DOB: Winter 2003 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XVII  No. 4 Winter 2003

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

Seven years ago, Congress passed the National Securities Markets Improvement Act of 1996, curbing state regulation of the mutual fund industry and ushering in a damaging culture of preference. With only the Securities and Exchange Commission on the regulatory beat, it became far too tempting for fund executives to turn a blind eye to abusive trading practices by select brokerage firms, moneyed hedge funds, and, in some cases, fund officers themselves. Perhaps the bear market was a factor in causing some funds to bend the rules in exchange for the large investments and increased fees that major players brought to the table. The abusive trading practices included the flaunting of fund anti-market timing policies and trades effected after the market's closing bell. Assisted by computer technology, market timers' "in and out" activity diluted the long term investments of average investors and forced fund managers to react to timing conduct rather than dedicating themselves to decisions ensuring long term prospects for the fund. After-hours trading enabled select investors such as hedge funds to benefit from information acquired after the market closed, and trade in securities at the market's closing price, thus reducing prices for long-term fund investors. Ironically, states, rather than federal securities regulators, spearheaded the investigations that uncovered such irregularities. Those investigations are continuing as we head into 2004. State regulators are also looking into funds that overcharge individual investors with respect to upfront and 12b-1 fees.

Mutual funds are a $7 trillion dollar industry. Long known as comparatively safe investments, and an easy way to diversify, funds must recognize their accountability to the 95 million individual investors over whose nest eggs and retirement savings they stand guard. The trading abuses, coming on the heels of the states' recent probe into analyst recommendations, are deeply troubling.

The 2004 renewal cycle for investment advisory personnel has been completed, and all registrations have either been renewed or have expired. To confirm that your renewal has been processed, you may print your final renewal statement for 2004 from the Investment Adviser Registration Depository ("IARD"). You may find the [Microsoft] Power Point presentation of assistance if you have any questions.

John P. Burke
Banking Commissioner


Connecticut-Registered Broker-Dealers
Save Time, Postage and Paperwork
Don't File Financial Statements Needlessly

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).

Did You Know That Your Firm Can Also Satisfy 
This Connecticut Financial Reporting Requirement 
By Making Its Annual Filing With 
The National Association of Securities Dealers?

To qualify, your firm must 1) file annual audited financial reports with the NASD; 2) be current in filing those reports; 3) undertake in writing to notify the Commissioner within 24 hours if your firm's net capital does not meet the threshold in Section 36b-31-9b(a) of the Regulations; and 4) undertake in writing to provide the Commissioner with financial information within 24 hours following the Commissioner's request.

Interested?

Just complete the attached Waiver Eligibility Certification for Filing of Financial Reports by Connecticut-Registered Broker-dealer and return it to the department.

The Waiver Eligibility Certification:

  • Contains all required undertakings
  • Is indefinite in duration
  • Is valid until there has been a material change in circumstances (e.g. delinquencies in filing reports with the NASD; capitalization problems)
  • Generally, must only be filed once with the Division.

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:


Enforcement Highlights

ADMINISTRATIVE ACTIONS

Debit Corporation of America, Inc. - Notice of Intent to Issue Stop Order Denying Effectiveness to Business Opportunity Registration Issued; Order to Cease and Desist Entered; Notice of Intent to Fine Issued

On December 22, 2003, the Banking Commissioner issued a Notice of Intent to Issue a Stop Order (Docket No. CSF-2003-790-B) denying effectiveness to the pending business opportunity registration of Debit Corporation of America, Inc. The respondent is located at 3475 Sheridan Street, Suite 215F, Hollywood, Florida. On the same day, the Commissioner entered an Order to Cease and Desist and Notice of Intent to Fine against the respondent. The respondent purportedly is in the business of selling debit card sales systems, display items that store prepaid MasterCard activation certificates and location assistance, all for the purpose of enabling purchasers to start their own business. The action alleged that the registration application was materially incomplete in that the respondent, through its current and former principals, Jack Gordon and Janice Tipp, failed to submit such items as: adequate financial information, proof of compliance with those provisions of Title 36a of the Connecticut General Statutes governing money transmitters, an explanation of how the debit card business systems would work, litigation history; and bankruptcy information on the respondent's predecessors. The action also claimed that 1) from at least March

2003 forward, the respondent had sold its unregistered debit card business opportunity to at least three Connecticut purchasers in violation of the Connecticut Business Opportunity Investment Act; 2) the respondent failed to disclose the existence of a July 9, 2003 civil complaint for injunctive relief filed against it by the Attorney General of the State of California; and 3) the respondent violated Section 36b-67 of the Connecticut Business Opportunity Investment Act by making unsubstantiated earnings claims on its web site.

