DOB: Spring 1999 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XIII No. 1 Spring 1999

  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

As part of a continuing effort by the Securities Division to streamline and simplify licensing procedures and thus reduce the regulatory burden on industry, I call your attention to a reminder in this Bulletin regarding the filing of financial statements by registered broker-dealers.

According to state regulations, every Connecticut-registered broker-dealer must annually file a financial report, except that if your broker-dealer is an NASD member firm, you can choose to make this filing with the NASD instead. The Division has designed a special form to make it easy for firms to notify us that they have elected to file their financial statements with the NASD. This form need only be filed once; the election then remains in effect indefinitely provided there have been no material changes in circumstances.

This issue also contains an order defining the term "client" for purposes of the Connecticut de minimis exemption for investment advisers. Our intention is to implement the National Securities Markets Improvement Act of 1996 consistently with the Securities and Exchange Commission and, in doing so, to promote regulatory uniformity.

While the Division hopes to be responsive to industry, at the same time it is committed to protecting Connecticut investors. A continuing enforcement issue encountered by the Division involves inadequate broker-dealer supervision of individual agents, working from one or two-person offices, who convert funds to their own personal use. A firm's responsibility doesn't decrease with office size. In fact, firms may have a higher obligation to supervise small offices, particularly those without a separation of duties, where a lack of organizational control allows one person to handle multiple aspects of the business.

Save this date: Securities Forum '99 has been scheduled for Monday, October 25, 1999. Our 11th annual conference will again feature a daylong agenda with expert speakers and challenging discussions to keep you abreast of current regulatory developments. We're very pleased to report that Mary L. Schapiro, President of NASD Regulation, has graciously accepted our invitation to be the conference's keynote speaker. Look for more information on Securities Forum '99 in the next Bulletin issue and later this summer on the department's web site.

John P. Burke
Banking Commissioner



{horns signaling an announcement}

SECURITIES FORUM '99 IS CLOSER THAN YOU THINK ...

MARK YOUR CALENDARS FOR MONDAY, OCTOBER 25th, 1999
LOCATION TO BE ANNOUNCED

KEYNOTE SPEAKER: MARY L. SCHAPIRO, PRESIDENT, NASD REGULATION

WATCH OUR WEB SITE FOR MORE DETAILS


ATTENTION REGISTERED BROKER-DEALERS

{Say } Just Say No to Filing Financial
Statements in Connecticut

You know the routine. Section 36b-31-14c(a) of the Regulations under the Connecticut Uniform Securities Act requires every Connecticut-registered broker-dealer to annually file a financial report on a calendar or fiscal year basis within 60 days following the close of its calendar or fiscal year. The report must be audited by an independent public accountant or independent certified public accountant and contain the information required by Securities and Exchange Commission Rule 17a-5(d). But did you also know that, as an NASD member firm, your filing of financial statements with the NASD will also satisfy Connecticut requirements?

{stack of financial statements} Section 36b-31-14c(b) of the Regulations permits Connecticut-registered broker-dealers to make this choice. The Regulation, which has been on the books for many years, permits an election where the broker-dealer files its annual audited financial reports with the NASD; is current in filing those reports; undertakes in writing to notify the Commissioner within 24 hours if its net capital does not meet the threshold in Section 36b-31-9b(a) of the Regulations;and undertakes in writing to provide the Commissioner with financial information within 24 hours following the Commissioner's request. The Securities and Business Investments Division has designed an election form (see next page) to make it easier for registered broker-dealers to notify us should they opt to file financial reports with the NASD. The election is indefinite in duration and valid until there has been a material change in circumstances (e.g. delinquencies in filing reports with the NASD; capitalization problems) so the form need only be filed once in most cases. In addition, all required undertakings are contained within the form. Of course, since the form is optional, Connecticut-registered firms may decide to continue filing their financial reports directly with the Division as well as with the NASD. The choice is yours ...

