DOB: Spring 2000 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XIV  No. 1 Spring 2000

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

Although this space is often used to highlight topical enforcement issues, I'd like to take an opportunity to instead offer some thoughts about the new millennium. You may still view summaries of the department's recent administrative proceedings elsewhere in this Securities Bulletin.

We are in the midst of an exceptionally exciting and challenging time for financial services. And it's entirely probable that we will see more change in our securities markets over the next ten years than we've experienced in the roughly 200 preceding years since our first stock market was organized on Wall Street in the late 18th century.

Alternative markets, electronic communication networks (ECNs), globalization and, of course, the Internet are ushering in a transformation of the securities industry. Investors are demanding and receiving more - easier on-line trading, 24 hour access to markets, faster execution of orders and lower costs. Instant communication and the accessibility of tremendous amounts of data are empowering market participants. New economy advocates speak of "Internet time," and the velocity of web development shows no apparent sign of abating. A research organization recently predicted that, within a couple of years, there will be more wireless Internet users than wired surfers. We may soon commonly see investors trading in their cars, on golf courses and at restaurant tables.

What are the market and regulatory implications of this striking trend? Amidst all this remarkable innovation and evolution, one thing must remain unchanged - our abiding duty to serve the investors who have entrusted their children's future education, their retirement and their dreams to our securities markets.

It must remain our duty to keep the interests of investors foremost in our minds as we encourage and embrace the future technological change that will drive our markets' operations. As we provide more and more information to the public, we must ensure its accuracy. As we offer investors more and more choices, we must ensure the integrity of our advice. And as our on-line relationships grow, we must not forget important responsibilities such as suitability and privacy.

Watchfulness can seem unnecessary in these good times. But our capital markets are the envy of the world today because our past concern has lead to investors' confidence today. In our quest for regulatory efficiency, we must not inadvertently damage the industry, state and federal regulatory structure that has served investors so well for so long. We encourage your comments and thoughts on new regulatory issues. And I look forward to discussing these issues with you in depth at this fall's Securities Forum 2000 conference. Look for conference information soon on our web site.

John P. Burke
Banking Commissioner


AMENDMENT AND RESTATEMENT OF DECEMBER 2, 1999 ORDER
CONCERNING THE MODIFIED SERIES 65 AND SERIES 66 EXAMINATION

SUMMARY

On December 2, 1999, the Banking Commissioner issued an Order Adopting the Modified Series 65 and Series 66 Examination for Investment Adviser Agents (hereinafter, the "Competency Examination Order"). It has since come to the attention of the Commissioner that paragraph (3)(d) of the Competency Examination Order contained a technical inaccuracy in the name of the entity awarding the CFP designation. Specifically, paragraph (3)(d) of the Competency Examination Order should have referenced "Certified Financial Board of Standards, Inc." for "International Board of Standards and Practices for Certified Financial Planners, Inc." Following is an amended and restated version of the Competency Examination Order reflecting the change to paragraph (3)(d).

TEXT OF AMENDED AND RESTATED ORDER

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 of Connecticut State Agencies promulgated under the Act;

WHEREAS Section 36b-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 governing ... applications ... and 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 adds that: "In prescribing ... orders the commissioner may cooperate with the securities administrators of the other states ... with a view to effectuating the policy of ... [the Act] to achieve maximum uniformity in the form and content of ... applications ... wherever practicable";

WHEREAS Section 36b-31(b) of the Act also provides 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 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;

WHEREAS Section 36b-15(b)(6) of the Act provides that "the commissioner may by regulation provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants, as well as persons who represent or will represent an investment adviser in doing any of the acts which make him an investment adviser";

WHEREAS pursuant to the authority granted under Section 36b-15(b)(6) of the Act, the Commissioner promulgated Section 36b-31-15e(e) of the Regulations which requires that, effective October 1, 1994, "each applicant for registration as an investment adviser agent ... supply evidence to the commissioner that such applicant has taken and successfully passed the [Series 65] Uniform Investment Adviser Law Examination or such other examination determined by the commissioner to be acceptable in lieu thereof";

