DOB: Fall 2003 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XVII  No. 3 Fall 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

I am pleased to announce that Ralph Lambiase, Director of the department's Securities and Business Investments Division, was recently named President of the North American Securities Administrators Association (NASAA), an association of state and provincial securities regulators in the United States, Puerto Rico, Canada and Mexico. Ralph joined the department in 1977 as the Securities Division's Director of Enforcement and has been a longtime advocate of investors' rights and state-federal cooperation in enforcement. As a member of NASAA's board of directors and through his extensive NASAA committee work, he has demonstrated a commitment to public service that is inspiring. We all wish Ralph well as he takes on the challenges of his presidency.

I am also pleased to announce that this year's Securities Forum will be held on Monday, October 27, 2003 at the Sheraton Hotel in Stamford, Connecticut. The registration deadline is October 22nd, and we encourage all interested financial industry professionals and their legal counsel to take advantage of what promises to be a rich educational experience. We are honored to have as our keynote speaker SEC Commissioner Harvey Goldschmid. Registration forms and a description of the program are contained in this issue of the Securities Bulletin. In addition, for those seeking hotel accommodations, the Sheraton Stamford is offering a discounted rate for Securities Forum attendees. Attendees desiring hotel accommodations should mention Securities Forum at the time they make their hotel room reservation.

With renewal season almost upon us, the department wishes to remind investment advisers and investment adviser agents that their registration renewals will be done electronically through the Investment Adviser Registration Depository or "IARD" and that fees should not be remitted directly to the agency but to the NASD (administrator of the system). While the majority of investment advisory personnel have successfully transitioned to electronic filing, others risk inadvertent termination of their registrations at year-end when registrations normally expire. At its Securities Forum, the department will be presenting double IARD training sessions to assist those who are not yet comfortable with electronic filing and to explain the renewal process in depth.

The department is also streamlining its procedures for the renewal of mutual fund notice filings. To ensure better recordkeeping, mutual funds will receive a renewal reminder notice and a Form NF that has been pre-populated with data from the fund's prior filing. Funds need only highlight any changes to Form NF and remit their annual renewal fee. Payment by wire transfer will be more readily available for fund complexes and filing services submitting batched filings of ten or more.

As always, we welcome your comments.

John P. Burke
Banking Commissioner


{ } You're Invited To:

Securities Forum 2003

Monday, October 27, 2003
8:30 a.m. to 4:30 p.m.
Sheraton Stamford Hotel
Stamford, Connecticut

Sponsored by:

The Connecticut Department of Banking
Securities and Business Investments Division

and the

Securities Advisory Council to the Banking Commissioner


SECURITIES FORUM 2003

A Timely, Informative Seminar for Financial Professionals

Now in its 15th year, Securities Forum has received accolades from broker-dealers, investment advisers, financial planners, securities attorneys, bankers, insurance agents, accountants and other financial professionals striving to keep up-to-date on regulatory developments.

This year’s keynote speaker is SEC Commissioner Harvey J. Goldschmid. Commissioner Goldschmid brings with him a wealth of academic and regulatory experience in corporate, securities and antitrust law. In addition to a distinguished tenure at Columbia University School of Law, Commissioner Goldschmid served as General Counsel of the SEC and Special Senior Advisor to former SEC chairman Arthur Levitt. Commissioner Goldschmid has also authored numerous publications on securities, corporate and antitrust regulation and has frequently lectured at national and international legal programs and seminars.

Securities Forum 2003 features 7 panel presentations (plus a General Session) organized into general tracks to address the concerns of broker-dealers, investment advisers and the bar. The panels, some of which repeat for your convenience, are offered during morning and afternoon sessions to give you maximum flexibility in planning your day. Each panel includes an ample opportunity for you to pose questions directly to regulators. The cost of the program is a very affordable $65 per person (discounts available for two or more attendees from the same organization), and includes course materials as well as a luncheon.

Here are just a few of the topics awaiting you:

  • IARD Demo
  • Books and Records - Can Your Firm Pass the Test?
  • Managing Customer Complaints
  • State Investigations Unmasked
  • Spotlight on Arbitration
  • Regulatory Developments
  • Return of the "Finders" - Who They Are, What They Do, How They’re Regulated
  • Regulation - Where Do We Draw the Line?