Since the respondent did not request a hearing on the Order to Cease and Desist, that order became permanent on January 13, 2004. A hearing on the Notice of Intent to Fine has been scheduled for February 18, 2004.

Ameri P.O.S. Inc. a/k/a Ameripos Inc. - Notice of Intent to Issue Stop Order Denying Effectiveness to Business Opportunity Registration Issued

On December 17, 2003, the Banking Commissioner issued a Notice of Intent to Issue a Stop Order (Docket No. SO-2003-789-B) denying effectiveness to the pending business opportunity registration of Ameri P.O.S. Inc. a/k/a Ameripos Inc. of 1250 East Hallandale Beach Boulevard, Suite 505, Hallandale, Florida. The respondent purportedly is in the business of selling point of sale products and electronic point of sale terminals, including marketing support and machine location assistance, to enable purchasers to start a business servicing the machines which allegedly would transfer funds, pay bills electronically and store and sell ATM debit cards, credit cards, smart cards and prepaid cards. The Notice of Intent to Issue Stop Order alleged that the registration application was materially incomplete in that the respondent, through its president, Richard Nye, failed to submit such items as: adequate financial information, advertising materials, proof of compliance with those provisions of Title 36a of the Connecticut General Statutes governing smart cards and money transmitters, greater specificity regarding Richard Nye's employment history, and information on who produced the electronic point of sale terminals sold by the respondent.

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Issue Stop Order.

Image Arts Etc. Fined $20,000 for Unregistered Business Opportunity Sales; Cease and Desist Order Becomes Permanent

On December 17, 2003, the Banking Commissioner entered an Order Imposing Fine against Image Arts Etc. of 8340 Camino Santa Fe, Suite F, San Diego, California (Docket No. CF-2003-783-B). The respondent did not contest the imposition of the $20,000 fine. Image Arts Etc. had been the subject of a related September 10, 2003 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-783-B) alleging that the company sold photographic printing business opportunities in Connecticut absent registration under the Connecticut Business Opportunity Investment Act. The Order to Cease and Desist and Notice

of Intent to Fine had also claimed that Image Arts Etc., through its CEO, Bryan Burlison, had violated Section 36b-80 of the Connecticut Business Opportunity Investment Act by filing a misleading statement with the agency concerning the number of business opportunity purchasers in Connecticut. The Order to Cease and Desist, being uncontested, had become permanent on October 4, 2003.

Light Management Systems Fund, LLC (CRD # 73208) Ordered to Cease and Desist from Regulatory Violations in Connection With Sales of Membership Units; Notice of Intent to Fine Issued

On November 25, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6579-S) against Light Management Systems Fund, LLC of 5694 Mission Center Road, Suite 428, San Diego, California. The action alleged that 1) the respondent was formed for the purpose of investing in Ambient Control Systems, Inc.; 2) from February 2002 forward, the respondent sold unregistered, non-exempt membership units in Light Management Systems Fund, LLC to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 3) in contravention of Section 36b-6(b) of the Act, the respondent employed an unregistered agent of issuer in selling the membership units; and 4) the respondent violated the antifraud prohibition in Section 36b-4 of the Act by failing to disclose in its offering memorandum a February 20, 2002 Summary Order to Cease and Desist issued against the respondent by the Pennsylvania Securities Commission, a November 30, 1999 permanent order to cease and desist issued by the South Dakota Division of Securities against Ambient Control Systems, Inc., an April 4, 2001 Desist and Restrain Order issued against Ambient Control Systems, Inc. by the California Department of Corporations and a November 29, 2001 Order of Prohibition issued against Ambient Control Systems, Inc. by the State of Illinois Securities Department.

Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on December 10, 2003. A hearing on the Notice of Intent to Fine is pending.