WHEREAS Section 36b-31-31c of the Regulations provides that: "The commissioner may exempt a person ... from a specified provision of ... the regulations upon a finding that such exemption is in the public interest";

WHEREAS the Commissioner finds that granting the related exemptive relief set forth in this Order is in the public interest;

WHEREAS the North American Securities Administrators Association, Inc. (NASAA), an association of state and Canadian securities regulators, has been instrumental in developing a modified version of the Series 65 examination designed to test investment advisory competency (the "Modified Series 65 Examination"), which Modified Series 65 Examination is scheduled to be available on or after January 1, 2000;

WHEREAS NASAA has also been instrumental in developing the Series 66 Uniform Combined State Law Examination, which represents a combination of the Series 63 and Series 65 examinations;

NOW THEREFORE THE COMMISSIONER ORDERS AS FOLLOWS:
1. Effective January 1, 2000, for purposes of Section 36b-31-15e(e) of the Regulations, the Modified Series 65 examination or the Series 66 examination shall be deemed an acceptable substitute in fulfillment of the Section 36b-31-15e(e) examination requirement for new investment adviser agent applicants;
2. The following individuals shall be "grandfathered" from having to pass the examination described in paragraph (1) of this Order: (a) Any individual registered under the Act as an investment adviser agent or an investment adviser on January 1, 2000; or (b) Any individual who has passed the previous version of the Series 65 or the Series 66 examination and who has been continuously registered as an investment adviser agent or as an investment adviser in any other state, as defined in Section 36b-3(19) of the Act, for the immediately preceding two years. Notwith- standing the provisions of this paragraph, the Commissioner may require that any individual otherwise "grandfathered" take either the Modified Series 65 examination or the Series 66 examination if retaking such examination is necessary in light of the individual's disciplinary history or limited areas of knowledge or expertise;
3. Effective January 1, 2000, the Commissioner may waive the examination requirement described in paragraph (1) of this Order for any investment adviser agent who: (a) has received the Chartered Investment Counselor (CIC) designation conferred by the Investment Counsel Association of America (ICAA); (b) has been designated as a Chartered Financial Analyst (CFA) by the Association for Investment Management and Research; (c) is a certified public accountant and has earned the Personal Financial Specialist (PFS) designation conferred by the American Institute of Certified Public Accountants; or (d) has earned the Certified Financial Planner (CFP) designation awarded by the Certified Financial Planner Board of Standards, Inc.;
4. Nothing in this Order shall preclude the Commissioner from granting discretionary relief from the examination requirements of this Order based upon a comprehensive evaluation of the applicant's prior employment, educational background, professional designations and disciplinary history, or from imposing such additional conditions on registration as may be necessary in the public interest.
5. The terms and conditions of this Order shall become effective on January 1, 2000 and shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.

Originally issued December 2, 1999

Amended and Restated this 28th day of March, 2000. { } John P. Burke
Banking Commissioner

Enforcement Highlights

Administrative Actions

Home Buyers of America, Inc.; First Resource, Inc. a/k/a First Financial Resource, Inc.; Home Buyers Training Corporation a/k/a National Home Buyers Training Corporation; and Robert A. Blair Ordered to Halt Claimed Business Opportunity Law Violations

On February 28, 2000, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2000-747-B) against First Resource, Inc. of 55 Skyline Drive, Suite 2200, Lake Mary, Florida; and Home Buyers of America, Inc., Home Buyers Training Corporation and Robert A. Blair, all of 445 West Colonial Drive, Orlando, Florida. The Order to Cease and Desist and Notice of Intent to Fine alleged that the respondents sold unregistered business opportunities that would enable purchasers to start their own real estate investment business. In addition, the respondents allegedly failed to inform prospective purchasers that the program was not registered under the Connecticut Business Opportunity Investment Act. Since respondents Home Buyers of America, Inc., Homebuyers Training Corporation and Robert A. Blair failed to request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to them on March 21, 2000. Similarly, the Order to Cease and Desist became permanent as to respondent First Resources, Inc. on April 5, 2000 since First Resources, Inc. did not request a hearing on the allegations in the Order. A hearing on the Notice of Intent to Fine has been scheduled for April 25, 2000.