WAIVER ELIGIBILITY CERTIFICATION FOR FILING OF FINANCIAL REPORTS
BY CONNECTICUT-REGISTERED BROKER-DEALERS

The undersigned broker-dealer (hereinafter, "Registrant"), being duly registered under Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act"), elects to satisfy Connecticut financial reporting requirements by making its annual filing with the National Association of Securities Dealers, Inc. pursuant to Section 36b-31-14c(b) of the Regulations under the Act. Accordingly, Registrant certifies and undertakes under penalty of false statement as follows:

1. Registrant is and continues to be a member of a self-regulatory organization ("SRO") registered under laws administered by the United States Securities and Exchange Commission;
2. Registrant files annual audited financial reports with the SRO of which it is a member;
3. Registrant is current in filing with such SRO all required financial reports, including, without limitation, the annual audited financial report referenced in Section 36b-31-14c(a) of the Regulations;
4. Registrant hereby undertakes to provide immediate telegraphic notice to the Commissioner within 24 hours if at any time its net capital becomes less than the minimum prescribed in Section 36b-31-9b(a) of the Regulations under the Act. Registrant understands that it may substitute notice by fax for the telegraphic notice required under this paragraph if a hard copy of such notice is received by the Commissioner the following business day;
5. Registrant hereby undertakes to provide, upon request by the Commissioner, and within 24 hours, any financial reports, statements, supplements and amendments required by Section 36b-31-14c(a) of the Regulations under the Act;
6. Registrant hereby undertakes to immediately notify the Commissioner in writing if there is any change in circumstances supporting its reliance upon this Waiver;
7. Registrant understands that this Waiver does not relieve the Registrant from compliance with other provisions of the Act or the Regulations thereunder, including, without limitation, Section 36b-31-14c(c) of the Regulations; and
8. This election shall remain in effect indefinitely provided that the conditions in Section 36b-31-14c(b) of the Regulations continue to be met and the Registrant is otherwise in compliance with the Act and the Regulations thereunder.

Print Broker-dealer Name _____________________  CRD No.   ______________

Signature of CFO or other authorized individual    _________________________

Title of Signatory ______________________  Date: _____________________



Order Defining "Client" For Purposes of the
Connecticut De Minimis Exemption For Investment Advisers

WHEREAS the Commissioner of Banking (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act") and Sections 36b-31-2 et seq. of the Regulations promulgated thereunder (the "Regulations");

WHEREAS Section 36-31(a) of the Act provides, in part, that: "The commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of sections 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 on July 8, 1998, Congressional amendments to Section 222 of the federal Investment Advisers Act of 1940 (codified as 15 U.S.C. Sec. 80b-18a) took effect, providing, in pertinent part, as follows:

(d) National de minimis standard

No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser - (1) does not have a place of business located within the State; and (2) during the preceding 12-month period, has had fewer than 6 clients who are residents of that State.

WHEREAS in response to such amendments, the Connecticut General Assembly amended Section 36b-6 of the Act to provide a state de minimis exemption from registration in Section 36b-6(e)(3) of the Act for an investment adviser who "has no place of business in this state and, during the preceding twelve months, has had no more than five clients who are residents of this state";

WHEREAS 17 C.F.R. Sec. 275.222-2 states that: "For purposes of [the de minimis exemption in] section 222(d)(2) of the [federal Investment Advisers] Act (15 U.S.C. 80b-18a(d)(2)), an investment adviser may rely upon the definition of "client" provided by Sec. 275.203(b)(3)-1";

WHEREAS Section 36b-31(b) of the Act provides, 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, in promoting regulatory uniformity, the issuance 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;

