DOB: Fall 2000 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XIV  No. 3 Fall 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

The Securities Division successfully presented its 12th annual Securities Forum conference in October as a means to provide industry, the bar association and others with up-to-date information on new regulatory developments. We were pleased to have as our keynote speaker Deborah Bortner, the new President of the North American Securities Administrators Association ("NASAA") and the Director of Securities for the Washington State Department of Financial Institutions. In her remarks, Ms. Bortner discussed both the challenges and the opportunities that rapidly evolving technology poses for industry and regulators. One beneficial development triggered by technology is the new Internet-based Investment Adviser Registration Depository, or IARD, operated by NASD under contracts with the SEC and NASAA.

Designed to accept electronic filings from investment advisers, and eventually investment adviser agents, the IARD promises to make the licensing process more efficient. At the same time, the IARD will further our goal of seeking uniformity in state regulation. In addition, the IARD will provide the investing public with easy web access to background information, including critical disciplinary history, on investment advisory personnel. Such information would be comparable to that now publicly available with respect to broker-dealer firms and their agents.

For these reasons, I signed an order in September adopting the SEC's revisions to Part 1 of Form ADV in Connecticut and providing guidance on use of the new IARD. Effective January 1, 2001, SEC-registered investment advisers will be required to use the IARD to make their Connecticut notice filings and remit notice filing fees. On that date, state-registered investment advisers would have the option to either file Part 1 of Form ADV electronically through the IARD or continue to make a paper filing with the department. I would encourage state-registered investment advisers to take advantage of this evolving technology in January. We are hopeful that the IARD will be able to accommodate the electronic filing of Part 2 of Form ADV within the next year as well as the filing of investment adviser agent registrations. In the meantime, we are actively participating in the IARD pilot program, and bringing our staff up to speed to ensure a smooth transition for you, the investment advisory community.

Connecticut prides itself on opening its economic doors to domestic and international financial services firms while maintaining a commitment to protect local investors. Adopting a course parallel to that of the SEC, I signed an order in August, 2000 that granted foreign-based broker-dealers an exemption from Connecticut licensing so they could provide accommodation services to their customers temporarily in the state.

John P. Burke
Banking Commissioner


ORDER GOVERNING TRANSACTIONS BY
FOREIGN BROKER-DEALERS EXEMPT FROM FEDERAL REGISTRATION
AND TRANSACTIONS EXEMPT UNDER SEC RULE 237
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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. 00-61, (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-31(a) of the Act provides that "[t]he commissioner may from time to time make ... such ... orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including ... orders governing registration statements, applications, and reports, 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 "[n]o ... 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. In prescribing ... orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of said sections to achieve maximum uniformity in the form and content of registration statements, applications and reports wherever practicable.

WHEREAS Section 36b-6(a) of the Act provides, in part, that "[n]o person shall transact business in this state as a broker-dealer unless he is registered under ... [the Act]. No individual shall transact business as an agent in this state unless he is ... registered as an agent of the broker-dealer ... whom he represents in transacting such business";

WHEREAS Section 36b-3(5) of the Act states, in part, that the term "broker-dealer" means "any person engaged in the business of effecting transactions in securities for the account of others or for his own account. 'Broker-dealer' does not include ... (E) such other persons not within the intent of this subdivision as the Commissioner may by ... order determine";

WHEREAS the United States Securities and Exchange Commission (the "SEC") has promulgated Rule 15a-6 under the Securities Exchange Act of 1934 (the "'34 Act") exempting foreign brokers and dealers engaging in specific transactions from the registration requirements of Sections 15(a)(1) and 15B(a)(1) of the '34 Act;

WHEREAS Rule 15a-6 would exempt, without limitation, a foreign broker-dealer engaging in one or more of the following transactions: 1) effecting transactions in securities with or for persons that have not been solicited by the foreign broker or dealer; 2) subject to certain conditions, inducing or attempting to induce the purchase or sale of any security by a "U.S. institutional investor" or a "major U.S. institutional investor" as those terms are defined in the rule; and 3) effecting transactions in securities with or for, or inducing or attempting to induce the purchase or sale of any security by a foreign person temporarily present in the United States with whom the foreign broker or dealer had a bona fide, pre-existing relationship before the foreign person entered the United States;