Ameritel Payphone Distributors, Inc. (CRD # 43129) Ordered to Cease and Desist from Violating Business Opportunity Investment Act; Notice of Intent to Fine Issued

On February 28, 2000, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2000-739-B) against Ameritel Payphone Distributors, Inc. of 11098 Biscayne Boulevard, Suite 201, North Miami, Florida. The Order to Cease and Desist and Notice of Intent to Fine were based on allegations that from at least 1995, the corporation sold unregistered pay phone business opportunities to at least six Connecticut purchaser-investors. A hearing on the Notice of Intent to Fine has been scheduled for April 11, 2000. Since the respondent withdrew its request for a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on April 10, 2000.

Midas Corporation a/k/a Midas World Holdings S.A. Ordered to Cease and Desist from Securities Violations

On February 28, 2000, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-2000-5412-S) against Midas Corporation a/k/a Midas World Holdings S.A. of Bolam House, Third Floor, King & George Street, P.O. Box N-3026, Nassau, Bahamas. The Order to Cease and Desist alleged that, from at least June 1999, the corporation 1) offered securities of the Midas Venture Fund in Connecticut without registering those securities under the Connecticut Uniform Securities Act; and 2) failed to disclose to prospective purchasers the investment objectives and financial condition of the securities, the attendant risk factors and the unregistered status of the fund shares. Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on April 5, 2000.

Kenneth Michael Klein (CRD # 2080654) - Broker-dealer Agent Registration Summarily Suspended; Notice of Intent to Revoke Agent Registration Issued

On January 27, 2000, the Banking Commissioner summarily suspended the registration of Kenneth Michael Klein as a broker-dealer agent of First Providence Financial Group, LLC (Docket No. SS-2000-5528-S). On the same day, the Commissioner issued a Notice of Intent to revoke respondent Klein's agent registration with that firm. The summary suspension order and the Notice of Intent to Revoke were based on allegations that, during a September 1999 examination of First Providence Financial Group, LLC by the Securities and Business Investments Division, respondent Klein concealed material information by deleting at least twenty files from the firm's computers after agency staff had requested that the firm and its employees maintain the integrity of computer data.

The respondent was provided with an opportunity to request a hearing on the summary suspension order and the Notice of Intent to Revoke.

Wellrich & Company (CRD # 43459) and Daryle Ragsdale Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On January 27, 2000, the Banking Commissioner issued an Order to Cease and Desist, Notice of Right to Hearing and Notice of Intent to Fine (Docket No. CF-2000-5342-S) against Wellrich & Company of 1660 Hotel Circle North, Suite 205, San Diego, California and Daryle Ragsdale of the same address. In initiating administrative proceedings, the agency claimed that from at least March 1999, Wellrich & Company 1) transacted business as a broker-dealer absent registration under the Connecticut Uniform Securities Act; 2) employed respondent Ragsdale as an agent while respondent Ragsdale was not registered in that capacity; 3) offered unregistered non-exempt securities of Geenx Corp. to one or more Connecticut customers in alleged violation of Section 36b-16 of the Act; and 4) violated the antifraud provisions of the Act by misrepresenting customer holdings of Geenx securities, the worth of the securities and the incipient nature of a Geenx merger. The action against respondent Ragsdale was based on allegations that he transacted business as an unregistered agent of Wellrich & Company, offered unregistered non-exempt securities of Geenx to at least one Connecticut customer; and violated statutory antifraud provisions by misrepresenting the status of a pending Geenx merger, the amount of Geenx securities held by the customer and the worth of those securities. Both respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Fine relating to both respondents has been scheduled for March 15, 2000. Since neither Wellrich & Company nor Daryle Ragsdale requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to each of them on February 21, 2000.