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

1. For purposes of Section 36b-6(e)(3) of the Act, the term "client" shall be determined in accordance with Securities and Exchange Commission Rule 203(b)(3)-1, in that the following shall be considered a single client:
(a) A natural person, and:
(1) Any minor child of the natural person;
(2) Any relative, spouse, or relative of the spouse of the natural person who has the same principal residence;
(3) All accounts of which the natural person and/or the persons referred to in this paragraph (a) are the only primary beneficiaries; and
(4) All trusts of which the natural person and/or the persons referred to in this paragraph (a) are the only primary beneficiaries;
(b) (1) A corporation, general partnership, limited partnership, limited liability company, trust (other than a trust referred to in paragraph (a)(4) above), or other legal organization (any of which are referred to hereinafter as a "legal organization") that receives investment advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries (any of which are referred to hereinafter as an "owner"); and
(2) Two or more legal organizations referred to in paragraph (b)(1) of this section that have identical owners
(c)  For purposes of Section 36b-6(e)(3) of the Act:
(1) An owner must be counted as a client if the investment adviser provides investment advisory services to the owner separate and apart from the investment advisory services provided to the legal organization, Provided, however, that the determination that an owner is a client will not affect the applicability of this section with regard to any other owner;
(2) An owner need not be counted as a client of an investment adviser solely because the investment adviser, on behalf of the legal organization, offers, promotes, or sells interests in the legal organization to the owner, or reports periodically to the owners as a group solely with respect to the performance of or plans for the legal organization's assets or similar matters;
(3) A limited partnership is a client of any general partner or other person acting as investment adviser to the partnership;
(4) Any person for whom an investment adviser provides investment advisory services without compensation need not be counted as a client; and
(5) An investment adviser that has its principal office and place of business outside of the United States must count only clients that are United States residents; an investment adviser that has its principal office and place of business in the United States must count all clients;
2. For purposes of Section 36b-6(e)(3) of the Act, the term "client" shall be construed to incorporate any amendments or modifications to such term as contained in Securities and Exchange Commission Rule 203(b)(3)-1; and
3. This order shall become final when issued, and shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.
So ordered at Hartford, Connecticut
this 4th day of March, 1999.
________/s/_________
John P. Burke
Banking Commissioner
 


Enforcement Highlights

Administrative Actions


Andrew N. Weber (CRD # 2364164) - Agent Registration Revoked

On March 24, 1999, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order revoking the registration of Andrew N. Weber as a broker-dealer agent of E.C. Capital, Ltd. The revocation action was based on findings that in 1996, Weber transacted business a broker-dealer agent of First United Equities Corporation without being registered as such under the Connecticut Uniform Securities Act. Weber did not appear or contest the Commissioner's action. A November 2, 1998 Order to Cease and Desist against Weber based on the same conduct had became permanent on February 5, 1999 in light of respondent's failure to request a hearing on the department's allegations.

Great American Financial Network, Inc. (CRD # 14108) Subject to Notice of Intent to Revoke Registration as a Broker-dealer; Andrew Hicks (CRD # 2652515) Ordered to Cease and Desist from Regulatory Violations

On March 22, 1999, the Banking Commissioner issued a Notice of Intent to Revoke Registration as a Broker-dealer (Docket No. RC-99-5216-S) with respect to Great American Financial Network, Inc. of 3300 Holcomb Bridge Road, #290, Norcross, Georgia. On the same day, the Commissioner entered an Order to Cease and Desist against Andrew Hicks of Missoula, Montana, a former agent of the firm. The Notice of Intent to Revoke Registration as a Broker-dealer alleged that 1) from February 1996 to April 1998, Great American Financial Network, Inc. employed unregistered broker-dealer agents in contravention of Section 36b-6(b) of the Connecticut Uniform Securities Act; 2) that between November 1996 and April 1998, the firm effected transactions in unregistered non-exempt securities of Great American Hotels & Resorts, Inc.; 3) that the firm engaged in dishonest or unethical practices by executing unauthorized transactions for Connecticut customers and sending out confirmations to cause customers to accept transactions to which they had not agreed; and 4) that the firm failed to enforce and maintain adequate supervisory procedures. The Order to Cease and Desist against Hicks (Docket No. RC-99-5216-S) alleged that Hicks transacted business as an agent while unregistered; sold unregistered securities of Great American Hotels & Resorts, Inc. to Connecticut residents; engaged in unauthorized trading; and sent out customer confirmations to cause customers to accept transactions to which they had not agreed. The parties were afforded an opportunity for a hearing on the Notice of Intent to Revoke Registration and the Order to Cease and Desist, respectively.