J.R.D. Productions, Inc. and Jan Lewan Show Gifts, Inc. Ordered to Cease and Desist from Regulatory Violations in Connection With Note Sales; Notice of Intent to Fine Issued

On November 19, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6824-S) against J.R.D. Productions, Inc. and Jan Lewan Show Gifts, Inc., both of 206 West 21st Street, Hazelton, Pennsylvania. The action alleged that from June 1992 to April 5, 2002, promissory notes were issued by both respondents absent compliance with the securities registration requirements in Section 36b-16 of the Connecticut Uniform Securities Act, and that Jan Lewandowski a/k/a Jan Lewan, seller of the notes, was not registered as an agent of issuer in violation of Section 36b-6(b) of the Act. Since the respondents did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent as to each of them on December 16, 2003. A hearing on the Notice of Intent to Fine is pending.

Jan Lewandowski a/k/a Jan Lewan Ordered to Cease and Desist from Regulatory Violations in Connection With Note Sales; Notice of Intent to Fine Issued

On November 19, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6824-S) against Jan Lewandowski a/k/a Jan Lewan of 685 Grand Street, Hazelton, Pennsylvania. The action alleged that from June 1992 to April 5, 2002, the respondent sold unregistered non-exempt promissory notes of Jan Lewan Show Gifts, Inc. and J.R.D. Productions, Inc. to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and, in so doing, transacted business as an unregistered agent of issuer. Respondent Lewandowski was the president of both Jan Lewan Show Gifts, Inc. and J.R.D. Productions, Inc.

The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine is pending.

Telecom Entertainment a/k/a Telecom Action Entertainment, LP (CRD # 70660) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On November 13, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6705-S) against Telecom Entertainment a/k/a Telecom Action Entertainment, LP of 1323 Lincoln Boulevard, Suite 200, Santa Monica, California. The action alleged that, from at least December 2001 forward, the respondent 1) violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered non-exempt limited partnership units in Connecticut; and 2) violated the antifraud provisions in Section 36b-4 of the Act by failing to disclose the existence of sanctions levied against it by the States of Wisconsin and Pennsylvania on May 16, 2000 and May 22, 2001, respectively, and by falsely representing that its securities offering was low risk and that return of principal was assured.

Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on December 19, 2003. A hearing on the Notice of Intent to Fine is pending.

Barbara Alexis Blassingame (CRD # 11018956) Fined $20,000 for Misleading Statements, Sale of Unregistered Securities

On October 28, 2003, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2003-6553-S) against Barbara Alexis Blassingame, president of Sterling Advance Marketing Inc., a division of Event Media, Inc. The company is located at 195 Carter Drive, Edison, New Jersey. Respondent Blassingame had been the subject of an August 18, 2003 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing issued by the department. The Order to Cease and Desist, being uncontested, had become permanent on September 19, 2003. In fining the respondent $20,000, the Commissioner found that 1) from at least March 2001 forward, respondent Blassingame sold unregistered, non-exempt securities in the form of Capital Contribution Agreements to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) respondent Blassingame violated the Act's antifraud provisions by misleading investors concerning the prospect of a) quarterly dividends, b) investors receiving a $500 gift in Enviro Foam, an affiliate of the respondent; and c) gifts of unspecified value in "The Power to Dream, Inc." as well as in an unnamed affiliate of the respondent. The same conduct had prompted the entry of the August 18, 2003 Order to Cease and Desist. The respondent did not contest the imposition of the fine.

Sterling Advance Marketing Inc. (CRD # 74283) Fined $20,000 for Selling Unregistered Securities, Making Misleading Statements

On October 28, 2003, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2003-6553-S) against Sterling Advance Marketing, Inc., a division of Event Media, Inc. of 195 Carter Drive, Edison, New Jersey. The action followed an August 18, 2003 Order to Cease and Desist issued against the respondent with respect to the same matter and an August 18, 2003 Notice of Intent to Fine. The Order to Cease and Desist, being uncontested, had become permanent on September 19, 2003. In fining the respondent $20,000, the Commissioner found that 1) from at least March 2001 forward, the respondent sold unregistered, non-exempt securities in the form of Capital Contribution Agreements to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and 2)the respondent violated the Act's antifraud provisions by misleading investors concerning the prospect of a) quarterly dividends, b) investors receiving a $500 gift in Enviro Foam, an affiliate of the respondent; and c) gifts of unspecified value in "The Power to Dream, Inc." as well as in an unnamed affiliate of the respondent. The respondent did not challenge the imposition of the fine.