Global Insurance Company, Ltd. Ordered to Cease and Desist from Regulatory Violations

On January 21, 2000, the Banking Commissioner entered an Order to Cease and Desist (Docket No. CD-99-5507-S) against Global Insurance Company, Ltd. The respondent maintains places of business in San Jose, Costa Rica. According to the Order to Cease and Desist, Global Insurance Company, Ltd. guaranteed certain promissory notes issued by World Vision Entertainment, Inc. and sold those guarantees to at least thirty Connecticut customers through agents of World Vision Entertainment, Inc. The Order to Cease and Desist alleged that the guarantees were not registered under the Connecticut Uniform Securities Act and that, in failing to honor the guarantees with respect to at least twelve defaulted notes, Global Insurance Company violated the Act's antifraud provisions. World Vision had been the subject of a January 3, 2000 Order to Cease and Desist entered by the Commissioner (Docket No. CD-99-5458-S). Since the respondent did not request a hearing within the prescribed time period, the Order to Cease and Desist became permanent on February 29, 2000.

New England International Surety Inc. Directed to Halt Regulatory Violations

On January 21, 2000, the Banking Commissioner entered an Order to Cease and Desist (Docket No. CD-99-5517-S) against New England International Surety Inc. of 11 Avenue Lloyd George, Brussels, Belgium and 7 Rue des Alpes, Geneva, Switzerland. The Order to Cease and Desist maintained that New England International Surety Inc. guaranteed certain promissory notes issued by Sebastian International Enterprises Incorporated and sold those guarantees to at least thirty Connecticut customers through agents of Sebastian International Enterprises. The Order to Cease and Desist also claimed that the guarantees were not registered under the Connecticut Uniform Securities Act and that, in failing to honor the guarantees with respect to at least nine defaulted notes, New England International Surety Inc. violated the Act's antifraud provisions. Sebastian International Enterprises Incorporated had been the subject of a January 3, 2000 Order to Cease and Desist entered by the Commissioner (Docket No. CD-99-5455-S). Since New England International Surety Inc. elected to withdraw its request for a hearing, the Order to Cease and Desist became permanent on March 6, 2000.

Gilford Securities, Inc. (CRD # 08076) - Notice of Intent to Suspend Registration as a Broker-dealer; Notice of Intent to Impose Conditions on Broker-dealer Activities; and Notice of Intent to Fine Issued

On January 5, 2000, the Banking Commissioner issued a Notice of Intent to Suspend the broker-dealer registration of Gilford Securities, Inc. On the same day, the Commissioner issued a Notice of Intent to Impose Conditions on the firm's broker-dealer activities and a Notice of Intent to Fine (Docket No. NSCF-99-5499-S). The firm maintains its principal place of business at 850 Third Avenue, 14th Floor, New York, New York.

Administrative proceedings were initiated based on allegations that the firm had violated a July 10, 1996 Consent Order of the Commissioner by selling securities of C2i Solutions, Inc. to the public without distributing at least 30 percent of the issue to one or more unaffiliated selling groups. Gilford Securities, Inc. served as sole underwriter for the initial public offering of C2i Solutions, Inc. securities as well as market maker. The firm was afforded an opportunity to request a hearing a hearing on the Notice of Intent to Suspend Registration and the Notice of Intent to Impose Conditions. A hearing on the Notice of Intent to Fine has been scheduled for February 24, 2000.

Sebastian International Entertainment, Inc. Ordered to Cease and Desist from Regulatory Violations

On January 3, 2000, the Banking Commissioner entered an Order to Cease and Desist (Docket No. CD-99-5455-S) against Sebastian International Entertainment, Inc. of 105 Markham Court, Longwood, Florida. The Order to Cease and Desist was based on allegations that, from at least January 1998 forward, the company, through two unlicensed agents, sold unregistered promissory notes in excess of $1.8 million to at least 30 Connecticut customers in violation of the Connecticut Uniform Securities Act. The respondent was afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist.