Empire Capital Corporation, Alan P. Brooks (CRD # 2216295), Geoffrey J. Winters (CRD # 470292) and Jeffrey R. Epstein (CRD # 819226) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Deny Registration as an Agent Issued With Respect to Jeffrey R. Epstein

On March 5, 1999, the Banking Commissioner issued an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CDD-99-5000-S) against Empire Capital Corporation of 1055 Washington Boulevard, Suite 8A, Stamford, Connecticut; Alan P. Brooks, its chairman and CEO; Geoffrey J. Winters and Jeffrey R. Epstein. On the same day, the Commissioner issued a Notice of Intent to Deny (Docket No. CDD-99-5000-S) the registration of Jeffrey R. Epstein as a broker-dealer agent of Raymond James & Associates, Inc. The Order to Cease and Desist alleged that from at least June 1994 to May 1995, Empire Capital Corporation sold units consisting of cumulative preferred stock and warrants in Connecticut; that, in connection with such sales, Empire Capital Corporation falsely stated that it had filed a Form D with the Securities and Exchange Commission; that Empire Capital Corporation falsely misrepresented that Brooks held a license as a registered investment adviser with Allmerica Financial; and that the corporation made misleading statements concerning the extent of preferred stock holdings by corporate officers. The Commissioner further claimed that the units were not registered under the Connecticut Uniform Securities Act; exempt from registration or qualifying as "covered securities", and that the eight corporate employees selling the units were not registered as agents of issuer under Connecticut law. The Commissioner also alleged that Brooks, a broker-dealer agent of Allmerica, Winters, a broker-dealer agent of Gruntal & Co., LLC and Epstein, a broker-dealer agent of A.G. Edwards & Sons, Inc., engaged in private securities transactions ("selling away") without appropriate notice to their employing firms in violation of Section 36b-31-6(e) of the Regulations under the Connecticut Uniform Securities Act. Since respondents Empire Capital Corporation, Geoffrey J. Winters and Alan P. Brooks did not request a hearing within the prescribed time period, the Order to Cease and Desist became permanent as to them on March 26, 1999, March 27, 1999 and March 31, 1999, respectively. A hearing regarding respondent Epstein is pending.

Community Network Association, Inc. - Notice of Intent to Issue a Stop Order Denying Effectiveness to a Business Opportunity Registration and Order to Cease and Desist Issued

On February 10, 1999, the Banking Commissioner issued a Notice of Intent to Deny the pending business opportunity registration of Community Network Association, Inc. of 3653 Flakesmill Road, Suite 204, Decatur, Georgia (Docket No. CD-99-732-B). On the same day, the Commissioner entered an Order to Cease and Desist against the corporation which is in the business of selling a network marketing system and inventory enabling purchaser-investors to start a business marketing pre-paid telephone calling cards. The Commissioner's action was based on allegations that from at least January 1997, sales of the network marketing system in Connecticut approximated $625,000 and that such sales were made absent registration under the Connecticut Business Opportunity Investment Act. The Commissioner also claimed that, when the company actually did file for registration, its application was materially incomplete and therefore a basis existed for denying effectiveness to the registration. Respondent Community Network Association, Inc. was afforded an opportunity to request a hearing on the Notice of Intent to Issue a Stop Order and the Order to Cease and Desist.

Stires, O'Donnell & Co., Inc. (CRD # 6813) - Broker-dealer Registration Denied; Order to Cease and Desist Becomes Permanent

On February 18, 1999, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order denying the broker-dealer registration of Stires, O'Donnell & Co., Inc. of 12 East 44th Street, New York, New York (Docket No. ND-98-5112-S). The firm had not requested a hearing on the Commissioner's January 8, 1999 Notice of Intent to Deny Registration and Order to Cease and Desist. In denying the firm's registration, the Commissioner found that the firm 1) violated Section 36b-6(a) of the Connecticut Uniform Securities Act by transacting business while unregistered as a broker-dealer; 2) employed unregistered agents in contravention of Section 36b-6(b) of the Act; 3) filed a materially incomplete registration application; and 4) was the subject of an August 11, 1998 cease and desist order entered by the Securities and Exchange Commission.

Wise Choice Discount Brokerage Corporation (CRD # 39924) - Broker-dealer Registration Denied Based on Alleged Unregistered Activity

Olawande Adefarati Agunloye, Sr. (CRD # 2429760) - Agent Registration Denied

On January 12, 1999, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order denying the 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 denied the registration of Olawande Adefarati Agunloye, Sr. as an agent of Wise Choice Discount Brokerage Corporation. Agunloye is the president of the firm. A November 2, 1998 Order to Cease and Desist naming both parties had been uncontested and became permanent as to each of them on December 22, 1998 (Docket No. ND-98-5218-S). In denying the registrations, the Commissioner found 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 found 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.