Robert J. Kaczorowski (CRD # 2951779) - Order to Cease and Desist, Notice of Intent to Fine Issued in Connection With Sale of Bogus Real Estate Limited Partnership Interests

On October 22, 2003, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6785-S) against Robert J. Kaczorowski of 439 Thoreau Street, Branford, Connecticut. The action alleged that, from at least December 20, 2003 to June 3, 2001, while registered as a broker-dealer agent of Jefferson Pilot Securities Corporation, 1) the respondent sold a promissory note as well as limited partnership interests in One Concept Park Limited Partnership and Tuscany Corners Limited Partnership to a Florida resident; 2) the promissory note and the limited partnership interests were sold absent registration under Section 36b-16 of the Connecticut Uniform Securities Act; and 3) the respondent failed to comply with Section 36b-31-6e of the Regulations under the Act governing private securities transactions by brokerage personnel. The action also claimed that the respondent violated the antifraud provisions of the Act by 1) not disclosing to the investor that the One Concept Park Limited Partnership interests and the Tuscany Corners Limited Partnership interests were fictitious; 2) representing that the limited partnership investments would be used to finance the purchase of commercial real estate when the funds were used by the respondent to pay his own living expenses; 3) forging the fictitious name "George Milano" to the investment acknowledgement letters; and 4) directing the investor to address investment checks to the respondent's girlfriend, since the investments were purportedly limited to Connecticut investors.

Respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine is pending.

James Wilder Korth (CRD # 1091113) - Order Conditioning Withdrawal of Broker-dealer Agent Application Issued

On October 22, 2003, the Banking Commissioner entered an Order conditioning the withdrawal of James Wilder Korth as an applicant for broker-dealer agent registration (Docket No. ND-2003-6851-S). On September 4, 2003, the Commissioner had issued a Notice of Intent to Deny the respondent's pending registration as a broker-dealer agent of J.W. Korth & Company (CRD number 26455). The Notice of Intent to Deny had alleged that, on January 21, 1998, the United States District Court for the Southern District of Florida found that James Wilder Korth violated Sections 17(a)(1) and 17(b) of the Securities Exchange Act of 1934 as well as Rule 17a-4(j) thereunder in refusing to provide the SEC with access to books and records required by law, and that the court had permanently enjoined the respondent from violating the federal securities laws (Securities and Exchange Commission v. J.W. Korth & Co., et al., 991 F.Supp. 1468; 1473-1474 (1998)).

In lieu of contesting the allegations in the Notice of Intent to Deny, the respondent sought to withdraw his application, and represented to the agency that he had transacted no securities business with Connecticut residents. The Order conditioning the respondent's withdrawal rendered that withdrawal effective as of October 22, 2003 subject to certain conditions: 1) for thirty-six months, the respondent would not reapply for registration in Connecticut as an agent of a broker-dealer or issuer, an investment adviser agent, a broker-dealer or an investment adviser; 2) during the thirty-six month period, the respondent would not rely on any definitional exclusion or exemption that would otherwise excuse registration by a person transacting business in Connecticut as a broker-dealer agent, an agent of an issuer, an investment adviser agent, a broker-dealer or an investment adviser; 3) at the conclusion of the thirty-six month period, the respondent could apply for registration as long as he furnished a written submission stating that he had not been the subject of any securities-related complaint, action or proceeding since the entry of the conditioning Order and had been in compliance with the conditioning Order; and 4) the respondent would not violate the Connecticut Uniform Securities Act or any rule, regulation or order under the Act.

The conditioning Order also withdrew the September 4, 2003 Notice of Intent to Deny Registration.

J.W. Korth & Company (CRD # 26455) - Order Conditioning Withdrawal of Broker-dealer Application Issued

On October 22, 2003, the Banking Commissioner entered an Order conditioning the withdrawal of J.W. Korth & Company as an applicant for broker-dealer registration (Docket No. ND-2003-6851-S). On September 4, 2003, the Commissioner had issued a Notice of Intent to Deny the respondent's pending registration as a broker-dealer. The firm maintains its principal office at 32841 Middlebelt Road, Suite 400, Farmington Hills, Michigan. The Notice of Intent to Deny had alleged that, on January 21, 1998, the United States District Court for the Southern District of Florida found that the firm and its managing general partner, James Wilder Korth, violated Sections 17(a)(1) and 17(b) of the Securities Exchange Act of 1934 as well as Rule 17a-4(j) thereunder in refusing to provide the SEC with access to books and records required by law, and that the court had permanently enjoined J.W. Korth & Company from violating the federal securities laws (Securities and Exchange Commission v. J.W. Korth & Co., et al., 991 F.Supp. 1468; 1473-1474 (1998)).