World Vision Entertainment, Inc. Ordered to Cease and Desist from Unregistered Note Sales

On January 3, 2000, the Banking Commissioner entered an Order to Cease and Desist (Docket No. CD-99-5458-S) against World Vision Entertainment, Inc., a corporation having its principal office at 417 Whooping Loop, Suite 1737, Altamonte Springs, Florida. The Order to Cease and Desist claimed that from at least January 1998, the company, through two unlicensed agents, sold unregistered promissory notes in excess of $690,000 to at least 30 Connecticut customers in violation of the Connecticut Uniform Securities Act. Since the respondent failed to request a hearing within the prescribed time period, the Order to Cease and Desist became permanent on March 6, 2000.


Settlements

Spear, Leeds & Kellogg (CRD # 3466) Assessed $6,500 for Unregistered Branch Activity

On March 28, 2000, the Banking Commissioner entered a Consent Order (File No. CO-00-5559-S) with respect to Spear, Leeds & Kellogg, a registered broker-dealer located at 120 Broadway, New York, New York. The Consent Order alleged that from at least January 1999 through January 2000, the firm transacted business from 411 West Putnam Avenue, Suite 420 in Greenwich, Connecticut before that location was registered as a branch office under the Connecticut Uniform Securities Act.

The Consent Order directed the firm to revise its supervisory procedures and to pay $6,500 to the department, $5,000 of which constituted an administrative fine and $1,500 of which represented reimbursement for agency investigative costs.

Franklin Financial Services Corporation (CRD # 5435) Assessed $18,500 for Unregistered Branch Activity

On March 14, 2000, the Banking Commissioner entered a Consent Order (File No. CO-00-5545-S) with respect to Franklin Financial Services Corporation, a broker-dealer having its principal office at #1 Franklin Square, Springfield, Illinois. The Consent Order alleged that 1) at various times commencing in 1991, the firm transacted business from multiple one-person locations in Connecticut at the time when no branch office registrations were in effect for the locations; 2) the firm failed to sustain its burden of proving that the locations were excluded from the definition of "branch office" in Section 36b-3(4) of the Connecticut Uniform Securities Act; and 3) the firm failed to establish, maintain and implement a supervisory structure designed to achieve compliance with Connecticut branch office registration requirements.

The Consent Order directed the firm to pay $18,500 to the department, $16,000 of which constituted an administrative fine and $2,500 of which represented reimbursement for agency investigative costs. In addition, the Consent Order required that the firm 1) revise its supervisory procedures governing Connecticut branch office registration and submit a written report confirming that modified procedures had been implemented; 2) issue a written compliance notice on Connecticut branch office registration requirements to its Connecticut agents; and 3) file quarterly reports for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents.

Prime Charter, Ltd. (CRD # 25668) Assessed $15,000; Directed to Extend $40,000 Rescission Offer for Unregistered Agent Activity

On February 10, 2000, the Banking Commissioner entered a Consent Order (File No. CO-99-5503-S) with respect to Prime Charter, Ltd., a securities broker-dealer having its principal office at 810 Seventh Avenue, 9th Floor, New York, New York. The Consent Order was based on claims that 1) from approximately February 1998 through September 1998, the firm employed one or more unregistered agents in alleged contravention of Section 36b-6(b) of the Connecticut Uniform Securities Act; 2) permitted a Connecticut registered agent to share compensation derived from Connecticut securities transactions with unregistered personnel; and 3) failed to exercise adequate supervisory controls over its agents by acquiescing to such sharing of compensation.

