1, 1998 through September 30, 1998

Registration
& Notice Filings
Securities Business
Opportunities
YTD
Coordination Registrations (initial) 53 n/a 174
Coordination Registrations (renewal) 6   25
Qualification Registrations (initial) 5   16
Qualification Registrations (renewal) 0   0
Investment Company Notices (initial) 343   1113
Investment Company Notices (renewal) 4   661
Regulation D and Section 4(2) Filings 436 n/a 1313
Other Exemption or Exclusion Notices 35 0 114 (SE)
18 (BO)
Business Opportunity Registrations (initial) n/a 11 34
Business Opportunity Registrations (renewal) n/a 2 28
 
 
 
Licensing &
Branch Office Registration

Broker-Dealers

Investment Advisers

Issuers

YTD

Firm Initial Registrations Processed 66 19 n/a 264 (BD)
53 (IA)
Firm Notice Filings Processed n/a 17 n/a 88 (IA)
Firms Registered as of 9/30/98 2,359 515 n/a n/a
Firms Filing Notice as of 9/30/98 n/a 590 n/a n/a
Agent Initial Registrations Processed 8,669 190 21 29,469 (BD)
611 (IA)
48 (IS)
Agents Registered as of 9/30/98 98,089 4,397 186 n/a
Branch Offices Registered
as of 9/30/98
1,423 507 n/a n/a
Branch Office Notice Filings
as of 9/30/98
n/a 65 n/a n/a
Examinations Conducted 25 6 n/a 57 (BD)
49 (IA)
 
 
 
Investigations Securities Business
Opportunities
YTD
Investigations Opened 49 1 168 (SE)
3 (BO)
Investigations Closed 55 2 158 (SE)
4 (BO)
Investigations in Progress
as of 9/30/98
90 4 n/a
Referrals from Attorney General 2 0 8 (SE)
1 (BO)
Referrals from Other Agencies 1 0 7 (SE)
0 (BO)
Subpoenas Issued 24 0 59 (SE)
0 (BO)
 
 
Administrative Enforcement
Actions
Number Parties YTD
(#/Parties)
Securities
Consent Orders 4 4 13/13
Stipulation and Agreements 2 2 7/8
Cease and Desist Orders 2 2 2/2
Denial, Suspension & Revocation Orders 2 2 8/7
Conditional Licensing Orders 3 3 5/5
Other Notices and Orders 5 4 10/9
Referrals (Civil) 0 0 2/2
Referrals (Criminal) 0 0 3/3
Business Opportunities
Consent Orders 0 0 0/0
Stipulation and Agreements 0 0 0/0
Cease and Desist Orders 0 0 1/2
Stop Orders 1 1 1/1
Other Notices and Orders 1 1 1/1
Referrals (Civil) 0 0 0/0
Referrals (Criminal) 0 0 0/0
 
 
Monetary Sanctions $ Assessed YTD
Consent Orders and
Stipulation and Agreements (Securities)
$ 109,500 $ 199,000
Formal Administrative Fines (Securities) 0 0
  ______ ______
Totals $109,500 $ 199,000
 
 
Reimbursement to the
Investing Public
Voluntary Restitution Offers;
Other Monetary Relief
YTD
Securities $ 6,407,433 $ 8,192,566
Business Opportunities 4,500 7,495
  ______ ______
Totals $ 6,411,933 $ 8,200,061


Securities Division