In lieu of contesting the allegations in the Notice of Intent to Deny, the respondent sought to withdraw its application, and represented to the agency that it had transacted no securities business with Connecticut residents. The Order conditioning the respondent's withdrawal rendered that withdrawal effective as of October 22, 2003 subject to certain conditions: 1) for thirty-six months, the respondent would not reapply for registration in Connecticut as a broker-dealer or investment adviser; 2) during the thirty-six month period, the respondent would not rely on any definitional exclusion or exemption that would otherwise excuse registration by a person transacting business in Connecticut as a broker-dealer or investment adviser; 3) at the conclusion of the thirty-six month period, the respondent could apply for registration as long as it furnished a written submission stating that it had not been the subject of any securities-related complaint, action or proceeding since the entry of the conditioning Order and had been in compliance with the conditioning Order; and 4) the respondent would not violate the Connecticut Uniform Securities Act or any rule, regulation or order under the Act.

The conditioning Order also withdrew the September 4, 2003 Notice of Intent to Deny Registration.

Mark M. Eisenberg (CRD number 2154127) Ordered to Cease and Desist from Regulatory Violations

On October 21, 2003, the Banking Commissioner issued an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-2003-6760-S) against Mark M. Eisenberg of Long Beach, New York. The Order to Cease and Desist alleged that in September 2001, the respondent engaged in an unethical practice in the securities business by instructing the chief compliance officer of Vision Securities Inc., a Connecticut-registered broker-dealer, to deny Securities and Business Investments Division examiners access to the books and records of the firm. At the time, the respondent was registered as an agent of the firm and served as the firm's president as well as the chairman of the Lantern Investments, Inc., owner of Vision Securities, Inc. The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist.


SETTLEMENTS

CONSENT ORDERS

James Gardner (CRD # 11019943) Barred from Securities Business For Five Years Following Sale of Unregistered Payphone Securities

On November 12, 2003, the Banking Commissioner entered a Consent Order (No. CO-03-6445-S) with respect to James Gardner of Darien, Connecticut. The Consent Order alleged that, from May 1999 through June 2000, respondent Gardner 1) violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered payphone securities issued by American Telecommunications Company, Inc. f/k/a ATC, Inc. and payphone service contracts issued by Alpha Telcom, Inc. a/k/a Alpha Tel-Com, Inc.; and 2) violated Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer.

The Consent Order directed respondent Gardner to cease and desist from regulatory violations, and barred him for 5 years from transacting business in or from Connecticut as a broker-dealer, investment adviser, agent of issuer, broker-dealer agent or investment adviser agent.

Citigroup Global Markets Inc. f/k/a Salomon Smith Barney Inc. (CRD # 7059) Fined $1,574,416 for Failing to Maintain Analyst Independence

On October 28, 2003, the Banking Commissioner entered a Consent Order (Docket No. CO-2003-6802-S) with respect to Citigroup Global Markets Inc. of 388 Greenwich Street, New York, New York.

The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The agency investigation culminating in the entry of the Consent Order focused on the firm's research practices for the period 1999 through 2001, and was part of similar investigations conducted by a multi-state task force and a joint task force of the SEC, the New York Stock Exchange and the National Association of Securities Dealers. The global resolution capping the investigations resulted in $150 million allocated to the states; $150 million representing the disgorgement of commissions and fees; $75 million to be earmarked for the procurement of independent research by the respondent; and $25 million to be used for investor education. The respondent also agreed to abide by certain undertakings designed to separate investment banking and research functions.

In entering the Consent Order, the Commissioner found that the respondent had 1) violated Section 36b-4(a)(2) of the Act by issuing false and misleading research reports; 2) violated Section 36b-4(b) of the Act by (a) publishing research reports that contained exaggerated or unwarranted statements or claims, (b) failing to maintain procedures designed to prevent the sharing and misuse of material, non-public information between an affiliated person of respondent who served as a director of another company and a research analyst covering that company and (c) allocating hot IPO shares to officers of existing investment banking clients who sold the shares for a substantial profit; 3) violated Section 36b-31-14a of the Regulations under the Act by failing to maintain adequate records to ensure that its distributions of IPO shares were completed before the initiation of secondary market trading; and 4) violated Section 36b-31-6f(b) of the Regulations by failing to supervise employees engaged in "spinning."