The Consent Order directed the firm to extend to the affected Connecticut investor a written rescission offer, including interest, to cover approximately $40,000 in losses sustained in the account. In addition, the Consent Order assessed the firm $15,000. Of that amount, $10,000 constituted an administrative fine and $5,000 represented reimbursement for agency investigative costs as well as the disgorgement of commissions earned during the period of unregistered agent activity. Other terms included a requirement that the firm 1) revise its compliance procedures and submit a confirming report describing the nature and scope of the revisions; and 2) for two years, file quarterly reports concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

American General Securities, Inc. (CRD # 13626) Assessed $20,500 for Unregistered Branch Office Activity

On January 19, 2000, the Banking Commissioner entered a Consent Order (File No. CO-99-5505-S) with respect to American General Securities, Inc., a securities broker-dealer having its principal office at 2727 Allen Parkway, #290, Houston, Texas. The Consent Order was based on allegations that 1) at various times commencing in 1998, the firm failed to register multiple locations as branch offices under the Connecticut Uniform Securities Act; and 2) the firm failed to establish, maintain and implement a supervisory structure designed to achieve compliance with Connecticut branch office registration requirements.

The Consent Order directed the firm to 1) confirm and explain revisions made to its supervisory and compliance procedures with respect to branch office registration requirements; 2) issue an explanatory compliance notice to its Connecticut-based agents describing state branch office registration provisions and the firm's supervisory obligations in connection therewith; 3) pay $20,500 to the department, $18,000 of which constituted an administrative fine and $2,500 of which represented reimbursement for division investigative costs; and 4) file quarterly written reports for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents.

Preston Langley Asset Management, Inc. f/k/a Lexington Capital Corporation (CRD # 35733) Fined $20,000

On December 16, 1999, the Banking Commissioner entered a Consent Order (Docket No. NSCF-99-5162-S) with respect to Preston Langley Asset Management, Inc. of 48 West 38th Street, 7th Floor, New York, New York. The firm had been the subject of an October 8, 1999 Notice of Intent to Suspend Registration as Broker-dealer; Notice of Intent to Impose Conditions on Securities Activities of Broker-dealer; and Notice of Intent to Fine. The Consent Order resolved the allegations in the earlier action. In issuing the Notices, the Commissioner had claimed that from at least July 1997, the firm had employed at least two unregistered agents in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act; failed to apprise the department of a net capital deficiency occurring between October 1997 and April 1998; and failed to reasonably supervise its agents in a manner designed to prevent noncompliance with applicable securities laws and regulations.

The Consent Order directed the firm to pay a $20,000 fine; and restrict its business for three years to investment company securities, governmental securities; exchange-listed securities and NASDAQ-NMS issues. In addition, the Consent Order required that the firm 1) retain a consultant to assess its supervisory procedures and file a report thereon with the agency; 2) file a quarterly report for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents; 3) cause its chief executive officer and its chief financial officer to complete the Regulatory Element of the Securities Industry Continuing Education Program; and 4) reimburse the department up to $2,500 for any future examinations conducted within 18 months following entry of the Consent Order.

Civil Actions

Burke v. Corlogic Corporation and Theodore William Russell (Docket No. CV 597049 S) - Temporary Restraining Order Entered; Stipulation for Order Contemplates Investor Refunds, Financial Monitoring

On March 14, 2000, the Banking Commissioner, through the Office of the Attorney General, filed a verified complaint for injunctive relief in the Superior Court for the Judicial District of Hartford against Corlogic Corporation of 762 Boston Post Road, Madison, Connecticut and Theodore William Russell of 44 Middle Beach Road West, Madison, Connecticut. Russell is the president of Corlogic Corporation. The complaint also sought a fine, restitution and the appointment of a receiver. The complaint alleged that, from at least January, 1999 forward, the corporation and Russell sold over $925,000 in nine month promissory notes and that from at least July, 1999 forward, Corlogic Corporation and Russell sold three year promissory notes and warrants on the corporation's outstanding common stock in an amount exceeding $1.4 million. The complaint claimed that the defendants sold the nine month notes and the three year notes without registering them under the Connecticut Uniform Securities Act and that the corporation violated the antifraud provisions of the Act by failing to disclose the unregistered status of the securities; the fact that there had been a material change in the number of shares being set aside for the warrant offering; the fact that financial projections reflecting the future value of Corlogic's common stock had changed; that Russell had filed for personal bankruptcy in 1995; and that no working prototype of the corporation's medical device product existed. On March 14, 2000, the court granted the plaintiff's application for a temporary restraining order and corporate asset freeze. Corlogic Corporation and Theodore William Russell had been the subject of a February 14, 2000 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing issued by the Banking Commissioner based on the same allegations.