WHEREAS on June 7, 2000, the SEC entered an Order (hereinafter, the "Canadian Broker-dealer Order") granting Canadian broker-dealers servicing "Canadian Retirement Accounts", as defined in Rule 237 under the Securities Act of 1933 (the "'33 Act") a narrow exemption from the broker-dealer registration requirement in Section 15(a)(1) of the '34 Act to enable them "to conduct activities necessary to allow individuals, who have established Canadian Retirement Accounts and later moved to the U.S., to effectively manage the assets in those accounts" (Release No. 34-42906);

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, (2) the security or transaction is exempted under section 36b-21, or (3) the security is a covered security provided such person complies with any applicable requirements in subsections (c), (d) and (e) of section 36b-21";

WHEREAS Section 36b-21(b)(17) of the Act provides that: The following transactions are exempted from sections 36b-16 and 36b-22 ... 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 the SEC has promulgated Rule 237 exempting from the securities registration requirements of Section 5 of the '33 Act offers and sales of Eligible Securities, as defined in the Rule to certain Canadian tax-deferred retirement accounts, including, without limitation Registered Retirement Savings Plans and Registered Retirement Income Funds administered and established under Canadian law to provide for qualified tax-deferred treatment;

WHEREAS the Commissioner finds that the entry of this Order, which recognizes the increasing globalization of the securities markets and the need for state and federal uniformity, is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act";

WHEREAS the Commissioner determines, pursuant to Section 36b-3(5)(E) of the Act, that those broker-dealers meeting the criteria set forth in this Order do not fall within the intent of Section 36-3(5) of the Act;

WHEREAS the Commissioner also finds that the registration under Section 36b-16 of the Act of securities transactions effected in accordance with SEC Rule 237 is not necessary or appropriate in the public interest or for the protection of investors.

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

(1) For purposes of this Order, the following definitions shall apply:
(A) "Foreign Broker-dealer" has the meaning given to "foreign broker or dealer" in SEC Rule 15a-6(b)(3) where the securities activities of such broker-dealer would trigger Connecticut jurisdiction under Section 36b-33 of the Act;
(B) "Eligible Canadian Broker-dealer" means a broker-dealer based in Canada which is subject to the SEC's Canadian Broker-dealer Order and which proposes to conduct securities activities that would trigger Connecticut jurisdiction under Section 36b-33 of the Act;
(C) "Canadian Retirement Account" has the meaning given to that term in SEC Rule 237(a)(2), i.e., a trust or other arrangement, including, but not limited to, a "Registered Retirement Savings Plan" or "Registered Retirement Income Fund" administered under Canadian law, that is managed by the Participant, operated to provide retirement benefits to a Participant and established in Canada, administered under Canadian law, and qualified for tax-deferred treatment under Canadian law;
(D) "Participant", when used in the context of Canadian Retirement Accounts, shall have the meaning in SEC Rule 237(a)(6), i.e., a natural person who is a resident of the United States, or is temporarily present in the United States, and who contributes to, or is or will be entitled to receive the income and assets from, a Canadian Retirement Account;
(E) "Eligible Security", as applied to Canadian Retirement Accounts, shall have the meaning given to that term in SEC Rule 237(a)(3) and shall be limited to securities of qualified foreign issuers in accordance with that rule;
(2) The term "broker-dealer" in Section 36b-3(5) of the Act shall not be deemed to include a Foreign Broker-dealer not otherwise excluded under Section 36b-3(5) of the Act that qualifies for a federal exemption from registration under SEC Rule 15a-6;
(3) The term "broker-dealer" in Section 36b-3(5) of the Act shall not be deemed to include Eligible Canadian Broker-dealers effecting securities transactions exclusively for Participants in Canadian Retirement Accounts in accordance with the SEC's Canadian Broker-dealer Order, where compliance is observed with all terms and conditions of that order, including restrictions on advertising and solicitation and the requirement that Participants receive disclosure at least annually concerning the fact that Canadian Retirement Accounts are not regulated under United States securities laws and that the Eligible Canadian Broker-dealer is not subject to U.S. broker-dealer regulation;
(4) Offers to Participants or sales to their Canadian Retirement Accounts, of Eligible Securities exempt from federal registration under SEC Rule 237 shall also be exempt from Connecticut securities registration pursuant to Section 36b-21(b)(17) of the Act;
(5) The antifraud provisions of Section 36b-4 of the Act shall continue to apply to any Foreign Broker-dealer or Eligible Canadian Broker-dealer excluded from the definition of "broker-dealer" pursuant to this Order; and
(6) This Order shall remain in effect until vacated, modified or superseded by the Commissioner or other legal authority.
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So ordered at Hartford, Connecticut this 17th day of August, 2000. John P. Burke
Banking Commissioner
 