The Consent Order mandated that the respondent cease and desist from violating the Connecticut Uniform Securities Act and its regulations and fined the respondent $1,574,416.

RLR Capital Management, Inc. (CRD # 127815) Assessed $6,200 for Unregistered Investment Advisory Activity

On October 3, 2003, the Banking Commissioner entered a Consent Order (File No. CO-03-6852-S) with respect to RLR Capital Management, Inc., an applicant for investment adviser registration having its principal office at 76 Elm Street, Suite 205, New Canaan, Connecticut. The Consent Order alleged that, from July 1997 forward, the firm transacted business as an investment adviser absent registration and employed an unregistered investment adviser agent. In entering the Consent Order, the Commissioner acknowledged that the firm had voluntarily disclosed the extent of its prior unregistered activity and that the number of clients serviced, excluding family accounts, had not exceeded five.

The Consent Order required that the firm remit $6,200 to the department, $5,000 of which constituted an administrative fine, $900 of which represented past due investment adviser registration fees; and $300 of which represented past due investment adviser agent registration fees. In addition, the Consent Order required that the firm implement revised

supervisory and compliance procedures providing for enhanced monitoring of state investment adviser and investment adviser agent licensing requirements.

RLR Capital Management, Inc. became registered as an investment adviser under the Connecticut Uniform Securities Act on October 3, 2003.


STIPULATION AND AGREEMENTS

Geller Capital Management, LLC (CRD # 111399) Assessed $900 for Failing to File Investment Advisory Notice

On December 30, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6900-S) with Geller Capital Management, LLC, an investment adviser located at 11 Hotel Drive, White Plains, New York. The Stipulation and Agreement alleged that, from April 2000 until March 20, 2001, and at a time when the firm was regulated by the Securities and Exchange Commission, the firm failed to make the notice filing required by Section 36b-6(e) of the Connecticut Uniform Securities Act. Since its assets under management dropped below $25 million since 2001, the firm applied for registration as an investment adviser under Connecticut's securities laws and, in so doing, disclosed the extent of its prior investment advisory activity. In entering into the Stipulation and Agreement, the Commissioner acknowledged the firm's representation that it had relied upon the advice of prior compliance counsel in not making an investment advisory notice filing.

The Stipulation and Agreement required that the firm revise its supervisory and compliance procedures to ensure compliance with state investment advisory registration and notice filing requirements. In addition, the Stipulation and Agreement required that the firm pay $900 to the department; of that amount, $500 constituted an administrative fine and $400 represented past due notice filing fees.

More For Less Financial Solutions, L.L.C. (CRD # 126816) Assessed $3,900 for Employing Unregistered Investment Adviser Agent

On December 17, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6910-S) with More For Less Financial Solutions, L.L.C. of 88 Van Buren Avenue, West Hartford, Connecticut. The Stipulation and Agreement alleged that the firm, which is registered as an investment adviser under the Connecticut Uniform Securities Act, employed an unregistered investment adviser agent from 1997 forward. In entering into the Stipulation and Agreement, the firm represented that it had not been aware of a statutory change in the definition of "investment adviser agent" occurring subsequent to its initial registration date, which change expanded the definition to include persons making recommendations or otherwise rendering securities-related advice to clients on a compensated basis. The investment adviser agent has since been registered under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to revise its supervisory procedures to ensure compliance with all statutory requirements governing the registration of investment adviser agents, and to pay $3,900 to the department. Of that amount, $3,500 constituted an administrative fine and $400 represented past due registration fees.

MMC Securities Corp. (CRD # 103846) Fined $500 for Transacting Business from Unregistered Broker-dealer Branch Office

On December 12, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6904-S) with MMC Securities Corp. of 1166 Avenue of the Americas, 22nd Floor, New York, New York. The Stipulation and Agreement alleged that from approximately May, 2003 until September 15, 2003, when its branch office registration became effective, the firm transacted business from 601 Merritt Seven, Norwalk, Connecticut at a time when that location was not registered as a branch office under Section 36b-6(d) of the Connecticut Uniform Securities Act. MMC Securities Corp. is a broker-dealer registered under the Act.

In entering into the Stipulation and Agreement, the firm represented that it had implemented revised supervisory and compliance procedures designed to prevent and detect violations of Connecticut branch office registration requirements. The Stipulation and Agreement required that the firm pay a $500 fine to the agency.