Settlements

Charles Joseph Principato, Jr. (CRD # 1757488) Fined; Forfeits Agent Registration

On March 8, 1999, the Banking Commissioner entered a Consent Order (Docket No. CO-98-5186-S) with respect to Charles Joseph Principato, Jr. Principato had been the subject of an order suspending his broker-dealer agent registration and a Notice of Intent to Revoke Registration as an Agent, both issued on November 24, 1998. The suspension order and Notice of Intent to Revoke Registration had been based on allegations that Principato transacted business as an unregistered broker-dealer agent of R.D. White & Co., Inc.; failed to observe customer suitability standards; and failed to immediately execute a customer's sell order. The Commissioner's March 8, 1999 Consent Order resolved the issues set forth in the earlier action and vacated the November 24, 1998 summary suspension order against Principato.

The Consent Order required that Principato pay a $7,500 fine to the department, forfeit his broker-dealer agent registration and refrain for three years from acting as a broker-dealer, broker-dealer agent, investment adviser, investment adviser agent or agent of issuer for the benefit of any Connecticut account. After three years, however, Principato could apply for registration; provided that the Commissioner retained the ability to deny, restrict or impose conditions on any registration filed by Principato without making requisite findings under Section 36b-15 of the Connecticut Uniform Securities Act. The Consent Order went on to preclude Principato, for three years, from acting as a finder for compensation, splitting commissions with an agent registered under the Connecticut Uniform Securities Act; or receiving referral fees in connection with the offer, sale or purchase of securities for the benefit of any Connecticut account. Finally, the Consent Order required that within 30 days, Principato offer rescission to one previously identified Connecticut client.

Morgan, Taylor & Associates, Inc. (f/k/a E.C. Capital, Ltd.) (CRD # 37447); Gregory Small (CRD # 1502327); and John H. Ludemann, Jr. (CRD # 2253343) Fined

On March 5, 1999, the Banking Commissioner entered a Consent Order (Docket No. CO-98-5149-S) with respect to Morgan, Taylor & Associates, Inc. (formerly known as E.C. Capital, Ltd.) of 100 Old Country Road, Suite 241, Mineola, New York; Gregory Small; and John H. Ludemann, Jr. Ludemann and Small were agents of the firm. E.C. Capital, Ltd. has been the subject of an April 23, 1998 order (amended August 28, 1998) suspending its Connecticut broker-dealer registration and a Notice of Intent to Revoke Broker-dealer Registration also issued on April 23, 1998. Ludemann's agent registration had been suspended on November 2, 1998, with a Notice of Intent to Revoke Agent Registration issued on the same day; the documents were amended on November 4, 1998. Small was the subject of a November 2, 1998 Order to Cease and Desist (amended November 4, 1998) issued by the Commissioner. The Consent Order vacated the suspension orders against Morgan, Taylor & Associates, Inc. and Ludemann and the cease and desist order against Small.

The Consent Order directed the firm to 1) pay an administrative fine of $135,000 which would be offset by $75,000 in expenses incurred by the firm to improve compliance, operational and supervisory functions; 2) engage an independent consultant to review its supervisory and compliance procedures; 3) limit its Connecticut securities business to investment company securities, governmental securities, exchange-listed options, and securities listed on the New York Stock Exchange, the American Stock Exchange or the National Market System of NASDAQ; 4) refrain from offering or selling NASDAQ Small-Cap market or NASDAQ Bulletin Board securities in or from Connecticut; 5) for two years, report to the Division quarterly concerning any complaints, actions or proceedings involving Connecticut residents; and 6) reimburse the agency for the costs, not to exceed $2,500 in the aggregate, of one or more examinations to be conducted within 18 months. In agreeing to the Consent Order, the firm acknowledged that a failure to abide by the Consent Order's terms would result in the immediate revocation of its broker-dealer registration and the imposition of a $50,000 fine.

In addition to imposing sanctions against Morgan, Taylor & Associates, Inc., the Consent Order fined Small $15,000 and required that Ludemann pay a $10,000 fine to the department.