SECURITIES FORUM 2003 FACULTY
(* Denotes Advisory Council Member)

Welcome:
John P. Burke
Commissioner
Connecticut Banking Department
Margot T. O’Grady
Principal Examiner
Securities Division
Connecticut Banking Department
Keynote Address:
Harvey J. Goldschmid
Commissioner, SEC
Ron Peterson
Director and Regulatory
User Liaison, NASD
Ken Andrichik
NASD Dispute Resolution
Willard F. Pinney, Esq.*
Partner, Murtha Cullina LLP
Cynthia E. Antanaitis, Esq.
Asst. Director, Securities Division
Connecticut Banking Department
Willis H. Riccio, Esq.
Partner, Adler Pollock & Sheehan
Madeleine McGrath Blake
Associate District Administrator
Boston Regional Office, SEC
Richard Rose, Esq.*
Partner, Roberts, Rose & Bates PC
Donna L. Brooks, Esq.*
Partner, Shipman & Goodwin LLP
Robert S. Rosenthal, Esq.
Second VP & Assc. General Counsel
Mass Mutual Life Insurance Co.
Susan E. Bryant, Esq.
Law Offices of Susan E. Bryant
Michael Ruffino
Managing Director
New York Stock Exchange
Salvatore Cannata
Principal Examiner
Securities Division
Connecticut Banking Department
Andrew M. Schatz, Esq.*
Partner, Schatz & Nobel
Thomas C. Dolan
Associate Examiner
Securities Division
Connecticut Banking Department
Richard Slavin, Esq.*
Partner, Cohen & Wolf PC
Philip L. Dukes, Esq.
Administrative Attorney
Connecticut Banking Department
Stephen H. Solomson, Esq.*
Partner
O’Connell Flaherty & Attmore
Harold B. Finn, III, Esq.*
Partner, Finn, Dixon & Herling
Robert M. Sulik
Assistant Director
Boston District Office, NASD
Marilyn Ward Ford*
Professor of Law
Quinnipiac University Law School
Michael Unger, Esq.
Partner
Rubin and Rudman, LLP
Ken Henderson
Supervisor of Examiners
Boston District Office, NASD
Philip S. Wellman, Esq.
Senior VP & Asst. General Counsel
Advest, Inc.
Sidney Igdalsky
Chief Examiner, Securities Div.
Connecticut Banking Department
Eric J. Wilder
Asst. Director, Securities Division
Connecticut Banking Department
Julie Jason, Financial Columnist
Stamford Advocate & Greenwich Time
Managing Director, Jackson Grant
Investment Advisers
Thomas P. Willcutts, Esq. 
Willcutts Law Group L.L.C.
Ralph A. Lambiase
Director, Securities Division
Connecticut Banking Department
William Wollman
Managing Director
New York Stock Exchange

SECURITIES FORUM 2003 PROGRAM SCHEDULE


8:30 a.m. to 9:00 a.m. Registration
9:00 a.m. to 10:15 a.m. First Session Morning Panels

Panel A: IARD Demo

The Investment Adviser Registration Depository or "IARD" comes alive in this real-time demo that will teach investment advisory personnel the tricks of on-line filing, including Form ADV amendments and Form U-4 submissions. Expertly taught by the pros, this panel is a must-attend for investment advisers who wish to brush up on their electronic filing skills.

Demo by: Ron Peterson
Panelists: Salvatore Cannata, Margot T. O’Grady

Panel B: Books and Records – Can Your Firm Pass the Test?

Learn how the SEC’s new broker-dealer books and records rules affect your firm’s recordkeeping practices, how successful firms comply and what new examination initiatives are on the horizon.

Moderator: Eric J. Wilder
Panelists: Ken Henderson, Michael Ruffino

Panel C: Managing Customer Complaints

Effectively resolving a customer complaint takes skill, attention to detail and patience. This session will focus on various customer relations and other strategies used by industry compliance personnel in efficiently addressing customer concerns.

Moderator: Sidney Igdalsky
Panelists: Philip S. Wellman, Esq., Robert Rosenthal, Esq., Susan Bryant, Esq.