Diverse Communities, LLC and East West Communities, LLC Each Fined $2,500 for Late Rule 506 Notice Filing

On November 12, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6881-S) with Diverse Communities, LLC and East West Communities, LLC, both of 4340 East West Highway, Suite 206, Bethesda, Maryland. The Stipulation and Agreement alleged that Diverse Communities, LLC, an issuer of securities, had been four years late in making a Rule 506 notice filing under the Connecticut Uniform Securities Act. Section 36b-21(e) of the Act requires the filing of a Rule 506 notice within 15 days following the first sale of securities in this state. Similarly, the Commissioner alleged that East West Communities, LLC had been three years late in making its Rule 506 notice filing. In resolution of the matter, each company agreed to pay a $2,500 fine to the department.

AFS Brokerage, Inc. (CRD # 25924) Fined $3,000 for Transacting Business from Unregistered Broker-dealer Branch Offices

On October 8, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6876-S) with AFS Brokerage, Inc. of 7840 East Berry Place, Suite 200, Greenwood Village, Colorado. The Stipulation and Agreement alleged that from August 12, 2002 forward, the firm transacted business from 110 Steele Road, West Hartford, Connecticut, 804 Little City Road, Higganum, Connecticut and 615 West Johnson Avenue, Cheshire, Connecticut at a time when none of those locations was registered as a branch office under Section 36b-6(d) of the Connecticut Uniform Securities Act. AFS Brokerage, Inc. is a broker-dealer registered under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $3,000 fine to the agency and to implement revised supervisory and compliance procedures designed to prevent violations of Connecticut's branch office registration requirements.

William Blair & Company, L.L.C. (CRD # 1252) Fined $1,500 for Transacting Business from Unregistered Broker-dealer Branch Office

On October 8, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6866-S) with William Blair & Company, L.L.C. of 222 West Adams Street, Chicago, Illinois. The Stipulation and Agreement alleged that from approximately May 2001 forward, the firm transacted business from 100 Great Meadow Road, Suite 606, Wethersfield, Connecticut at a time when that location was not registered as a branch office under Section 36b-6(d) of the Connecticut Uniform Securities Act. William Blair & Company, L.L.C. is a broker-dealer registered under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $1,500 fine to the agency and to implement revised supervisory and compliance procedures designed to prevent violations of Connecticut's branch office registration requirements.

Kovack Securities, Inc. (CRD # 44848) Fined $500 for Transacting Business from Unregistered Broker-dealer Branch Office

On October 3, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6867-S) with Kovack Securities, Inc. of 6451 N. Federal Highway, Ft. Lauderdale, Florida. The Stipulation and Agreement alleged that from approximately January 2003 forward, the firm transacted business from 1707 Summer Street, Stamford, Connecticut at a time when that location was not registered as a branch office under Section 36b-6(d) of the Connecticut Uniform Securities Act. Kovack Securities, Inc. is a broker-dealer registered under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $500 fine to the agency. In addition, the firm agreed to distribute to its main office compliance staff, and incorporate into its supervisory procedures, the department's written explanation concerning the definition of "branch office" and branch office registration procedures located on the department's web site.


CRIMINAL PROCEEDINGS

Gerald Georges Sentenced in Connection With Sales of Fraudulent Promissory Notes

On November 14, 2003, Gerald Georges of Bridgeport, Connecticut was sentenced in Stamford Superior Court to a total effective sentence of seven years imprisonment, suspended after three and one-half years served, to be followed by five years probation and an order of restitution totaling $700,000. Georges, who operated Georges Trading Corporation in 2000 and 2001 and sold securities in the form of promissory notes to the public, had pled guilty to four counts of securities fraud and four counts of sale of unregistered securities in violation of the Connecticut Uniform Securities Act. The matter was prosecuted by the Office of the Chief State's Attorney, with investigative assistance provided by the Securities and Business Investments Division of the Department of Banking; the Chief State's Attorney's Office; and the Stamford Police Department.