On March 31, 2000, the parties to the civil action agreed to a Stipulation for Order to be entered by the court. Pursuant to the Stipulation, the defendants agreed, pending a hearing on the plaintiff's Application for Temporary Injunction and Appointment of a Temporary Receiver, to refrain from offering or selling securities; disposing of records and evidence; and dissipating corporate assets. The defendants also agreed to wire $829,966 in corporate funds to a designated escrow agent and fund the escrow account as monies became available. The Stipulation also included provisions requiring financial reporting; filing of complaint information; written disclosures to investors; the filing of a federal patent application and subsequent assignment of the patent to Corlogic. The parties agreed that noteholders would be provided with the right to request a refund of monies paid, and that the repayment would come from the established escrow account. The Stipulation also permitted Corlogic Corporation to accept new funds from qualified accredited investors. In consideration of the Stipulation for Order, the defendants withdrew their motion to dismiss the plaintiff's complaint, and the department, on March 31, 2000, rescinded its prior Order to Cease and Desist and withdrew the related Notice of Intent to Fine (Docket No. CF-2000-5479-S).


STATISTICAL SUMMARY

Licensing At A Glance
March 31, 2000
Broker-dealers Registered 2,451
Broker-dealer Agents Registered 102,313
Broker-dealer Branch Offices Registered 1,578
Investment Advisers Registered 373
SEC Registered Advisers Filing Notice 923
Investment Adviser Agents Registered 4,359
Investment Advisory Branch Offices Registered 503
SEC Advisers Filing Branch Notice 188
Agents of Issuer Registered 154

{ }

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Examinations
Broker-dealers 20       20
Investment Advisers 51       51
Securities Investigations
Opened 79       79
Closed 70       70
Ongoing as of March 31, 2000         85
Subpoenas issued 11       11
Cases referred from Attorney General 1       1
Cases referred from Other Agencies 4       4
Securities Enforcement
Administrative Actions
Notices of Intent to Deny (Licensing) 0       0
Notices of Intent to Suspend (Licensing) 1       1
Notices of Intent to Revoke (Licensing) 1       1
Denial Orders (Licensing) 0       0
Suspension Orders (Licensing) 1       1
Revocation Orders (Licensing) 0       0
Notices of Intent to Fine 5       5
Orders Imposing Fine 0       0
Cease and Desist Orders 9       9
Notice of Intent to Condition Registration 1       1
Notices of Intent to Issue Stop Order 0       0
Stop Orders 0       0
Vacating Orders 2       2
Settlements
Consent Orders 5       5
Stipulation and Agreements 0       0
Monetary Relief
Monetary Sanctions $80,500
$30,000
(adj from prior year)
      $110,000
Voluntary Restitution $352,839       $352,839
Securities Referrals
Criminal (Chief State's Attorney) 0        0
Criminal (Other) 0       0
Civil (Attorney General) 1       1
Other Agency Referrals 0       0

The Securities and Business Investments Division is also charged with
administering the Connecticut Business Opportunity Act.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Business Opportunities
Investigations Opened 5       5
Investigations Closed 3       3
Investigations ongoing as of March 31, 2000       10
Cases referred by Attorney General 0       0
Cases referred by Other Agencies 0       0
Subpoenas issued 0       0
Cease and Desist Orders 5       5
Notices of Intent to Issue Stop Order 0       0
Stop Orders 0       0
Notices of Intent to Fine 5       5
Orders Imposing Fine 0       0
Monetary Sanctions Imposed 0       0
Voluntary Restitution 0       0
Criminal Referrals (Chief State's Attorney) 0       0
Civil Referrals (Attorney General) 0       0
Other Agency Referrals 0       0

Securities Division