ORDER ADOPTING REVISIONS TO PART 1 OF FORM ADV
AND GOVERNING TRANSITION FILINGS THROUGH
THE INVESTMENT ADVISER REGISTRATION DEPOSITORY BY INVESTMENT ADVISORY FIRMS


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, as amended by P.A. 00-61 (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-6(c) of the Act states, in part, that: "No person shall transact business as an investment adviser, within or from this state, unless registered as such by the commissioner as provided in sections 36b-2 to 36b-33, inclusive, or exempted pursuant to subsection (e) of this section. No individual shall transact business as an investment adviser agent, within or from this state, unless he is registered as an investment adviser agent of the investment adviser for whom he acts in transacting such business";

WHEREAS Section 36b-6(e) of the Act provides, in part, that:

The following investment advisers are exempted from the registration requirements under subsection (c) of this section: Any investment adviser that (1) is registered or required to be registered [with the federal Securities and Exchange Commission] under Section 203 of the Investment Advisers Act of 1940 ... Any investment adviser claiming an exemption pursuant to subdivision (1) ... of this subsection that is not otherwise excluded under subsection (10) of section 36b-3, shall first file with the commissioner a notice of exemption together with a consent to service of process as required by subsection (g) of section 36b-33. The notice of exemption shall contain such information as the commissioner may require and shall be accompanied by a nonrefundable fee of two hundred fifty dollars. Such notice of exemption shall be valid until December thirty-first of the calendar year in which it was first filed and may be renewed annually thereafter upon submission of such information as the commissioner may require together with a nonrefundable fee of one hundred fifty dollars.

WHEREAS Section 36b-32(a) of the Act provides that: "A document is filed when it is received by the commissioner or any other person designated in writing by the commissioner";

WHEREAS on July 25, 1997, the Commissioner issued a Notice (Impact Of The National Securities Markets Improvements Act of 1996 On Investment Advisers) (the "Notice") prescribing the Connecticut filing requirements for investment advisers registered with the Securities and Exchange Commission (the "SEC") following enactment of P.L. 104-290, the National Securities Markets Improvement Act of 1996 ("NSMIA");

WHEREAS the Notice required that SEC-registered investment advisers making an initial notice filing include: an executed Form ADV with all schedules as filed with the SEC, including new Schedule I (Schedule for Declaring Eligibility for SEC Registration); and updates corresponding in form and frequency to SEC-filed amendments where the updates affected the investment adviser's operations in Connecticut (e.g., name or address change; change in contact person);

WHEREAS the Notice also provided that SEC-registered investment advisers seeking to renew a notice filing should file an executed page 1 of Form ADV, together with their most recent Schedule I and the $150 renewal fee;

WHEREAS on September 12, 2000, the SEC issued Release No. IA-1897 (Electronic Filing by Investment Advisers; Amendments to Form ADV; File No. S7-10-00) which, effective October 10, 2000 and among other things, revised Part 1 of Form ADV to eliminate Schedule I and Schedule E, revised Form ADV-W and mandated that SEC-registered investment advisers file Part 1 of Form ADV electronically with the SEC through the Investment Adviser Registration Depository (the "IARD") commencing January 1, 2001;