10:30 a.m. to 11:45 a.m. Second Session Morning Panels

Panel D: State Investigations Unmasked

Does a phone call or letter from a regulator give you the jitters? This panel unveils the mystery with tips on understanding the regulator’s motives, responding effectively and dealing with multiple governmental agencies. Covering the continuum from initial contact to administrative hearing, this practical session also offers valuable insight into the settlement process.

Moderator: Richard Slavin, Esq.*
Panelists: Philip L. Dukes, Esq., Stephen Solomson, Esq.*

Panel E: Spotlight on Arbitration

Virtually every brokerage agreement contains a mandatory arbitration clause. How effective has this informal resolution process been? Is arbitration fair to the customer? What are the pitfalls of going to arbitration from a firm’s perspective? Listen to a distinguished panel of experts debate the issues, and cast your own deciding vote.

Moderator: Andrew Schatz, Esq.*
Panelists: Thomas P. Wilcutts, Esq., Ken Andrichik, Michael Unger, Esq.

Panel F: Regulatory Developments

Hear what representatives from the NASD, the New York Stock Exchange, the SEC and the Connecticut bar have to say about recent regulatory initiatives affecting the securities industry. Topics will include registration procedures, back-office operations, high-priority enforcement cases and Connecticut legislation impacting corporate governance.

Moderator: Willard F. Pinney, Jr., Esq.*
Panelists: Robert M. Sulik, Madeleine McGrath Blake, William Wollman

12:00 p.m. to 1:30 p.m. Luncheon and Keynote Address
1:30 p.m. to 2:45 p.m. Afternoon Panels

Panel G: IARD Demo (repeat of morning session)

Presented by: Ron Peterson
Panelists: Salvatore Cannata, Thomas C. Dolan

Panel H: Books and Records – Can Your Firm Pass the Test? (repeated)

Panel I: Return of the "Finders" – Who They Are, What They Do, How They’re Regulated

Despite the recent stock market slump, private offerings of securities are on the rise, bringing with them an assortment of consultants, placement agents and other "finders" to locate prospective investors. This panel will clear up common misconceptions concerning how and when "finders" are regulated under state and federal securities laws.

Moderator: Harold B. Finn, III, Esq.*
Panelists: Richard Rose, Esq.*, Donna Brooks, Esq.*, Cynthia Antanaitis, Esq.

3:00 to 4:30 p.m. General Session

Panel J: Regulation – Where Do We Draw the Line?

The securities industry has been described as the most highly regulated in the nation. Is a "super-regulator" the answer? Should practical budgetary considerations enter the picture in defining state and federal roles? Has state-federal cooperation been sacrificed in the interests of turf building? And what of the investor? These and other stimulating issues will be explored during this candid exchange.

Moderator: Ralph Lambiase, Director
Panelists: Willis Riccio, Esq., Professor Marilyn Ward Ford*, Julie Jason


Note: Securities Forum 2003 hotel directions and registration information have been omitted post-conference from the on-line version of the Bulletin.  Please visit the Department of Banking Web site for information on Securities Forum 2004.


Important Announcements

Invoicing Procedure Modified for Licensing Renewals

Starting with this year's renewal cycle in November, the Securities and Business Investments Division will no longer be sending out hard copy invoices covering investment advisers and investment adviser agents. Like broker-dealers and their agents, investment advisory personnel are required to file their initial and renewal registrations electronically. For broker-dealers and broker-dealer agents, this is accomplished through the NASD's Central Registration Depository or "CRD." Investment advisers and investment adviser agents file through the Investment Adviser Registration Depository (or "IARD") which is also administered by the NASD. The registrations of investment advisory personnel who have not transitioned to electronic filing will not be renewed once they expire on December 31st. Paper invoicing will be limited to: 1) agents of issuer; and 2) non-NASD broker-dealers and their agents.

Investment Company Renewals Made Easier

Section 36b-21(c)(3) of the Connecticut Uniform Securities Act provides that notice filings made by open-end management companies (mutual funds) are valid until December 31st of the calendar year in which they are filed, and that they may be renewed annually upon payment of a nonrefundable $500 fee and such documentation as the Commissioner may require. The Division requires the filing of an updated Uniform Investment Company Notice Filing (Form NF) upon renewal. To facilitate renewals this year, the Division will be mailing reminder notices to mutual fund complexes (or their filing services). The reminder notices will include Form NFs that have been pre-populated with data from the funds' original filings. Funds should highlight any changes to the Form NFs and return the forms to the department, together with payment. Funds or filing services wishing to remit fees via wire transfer should contact the agency directly to make arrangements, and be prepared to itemize the affected funds by fund/portfolio name; invoice number; and file number. Generally, the wire transfer procedure will be available for batch filings of 10 or more.