John Michael Pagano (CRD # 2571246) - Agent Registration Revoked

On February 23, 1999, the Banking Commissioner entered a Consent Order revoking the registration of John Michael Pagano as an agent of Fin-Atlantic Securities, Inc. . Fin-Atlantic has its principal office at 33 N.E. 2nd Street, Suite 300, Fort Lauderdale, Florida. The Consent Order (Docket No. CO-98-5274-S) followed a December 21, 1998 Notice of Intent to Revoke Registration and summary suspension of Pagano's registration under the Connecticut Uniform Securities Act. The Notice of Intent to Revoke and the summary suspension order were 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 had alleged that such conduct constituted a dishonest or unethical practice in that it was proscribed by NASD Conduct Rule 8221.

The Consent Order also barred respondent Pagano from acting as a broker-dealer, broker-dealer agent, investment adviser, investment adviser agent or agent of issuer in Connecticut for seven years with leave to apply for registration after five years had elapsed. The Consent Order provided, however, that the Commissioner retained the ability, for seven years, to deny, restrict or impose conditions on any registration filed by respondent Pagano without making requisite

PVI, Inc. d/b/a Photo Vend (CRD # 46732) Directed Not to Seek Business Opportunity Registration for 36 Months

On February 23, 1999, the Banking Commissioner entered a Consent Order (No. SO-98-735-B) under the Connecticut Business Opportunity Investment Act with respect to PVI, Inc. d/b/a Photo Vend, a corporation having its principal office at Westgate Business Center, 5010 North Hiatus Road, Sunrise, Florida. The entity had been the subject of a December 30, 1998 Notice of Intent to Issue a Stop Order Denying Effectiveness to a Business Opportunity Registration. The Notice of Intent to Issue a Stop Order was based 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. In the Notice of Intent to Issue a Stop Order, the Commissioner had also claimed that the registration was materially incomplete in other respects, including deficiencies in the disclosure of risk factors. PVI, Inc. agreed to the entry of a Consent Order in lieu of an adjudicative hearing on the allegations in the Notice of Intent to Issue a Stop Order.

The Consent Order directed PVI, Inc. to refrain from selling business opportunities in contravention of the state's business opportunity statute and precluded PVI, Inc. from seeking business opportunity registration for thirty six months. In addition, the Consent Order mandated that PVI, Inc. 1) first obtain a written advisory interpretation from the department prior to relying on any exemption or exclusion under the Connecticut Business Opportunity Investment Act; and 2) consult with legal counsel before offering any business opportunity in the state to ensure compliance with regulatory requirements, including the Commissioner's November 20, 1996 Order on business opportunity offers made over the Internet.

H.K. Laurence, Inc. (CRD # 46392) Fined $40,000

On February 22, 1999, the Banking Commissioner entered a Consent Order (Docket No. CO-98-5076-S) with respect to H.K. Laurence, Inc. of 7100 West Camino Real, Suite 400, Camino Real Centre, Boca Raton, Florida. The firm had been the subject of a November 2, 1998 Order to Cease and Desist based on claims of unregistered broker-dealer activity. The Consent Order resolved the issues raised by the Order to Cease and Desist.

The Consent Order directed the firm to 1) pay $15,000 to the agency upon execution of the Consent Order; and 2) remit an additional $25,000 by March 23, 1999. A failure to remit the additional $25,000 would result in the initial $15,000 being forfeited and the Order to Cease and Desist becoming permanent. The Consent Order also required that the firm or its successors in interest 1) pay the costs, not to exceed $1,000, of an examination to be conducted by the Division within 24 months; and 2) ensure that any broker-dealer controlling its operations acknowledge such control in writing.