WHEREAS in Release No. IA-1897, the SEC deferred the adoption of amendments to Part 2 of Form ADV, stating that, Part 2, if maintained by SEC-registered investment advisers, would be deemed "filed" with the SEC for purposes of SEC Rule 203-1(b)(2);

WHEREAS Release No. IA-1897 contemplated that the IARD would be capable of accepting filings and fees for investment adviser agents at a future date;

WHEREAS the IARD is an Internet-based filing depository operated by NASD Regulation, Inc. ("NASDR") under contracts with the SEC and the North American Securities Administrators Association ("NASAA") which depository is designed to accept filings made electronically by SEC-and state registered investment advisers as well as their investment adviser agents; collect associated regulatory filing fees on behalf of affected jurisdictions; and provide the investing public with Internet-based access to background information on state and federally regulated investment advisory personnel;

WHEREAS Section 36b-7 of the Act provides, in part, that: "A[n] ... investment adviser or investment adviser agent may obtain an initial or renewal registration by filing with the commissioner or other depository as the commissioner may by regulation or order designate an application together with a consent to service of process pursuant to subsection (g) of section 36b-33. The application shall contain such information as the commissioner may require";

WHEREAS Section 36b-12(a) of the Act states that: "Each person applying for registration as ... [an] investment adviser shall pay to the commissioner or to any person designated by the commissioner in writing to collect such fee on his behalf a fee of two hundred fifty dollars which shall not be refunded";

WHEREAS Section 36b-12(b) of the Act states, in part, that: "Each person applying for registration as an ... investment adviser agent shall pay to the commissioner or to any person designated by the commissioner to collect such fee on his behalf a fee of fifty dollars which shall not be refunded";

WHEREAS Section 36b-12(d) of the Act provides, in part, that: "Each person registered as an ... investment adviser agent, requesting transfer of his registration to another registered ... investment adviser, shall pay to the commissioner or to any person designated by the commissioner in writing to collect such fee on his behalf a fee of fifty dollars for each transfer requested";

WHEREAS Section 36b-13(a) of the Act states that: "Each person registered as ... [an] investment adviser may renew such registration for a one-year period not later than December thirty-first of each calendar year by making application in such manner as prescribed by the commissioner. The fee for renewal of registration for each registered ... investment adviser shall be one hundred fifty dollars per renewal application, nonrefundable, payable at the time of renewal, and shall be submitted, together with the renewal application, to the commissioner or any person designated in writing by the commissioner to collect such fee on his behalf";

WHEREAS Section 36b-13(b) of the Act adds that: "Each person registered as an ... investment adviser agent may renew such registration for a one-year period by December thirty-first of each calendar year by making application in such manner as prescribed by the commissioner. The fee for renewal of registration for each person registered as an ... investment adviser agent shall be fifty dollars, nonrefundable, payable at the time of renewal, and shall be submitted, together with the renewal application, to the commissioner or any person designated in writing by the commissioner to collect such fee on his behalf";

WHEREAS Section 36b-31-14e(a) of the Regulations provides that: "If the information contained in any application for registration as ... [an] investment adviser or investment adviser agent, or in any amendment thereto, is or becomes inaccurate or incomplete in any material respect for any reason, the applicant or registrant shall promptly file a correcting amendment with the commissioner";

WHEREAS Section 36b-31-31a(a) of the Regulation provides that: "The following forms, as amended from time to time, are prescribed for use under the Act ... (9) Uniform Application for Registration as Investment Adviser or to Amend such an Application (Form ADV) [and] (10) Uniform Notice of Withdrawal from Registration as an Investment Adviser (Form ADV-W)";