On October 15, 2002, the Commissioner had issued an Order (Docket No. CF-2002-6387-S) fining Gerald Georges $30,000 for selling unregistered promissory notes and violating the antifraud provisions of the Connecticut Uniform Securities Act. Gerald Georges had also been the subject of an August 2, 2002 Order to Cease and Desist issued by the Commissioner. The Order to Cease and Desist had claimed that: 1) from at least February 2000 forward, Gerald Georges effected at least 68 transactions in securities consisting of notes issued by Georges Trading Corp. to at least 45 Connecticut investors, and, in so doing, transacted business as an unregistered agent of issuer in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act; 2) the notes were not registered under Section 36b-16 of the Act; and 3) Gerald Georges had violated the antifraud provisions of the Act by a) failing to honor a personal guarantee he had made to a Connecticut investor that the investor's funds would be returned; b) presenting subsequently dishonored checks to Connecticut investors as refunds; c) mailing an inaccurate statement of account to a Connecticut investor; and d) falsely representing that the note proceeds would be invested in the stock market, that the investments were safe, secure and insured; that investors would receive up to 70% in interest per month; and that Georges Trading Corp. would generate income to cover the cost of taxes on the investments over and above the promised monthly returns when no such taxes were paid. The Order to Cease and Desist had further alleged that, while Georges Trading Corp. had returned a fraction of investment monies to Connecticut investors, Connecticut investors never realized the promised returns, and that the bulk of investor money was spent on Gerald Georges' personal expenses, the personal expenses of Georges Trading Corp.'s vice president and on payroll and office costs.


STATISTICAL SUMMARY

Licensing At A Glance
December 31, 2003
Broker-dealers Registered 2,446
Broker-dealer Agents Registered 105,856
Broker-dealer Branch Offices Registered 2,090
Investment Advisers Registered 386
SEC Registered Advisers Filing Notice 1,290
Investment Adviser Agents Registered 5,810
Investment Advisory Branch Offices Registered 173
Agents of Issuer Registered 82
 
  1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities and Business Opportunity Filings
Offerings Reviewed 38 53 58 32 181
Investment Company Notice Filings 292 228 315 6,009 6,884
Exemptions and Exemptive Notices 511 500 539 568 2,118
{ }
Examinations
Broker-dealers 7 26 27 32 92
Investment Advisers 4 24 17 8 53
{ }
Securities Investigations
Opened 60 58 61 48 227
Closed 73 48 53 37 211
Ongoing as of December 31, 2003 76 86 94 105
Subpoenas issued 2 8 12 5 27
Cases referred from Attorney General 2 3 5 2 12
Cases referred from Other Agencies 3 4 0 3 10
{ }
Business Opportunity Investigations
Investigations Opened 2 2 6 3 13
Investigations Closed 0 4 0 3 7
Ongoing as of December 31, 2003 5 3 9 9
{ }
Securities Enforcement: Remedies and Sanctions
Notices of Intent to Deny (Licensing) 0 0 5 0 5
Notices of Intent to Suspend (Licensing) 0 0 0 0 0
Notices of Intent to Revoke (Licensing) 0 0 0 0 0
Denial Orders (Licensing) 0 0 0 0 0
Suspension Orders (Licensing) 0 0 0 0 0
Revocation Orders (Licensing) 3 0 0 0 3
Notices of Intent to Fine 3 2 4 7 16
Orders Imposing Fine 0 3 0 3 6
Cease and Desist Orders 4 3 7 10 24
Notices of Intent to Issue Stop Order 0 0 0 2 2
Activity Restrictions/Bars 2 2 3 3 10
Stop Orders 0 0 0 0 0
Vacating/Withdrawal Orders 2 0 1 2 5
Censures 0 0 0 0 0
Formal Orders of Restitution 0 0 0 0 0
Cancellation Orders 0 0 0 0 0
{ }
Proceedings and Settlements
Administrative Actions 6 5 8 13 32
Consent Orders 2 4 6 3 18
     Carryover from 2002 1
     Carryover from Q1 1 1
Stipulation and Agreements 4 1 6 7 18
{ }
Monetary Relief
Monetary Sanctions Imposed $9,500 $104,500 $1,330,912 $1,655,916 $3,955,576
     Carryover from 2002 $567,346        
     Reported in Q1 Securities Bulletin   $262,402      
     Carryover from Q1     $25,000    
Restitution or Other Monetary Relief $ 67,865 $1,148,415 $181,399 $101,260 $1,498,939
{ }
Securities Referrals
Criminal (Chief State's Attorney) 0 2 1 1 4
Civil (Attorney General) 0 0 0 0 0
Other Agency Referrals 0 0 0 0 0

Securities Division