BMA Financial Services, Inc. (CRD # 7943) Fined

On February 8, 1999, the Banking Commissioner entered a Consent Order (No. CO-99-5296-S) under the Connecticut Uniform Securities Act with respect to BMA Financial Services, an applicant for broker-dealer registration located at BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri. The Consent Order was based on allegations that, at various times between June 1995 and 1998, the firm transacted business as a broker-dealer absent registration under Section 36b-6 of the Act and employed unregistered agents. The Consent Order required that the firm pay $19,750 to the department, $10,000 of which constituted an administrative fine, $7,500 of which would be allocated to the agency's Investor Education Fund; $1,250 of which represented reimbursement for past registration fees; and $1,000 of which constituted reimbursement for Division investigative costs. In addition, the Consent Order directed the firm to 1) implement revised supervisory and compliance procedures to improve monitoring of state broker-dealer and agent licensing requirements; and 2) submit quarterly reports to the Division for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

The firm became registered as a broker-dealer under the Connecticut Uniform Securities Act on February 8, 1999.

Donald C. Bauman (CRD # 2226389) Fined $2,500, Securities Activities Restricted

On January 28, 1999, the Banking Commissioner entered a Consent Order (No. CO-98-5131-S) under the Connecticut Uniform Securities Act with respect to Donald C. Bauman, a registered broker-dealer agent of Ladenberg, Thalman & Co., Inc. The Consent Order alleged that from December, 1995 to May 1996, Bauman transacted business as an agent absent registration under Section 36b-6 of the Act. Bauman had been the subject of a November 2, 1998 Order to Cease and Desist, Notice of Intent to Revoke Registration as Agent and Notice of Right to Hearing based on those allegations.

The Consent Order directed Bauman to cease and desist from regulatory violations and fined him $2,500. The Consent Order also limited Bauman's Connecticut securities business to the purchase, sale and redemption of investment companies shares; governmental securities; exchange-listed options; and securities listed on the New York Stock Exchange, the American Stock Exchange and the National Market System of NASDAQ, with leave to petition the department for relief from this restriction for a particular unsolicited trade and customer. In addition, the Consent Order required that, for two years, Bauman cause his employing broker-dealer to notify the agency on a quarterly basis concerning any securities-related complaints, actions or proceedings relating to Bauman.

Credit Research & Trading LLC (CRD # 28830) Assessed $12,850 for Unregistered Sales Agent Activity

On January 11, 1999, the Banking Commissioner entered a Consent Order (No. 98-5272-CO) with respect to Credit Research & Trading LLC, a registered broker-dealer having its principal office at One Fawcett Place, Greenwich, Connecticut. The Consent Order alleged that the firm had employed unregistered agents. Pursuant to the Consent Order, the firm was directed to pay $12,850 to the agency, $7,500 of which constituted an administrative penalty; $2,500 of which represented reimbursement for investigative costs; $2,500 of which represented a contribution to the department's Investor Education Fund; and $350 of which represented payment of back registration fees. The firm was also required to retain an independent consultant to review its internal supervisory and compliance procedures and prepare a report summarizing the consultant's recommendations and the firm's implementational response.

Conditional Registrations

Gregory James Buchholz (CRD # 1864780) - Consent Order Conditioning Registration as an Agent of Raymond James Financial Services, Inc. (CRD # 6694) Issued

On February 5, 1999, the Banking Commissioner issued a Consent Order (File No. CO-98-5284-S) under the Connecticut Uniform Securities Act conditioning the registration of Gregory James Buchholz as a broker-dealer agent of Raymond James Financial Services, Inc. The firm was also a signatory to the Consent Order solely as a condition to its employment of Buchholz as an agent in Connecticut. Raymond James Financial Services, Inc. maintains its principal office at 880 Carillon Parkway, St. Petersburg, Florida and a Connecticut branch office at 49 Peter Road in Southbury. The Consent Order was based on allegations that, while associated with Edward D. Jones & Co., L.P., Buchholz engaged in unsuitable investment strategies with respect to certain mutual fund transactions.

The Consent Order required that Buchholz 1) not be involved in the day-to-day supervision of Connecticut agents for two years absent consent from the department; 2) refrain from executing any switching and/or short term trading of mutual funds (other than no-load funds) without the written pre-approval of Raymond James Financial Services Inc.'s Compliance Department; 3) refrain for two years from having or maintaining discretionary trading authority and/or a power of attorney for any customer accounts; 4) be supervised by a designated branch officer; 5) complete the Regulatory Element of the Securities Industry Continuing Education Program within 60 days; 6) reimburse the agency $500 for its investigative costs; and 7) provide a copy of the Consent Order to his new broker-dealer in the event his association with Raymond James Financial Services, Inc. terminated. In addition, the Consent Order required Raymond James Financial Services, Inc. to 1) report to the department quarterly for two years (unless Buchholz's association with the firm was sooner terminated) concerning any securities-related complaints, actions or proceedings involving Buchholz; and 2) conduct on-site quarterly audits of Buchholz's branch.