WHEREAS Section 36b-31(a) of the Act states, in part, that: "The commissioner may from time to time make, amend and rescind such ... forms and orders as are necessary to carry out the provisions of ... [the Act], including ... forms and orders governing ... applications, and reports, and defining any terms, whether or not used in ... [the Act], insofar as the definitions are not inconsistent with the provisions of ... [the Act]. For the purpose of ... forms and 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 provides that: "No ... form or 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 ... [the Act]. In prescribing ... forms and orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of ... [the Act] to achieve maximum uniformity in the form and content of .... applications and reports wherever practicable";

WHEREAS Section 36b-31(c) of the Act adds that: "To encourage uniform interpretation and administration of ... [the Act] and effective securities regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of other states ... [and] the Securities and Exchange Commission ...The cooperation authorized by this subsection includes, but is not limited to, the following actions: (1) Establishing central depositories for the registration of ... securities industry personnel under ... [the Act], and for documents or records required or allowed to be filed with or maintained by the commissioner under ... [the Act]";

WHEREAS the Commissioner finds that the issuance of this Order and the prescription of forms described herein are necessary and appropriate in the public interest and 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. Effective October 10, 2000, the revisions to Part 1 of Form ADV and to Form ADV-W described in SEC Release No. IA-1897 shall be adopted in Connecticut for purposes of fulfilling the filing requirements in Sections 36b-6(e), 36b-7 and 36b-15(e)(1) of the Act as well as Sections 36b-31-14e(a) and 36b-31-31a(a) of the Regulations. From October 10, 2000 to December 31, 2000, the Commissioner will continue to accept amendments to Part 1 of Form ADV in the pre-revision format by filers who, as of the date of this Order, are either registered as investment advisers under the Act or SEC-registered investment advisers who have an effective notice on file with the Commissioner.
2. An investment adviser registered under the Act on January 1, 2001 who has not previously done so, shall refile a revised Part 1 of Form ADV, including any amendments thereto, with the Commissioner on or before April 1, 2001.
3. A person applying for registration as an investment adviser under the Act after January 1, 2001 shall file a revised Part 1 of Form ADV, including any amendments thereto, with the Commissioner;
4. For purposes of Sections 36b-7, 36b-12(a), 36b-12(b), 36b-12(d), 36b-13(a), 36b-13(b), 36b-31(c) and 36b-32(a) of the Act, the web-based Investment Adviser Registration Depository ("IARD") operated by the NASD Regulation, Inc. is designated to receive documents and application filings as well as to collect initial and renewal filing fees on the Commissioner's behalf in accordance with this Order and with respect to investment advisers and investment adviser agents;
5. Effective January 1, 2001, and for purposes of Sections 36b-6(e) of the Act, investment advisers registered or applying for registration with the SEC shall make their Connecticut notice filings, including amendments thereto and related payments, through the IARD in accordance with the transition schedule set forth in SEC Release No. IA-1897, and shall provide a copy of Part 2 of Form ADV to the Commissioner upon the Commissioner's request. Nothing in this Order shall relieve such investment advisers from the prohibition in Section 36b-6(c) of the Act, against engaging an unregistered investment adviser agent, as defined in Section 36b-3(11) of the Act, in this state;
6. Effective January 1, 2001, and for purposes of Sections 36b-7, 36b-12(a) and 36b-13(a) of the Act, investment advisers registered or applying for registration under the Act may elect to use the IARD to file Part 1 of revised Form ADV, including amendments thereto, electronically and to remit initial and renewal registration fees. Nothing in this Order relieves such investment advisers from their obligation to file such supplemental information directly with the Commissioner in such form and manner as the Commissioner may determine or to register their investment adviser agents and Connecticut branch offices under Section 36b-6 of the Act;
7. The Commissioner may re-evaluate the elective use of the IARD by investment advisers registered or applying for registration under the Act, the use of the IARD to file Part 2 of Form ADV and the expanded use of the IARD to cover investment adviser agent filings and fees in light of future system enhancements allowing for the capture of additional information; the public interest in having information on both state and federally-regulated investment advisers available for public viewing through a centralized database; and the effectiveness of the IARD during its pilot phases; and
8. This Order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.
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So ordered at Hartford, Connecticut
this 29th day of September, 2000.
  John P. Burke
Banking Commissioner
 