Invoicing Procedure Modified for Licensing Renewals

Starting with this year's renewal cycle in November, the Securities and Business Investments Division will no longer be sending out hard copy invoices covering investment advisers and investment adviser agents. Like broker-dealers and their agents, investment advisory personnel are required to file their initial and renewal registrations electronically. For broker-dealers and broker-dealer agents, this is accomplished through the NASD's Central Registration Depository or "CRD." Investment advisers and investment adviser agents file through the Investment Adviser Registration Depository (or "IARD") which is also administered by the NASD. The registrations of investment advisory personnel who have not transitioned to electronic filing will not be renewed once they expire on December 31st. Paper invoicing will be limited to: 1) agents of issuer; and 2) non-NASD broker-dealers and their agents.

Investment Company Renewals Made Easier

Section 36b-21(c)(3) of the Connecticut Uniform Securities Act provides that notice filings made by open-end management companies (mutual funds) are valid until December 31st of the calendar year in which they are filed, and that they may be renewed annually upon payment of a nonrefundable $500 fee and such documentation as the Commissioner may require. The Division requires the filing of an updated Uniform Investment Company Notice Filing (Form NF) upon renewal. To facilitate renewals this year, the Division will be mailing reminder notices to mutual fund complexes (or their filing services). The reminder notices will include Form NFs that have been pre-populated with data from the funds' original filings. Funds should highlight any changes to the Form NFs and return the forms to the department, together with payment. Funds or filing services wishing to remit fees via wire transfer should contact the agency directly to make arrangements, and be prepared to itemize the affected funds by fund/portfolio name; invoice number; and file number. Generally, the wire transfer procedure will be available for batch filings of 10 or more.


Enforcement Highlights

ADMINISTRATIVE ACTIONS

Image Arts Etc. - Order to Cease and Desist and Notice of Intent to Fine Issued for Unregistered Business Opportunity Sales

On September 10, 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-2003-783-B) against Image Arts Etc. of 8340 Camino Santa Fe, Suite F, San Diego, California. The action alleged that Image Arts Etc. sold photographic printing business opportunities in Connecticut absent registration under the Connecticut Business Opportunity Investment Act. The action 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 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 has been scheduled for November 25, 2003.

Frederick Strong Moseley IV (CRD # 835684) - Notice of Intent to Deny Registration as Agent Issued; Notice of Intent to Fine Issued

On September 5, 2003, the Banking Commissioner issued a Notice of Intent to Deny (Docket No. NDF-2003-6841-S) the pending registration of Frederick Strong Moseley IV as a broker-dealer agent of Landers, Lane & Moseley Capital Partners LLC (CRD number 124349). On the same day, the Banking Commissioner issued a Notice of Intent to Fine with respect to respondent Moseley. Both the Notice of Intent to Deny Registration and the Notice of Intent to Fine were based on allegations that respondent Moseley, a control person of Triumph Capital Group, Inc. failed to disclose in his agent application that Triumph Capital Group, Inc. had been found guilty of racketeering for state-law bribery and obstruction of justice; racketeering conspiracy for state-law bribery and obstruction of justice; bribery concerning programs receiving federal funds; wire fraud/theft of honest services; and obstruction of justice. Respondent Moseley was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Agent. A hearing on the Notice of Intent to Fine has been set for November 18, 2003.

Landers, Lane & Moseley Capital Partners LLC (CRD # 124349) - Notice of Intent to Deny Registration as Broker-dealer Issued

On September 5, 2003, the Banking Commissioner issued a Notice of Intent to Deny (Docket No. ND-2003-6841-S) the pending broker-dealer registration of Landers, Lane & Moseley Capital Partners LLC. The firm maintains its principal office at 1177 High Ridge Road, Stamford, Connecticut. The Notice of Intent to Deny Registration as Broker-dealer was based on allegations that 1) Frederick Strong Moseley IV, a control person of respondent Landers, Lane & Moseley Capital Partners LLC, was also a control person of Triumph Capital Group, Inc.; and 2) Frederick Strong Moseley IV wilfully violated the Connecticut Uniform Securities Act by failing to disclose in his agent application that Triumph Capital Group, Inc. had been found guilty of racketeering for state-law bribery and obstruction of justice; racketeering conspiracy for state-law bribery and obstruction of justice; bribery concerning programs receiving federal funds; wire fraud/theft of honest services; and obstruction of justice. Respondent Landers, Lane & Moseley Capital Partners LLC was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Broker-dealer.