1999 QUARTERLY SUMMARY

Securities Filings 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
to Date
Coordinations (Initial) 28 -- -- -- 28
Coordinations (Renewal) 8 -- -- -- 8
Qualifications (Initial) 0 -- -- -- 0
Qualifications (Renewal) 0 0 0 0 0
Regulation D/Section 4(2) Filings 487 -- -- -- 487
Other Exemption/Exclusion Notices 5 -- -- -- 5
Investment Company Notices, Initial 351 -- -- -- 351
Investment Company Notices, Renewal 127 -- -- -- 127
 
 
Exams 1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Broker-dealers 56 -- -- -- 56
Investment Advisers 3 -- -- -- 3
 
 
Business
Opportunities
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Initial Registration 5 -- -- -- 5
Renewal Registration 0 -- -- -- 0
Exemptions & Exclusions 8 -- -- -- 8
Cases Opened 4 -- -- -- 4
Cases Closed 1 -- -- -- 1
Cases in Progress, 3/31 7 -- -- -- 7
Attorney General Referrals 0 -- -- -- 0
Referrals from Other Agencies 0 -- -- -- 0
Subpoenas 0 -- -- -- 0
Stop Orders 0 -- -- -- 0
Cease & Desist Orders 1 -- -- -- 1
Voluntary Restitution $0 -- -- -- $0
Consent Orders 1 -- -- -- 1
Other Notices 1 -- -- -- 1
 
 
Licensing
(Sales)

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year
to Date

Broker-dealer
Initial Registrations Processed
73 -- -- -- 73
Broker-dealers
Registered, 3/31/99
-- -- -- -- 2,333
Broker-dealer Branch Offices
Registered, 3/31/99
-- -- -- -- 1,453
Broker-dealer Agent
Initial Registrations Processed
10,836 -- -- -- 10,836
Broker-dealer Agents
Registered, 3/31/99
-- -- -- -- 101,998
Agent of Issuer
Registrations Processed
12 -- -- -- 12
Agents of Issuer
Registered, 3/31/99
-- -- -- -- 164
 
 
Licensing -
Advisory

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year
to Date

Investment Adviser
Initial Registrations Processed
14 -- -- -- 14
Investment Advisers
Registered, 3/31/99
-- -- -- -- 417
Investment Adviser Branches
Registered, 3/31/99
-- -- -- -- 521
Investment Adviser Agent
Initial Registrations Processed
217 -- -- -- 217
Investment Adviser Agents
Registered, 3/31/99
-- -- -- -- 3,962
SEC Adviser
Notices Processed
44 -- -- -- 44
SEC Advisers
Filing Notice, 3/31/99
-- -- -- -- 832
SEC Adviser Branches
Filing Notice, 3/31/99
-- -- -- -- 93
 
 
Securities
Investigations
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Opened 51 -- -- -- 51
Closed 41 -- -- -- 41
In Progress, 3/31 100 -- -- -- 100
Attorney General Referrals 2 -- -- -- 2
Referrals from Other Agencies 2 -- -- -- 2
Subpoenas 9 -- -- -- 9
 
 
Securities
Enforcement
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Denial Orders 3 -- -- -- 3
Suspension Orders 0 -- -- -- 0
Revocation Orders 2 -- -- -- 2
Cease & Desist Orders 6 -- -- -- 6
Consent Orders 9 -- -- -- 9
Stipulation & Agreements 0 -- -- -- 0
Monetary Sanctions $168,100 -- -- -- $168,100
Voluntary Restitution $3,851,697 -- -- -- $3,851,697
Conditional Licenses 1 -- -- -- 1
Other Notices & Orders 3 -- -- -- 3
Criminal Referrals 1 -- -- -- 1
Civil Referrals 0 -- -- -- 0

Securities Division