Enforcement Highlights


Settlements

Anthony L. Muro, Jr. Barred From Conducting Securities Activity for Five Years; Assessed $2,500 to Cover Fine, Costs

On September 12, 2000, the Banking Commissioner entered a Consent Order (File No. CO-00-5455-S) with respect to Anthony L. Muro of Vernon, Connecticut. The Consent Order alleged that 1) from June 1998 to March 1999, Muro sold unregistered non-exempt promissory notes of Sebastian International Enterprises, Inc. and World Vision Entertainment, Inc. to Connecticut residents in contravention of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) in so doing, Muro transacted business as an agent of issuer while unregistered in violation of Section 36b-6(a) of the Act.

The Consent Order barred Muro for five years from transacting business as a broker-dealer, broker-dealer agent, agent of issuer, investment adviser or investment adviser agent and from effecting or attempting to effect purchases or sales of business opportunities within the meaning of Section 36b-61(6) of the Connecticut Business Opportunity Investment Act. The Consent Order also required that Muro pay $2,500 to the agency. Of that amount, $2,000 represented an administrative fine and $500 represented reimbursement for division investigative costs. Finally, the Consent Order mandated that Muro cease and desist from violating the Connecticut Uniform Securities Act and its regulations.

Dirks & Company, Inc. (CRD # 42185) Fined $10,000 for Employing Unregistered Agents; Supervisory Lapses

On August 29, 2000, the Banking Commissioner entered a Consent Order (File No. CO-00-6022-S) with respect to Dirks & Company, Inc. of 520 Madison Avenue, Tenth Floor, New York, New York. The Consent Order alleged that 1) at various times commencing in 1998, the firm employed unregistered agents in Connecticut in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act; and 2) the firm failed to establish, enforce and maintain a system for supervising agent activities that was reasonably designed to achieve compliance with regulatory requirements.

The Consent Order fined Dirks & Company, Inc. $10,000. In addition, the Consent Order required that the firm pay the costs of one or more examinations to be conducted within twenty-four months. The Consent Order also required that the firm submit quarterly written reports for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents.

Pacific Crest Securities, Inc. (CRD # 6619) Assessed $5,300 for Unregistered Activity

On August 15, 2000, the Banking Commissioner entered a Consent Order (File No. CO-00-6047-S) with respect to Pacific Crest Securities, Inc. of 111 SW Fifth Avenue, 42nd Floor, Portland, Oregon. The Consent Order alleged that from approximately January 1995 through October 1999, the firm 1) transacted business as a broker-dealer absent registration in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act by effecting securities transactions for individual clients and for broker-dealer affiliated accounts of an independent investment adviser; and 2) employed unregistered agents in violation of Section 36b-6(b) of the Act.

The Consent Order required that the firm cease and desist from regulatory violations; implement revised supervisory and compliance procedures; and provide quarterly written reports to the agency for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents. In addition, the Consent Order assessed the firm $5,300. Of that amount, $3,500 constituted an administrative fine, $1,300 represented reimbursement of past due registration fees and $500 represented reimbursement for agency investigative costs.

The firm became registered as a broker-dealer in Connecticut on August 15, 2000.

Civil Litigation

Burke v. Corlogic Corporation and Theodore William Russell (Docket No. CV-00-0597049 S) - Permanent Injunction Entered; Receiver Appointed

On August 14, 2000, Corlogic Corporation a/k/a Corlogix Corporation and Theodore William Russell agreed to the entry of a permanent injunction by the Superior Court for the Judicial District of Hartford barring them from violating any provision of the Connecticut Uniform Securities Act. The defendants also stipulated to the entry of a court order appointing a receiver to take possession of the corporation's property and assets and to carry on corporate business to the extent feasible. The receivership would terminate upon court approval if sufficient capital financing were obtained to render the corporation financially viable.