James Wilder Korth (CRD # 1091113) - Notice of Intent to Deny Registration as Broker-dealer Agent Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny (Docket No. ND-2003-6851-S) the pending registration of James Wilder Korth as a broker-dealer agent of J.W. Korth & Company (CRD number 26455). The Notice of Intent to Deny alleged that, on January 21, 1998, the United States District Court for the Southern District of Florida found that James Wilder Korth had 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)). Respondent Korth was provided with an opportunity to request a hearing on the Notice of Intent to Deny Registration as Agent.

J.W. Korth & Company (CRD # 26455) - Notice of Intent to Deny Registration as Broker-dealer Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending broker-dealer registration of J.W. Korth & Company (Docket No. ND-2003-6851-S). The firm maintains its principal office at 32841 Middlebelt Road, Suite 400, Farmington Hills, Michigan. The Notice of Intent to Deny 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)). Respondent J.W. Korth & Company was provided with an opportunity to request a hearing on the Notice of Intent to Deny Registration as Broker-dealer.

Absolute Capital Management, LLC (CRD # 121484) - Notice of Intent to Deny Registration as Investment Adviser Issued

On September 4, 2003, the Banking Commissioner issued a Notice of Intent to Deny the pending investment adviser registration of Absolute Capital Management, LLC (Docket No. ND-2003-6778-S). The firm maintains its principal office at 101 Pennsylvania Boulevard, Pittsburgh, Pennsylvania. The Notice of Intent to Deny alleged that respondent's managing director, Phillip Brenden Gebben, had been ordered by the U.S. District Court for the Central District of Illinois to disgorge $10,208.50 in profits and to pay a $10,000 civil penalty for violating the antifraud provisions in Section 10(b) of the Securities Exchange Act of 1934 and Section 17(b) of the Securities Act of 1933 in conjunction with promotional Internet postings and the distribution of certain advisory literature (Securities and Exchange Commission v. Gorsek et al., 222 F.Supp. 2d 1124, 1126 (2002)). The Notice of Intent to Deny also claimed that such conduct constituted a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(a) of the Regulations under the Connecticut Uniform Securities Act and therefore a basis to deny the firm's investment adviser registration in Connecticut. The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Investment Adviser.

Sterling Advance Marketing Inc. (CRD # 74283) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On August 18, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Sterling Advance Marketing Inc., a division of Event Media, Inc. of 195 Carter Drive, Edison, New Jersey (Docket No. CF-2003-6553-S). The action alleged that, 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. The action also claimed that the respondent violated the Act's antifraud provisions by misleading investors concerning the prospect of 1) quarterly dividends, 2) investors receiving a $500 gift in Enviro Foam, an affiliate of the respondent; and 3) gifts of unspecified value in "The Power to Dream, Inc." as well as in an unnamed affiliate of the respondent. The respondent was provided with an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine has been scheduled for October 15, 2003.

Barbara Alexis Blassingame (CRD # 11018956) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On August 18, 2003, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Barbara Alexis Blassingame, president of Sterling Advance Marketing Inc., a division of Event Media, Inc. (Docket No. CF-2003-6553-S). The company is located at 195 Carter Drive, Edison, New Jersey. The action alleged that, from at least March 2001 forward, respondent Blassingame 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. The action also claimed that respondent Blassingame violated the Act's antifraud provisions by misleading investors concerning the prospect of 1) quarterly dividends, 2) investors receiving a $500 gift in Enviro Foam, an affiliate of the respondent; and 3) gifts of unspecified value in "The Power to Dream, Inc." as well as in an unnamed affiliate of the respondent. The respondent was provided with an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine has been scheduled for October 15, 2003.