Corlogic Corporation and Russell had been the subject of a March 31, 2000 Stipulation for Order entered by the court in conjunction with civil proceedings brought by the Banking Commissioner through the Office of the Attorney General for violations of the state's securities laws. Among other things, the Stipulation for Order contemplated that the defendants obtain equity or debt financing within a prescribed time period, and that $829,966 be transferred to an escrow account. The defendants' failure to obtain the required equity or debt financing pursuant to the Stipulation for Order prompted the court to order injunctive relief and the appointment of the receiver. The receiver would also take possession of the escrow account established under the Stipulation for Order.

Defendant Corlogic Corporation is headquartered at 762 Boston Post Road, Madison, Connecticut. Theodore William Russell is the president of Corlogic Corporation. In initiating suit, the department claimed that Corlogic Corporation and Russell sold over $2 million in unregistered promissory notes and warrants. The department had further alleged that Corlogic Corporation violated the antifraud provisions of the Connecticut Uniform Securities 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.


STATISTICAL SUMMARY

Licensing At A Glance
September 30, 2000
Broker-dealers Registered 2,560
Broker-dealer Agents Registered 117,372
Broker-dealer Branch Offices Registered 1,544
Investment Advisers Registered 415
SEC Registered Advisers Filing Notice 970
Investment Adviser Agents Registered 4,801
Investment Advisory Branch Offices Registered 503
SEC Advisers Filing Branch Notice 213
Agents of Issuer Registered 156

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  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Examinations  
Broker-dealers 20 37 19   76
Investment Advisers 51 7 6   64
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Securities Investigations  
Opened 79 63 58   200
Closed 70 57 57   184
Ongoing as of September 30, 2000 85 91 92    
Subpoenas issued 11 17 17   45
Cases referred from Attorney General 1 2 3   6
Cases referred from Other Agencies 4 2 5   11
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Securities Enforcement  
Administrative Actions  
Notices of Intent to Deny (Licensing) 0 1 0   1
Notices of Intent to Suspend (Licensing) 1 0 0   1
Notices of Intent to Revoke (Licensing) 1 1 0   2
Denial Orders (Licensing) 0 0 0   0
Suspension Orders (Licensing) 1 1 0   2
Revocation Orders (Licensing) 0 0 0   0
Notices of Intent to Fine 5 1 0   6
Orders Imposing Fine 0 2 0   2
Cease and Desist Orders 9 1 0   10
Notice of Intent to Condition Registration 1 0 0   1
Notices of Intent to Issue Stop Order 0 0 0   0
Stop Orders 0 0 0   0
Vacating/Withdrawal Orders 2 0 0   2
Settlements  
Consent Orders 5 4 3   12
Stipulation and Agreements 0 0 0   0
Activity Restrictions/Bars 1 2 1   4
Monetary Relief  
Monetary Sanctions $80,500
$30,000
(adj from prior year)
$168,700 $17,800   $297,000
Voluntary Restitution $352,839 $357,993 $1,136,309   $1,869,361
Securities Referrals  
Criminal (Chief State's Attorney) 0 1 2   3
Criminal (Other) 0 0 2   2
Civil (Attorney General) 1 0 0   1
Other Agency Referrals 0 0 2   2

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

  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date
Business Opportunities  
Investigations Opened 5 3 7   15
Investigations Closed 3 5 8   16
Investigations ongoing as of September 30, 2000 10 8 7    
Cases referred by Attorney General 0 0 1   1
Cases referred by Other Agencies 0 0 0   0
Subpoenas issued 0 0 0   0
Cease and Desist Orders 5 0 0   5
Notices of Intent to Issue Stop Order 0 0 0   0
Stop Orders 0 0 0   0
Notices of Intent to Fine 5 0 0   5
Orders Imposing Fine 0 2 0   2
Monetary Sanctions Imposed 0 $20,000 0   $20,000
Voluntary Restitution 0 $22,220 0   $22,220
Criminal Referrals (Chief State's Attorney) 0 0 0   0
Civil Referrals (Attorney General) 0 0 0   0
Other Agency Referrals 0 0 1   1

Securities Division