Fidelity International Securities, Inc. d/b/a Constitution Capital Corp. (CRD # 36485) - Order Vacating Registration Restrictions and Conditions Entered

On August 6, 2003, the Banking Commissioner entered an Order Vacating Registration Restrictions and Conditions (No. CL-2713-S) with respect to Fidelity International Securities, Inc. d/b/a Constitution Capital Corp. of 830 Post Road East, Westport, Connecticut. The firm, which is a registered broker-dealer under the Connecticut Uniform Securities Act, had been the subject of a February 27, 1995 Consent Order Conditioning Registration as a Broker-dealer and Investment Adviser. The 1995 order had been based on the January 1994 one-month suspension of Louis Francis Albanese (CRD number 703647), then the secretary/treasurer and director of the firm, by the New York Stock Exchange.

In entering the Order Vacating Registration Restrictions and Conditions, the Commissioner noted that Louis Francis Albanese was no longer associated with the firm in any capacity, that the firm's investment advisory activities were now subject to exclusive SEC oversight following passage of the National Securities Markets Improvement Act of 1996; and that four of the eight conditions and restrictions imposed by the earlier order had expired by their terms. The Order Vacating Registration Restrictions and Conditions vacated the remaining four restrictions and conditions.

SETTLEMENTS

CONSENT ORDERS

Credit Suisse First Boston LLC f/k/a Credit Suisse First Boston Corporation (CRD # 816) Fined $787,208 for Failing to Maintain Analyst Independence

On September 12, 2003, the Banking Commissioner entered a Consent Order (Docket No. CO-2003-6796-S) with respect to Credit Suisse First Boston LLC of 11 Madison Avenue, 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 1998 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 $75 million allocated to the states; $75 million representing the disgorgement of commissions and fees; and $50 million to be earmarked for the procurement of independent research by the respondent. 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 engaging in dishonest or unethical business practices; and 3) failed to establish, enforce and maintain an adequate supervisory system to detect and prevent regulatory violations.

The Consent Order mandated that the respondent cease and desist from violating the Connecticut Uniform Securities Act and fined the respondent $787,208.

Bayou Securities, LLC (CRD # 39323) Fined $7,500 for Recordkeeping Deficiency

On September 10, 2003, the Banking Commissioner entered a Consent Order (File No. CO-03-6740-S) with respect to Bayou Securities, LLC of 40 Signal Road, Stamford, Connecticut. The Consent Order alleged that the firm, a Connecticut- registered broker-dealer, failed to keep the records required by Section 36b-31-14a(a) of the Regulations under the Connecticut Uniform Securities Act. The Consent Order required that the firm pay $7,500 to the department as an administrative fine and provide the Securities and Business Investments Division with copies of any customer complaints on a quarterly basis for two years.

Lehman Brothers Inc. (CRD # 7506) Fined for $262,402 for Failing to Maintain Analyst Independence

On September 2, 2003, the Banking Commissioner entered a Consent Order (Docket No. CO-2003-6799-S) with respect to Lehman Brothers Inc. of 745 Seventh Avenue, New York, New York. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The agency investigation leading up to 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 $25 million allocated to the states; $25 million representing the disgorgement of commissions and fees; $25 million to be earmarked for the procurement of independent research by the respondent; and $5 million to be used for investor education. The respondent also agreed to abide by certain undertakings designed to separate its investment banking and research functions.

In entering the Consent Order, the Commissioner found that the respondent had 1) violated Section 36b-4(b) of the Act by failing to ensure that analysts who issued research were adequately insulated from pressures and influence from covered companies and investment banking; 2) violated Section 36b-4(b) of the Act by issuing research reports that were not based on principles of fair dealing and good faith and that contained exaggerated or unwarranted claims and opinions; and 3) failed to establish, enforce and maintain an adequate supervisory system.

The Consent Order directed the respondent to cease and desist from regulatory violations and fined the respondent $262,402.

Morgan Stanley & Co., Incorporated (CRD # 8209) Fined for $262,402 for Failing to Maintain Analyst Independence

On September 2, 2003, the Banking Commissioner entered a Consent Order (Docket No. CO-2003-6800-S) with respect to Morgan Stanley & Co., Incorporated of 1585 Broadway, 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 $25 million allocated to the states; $25 million representing the disgorgement of commissions and fees; and $75 million to be earmarked for the procurement of independent research by the respondent. 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(b) of the Act by failing to disclose that it paid other investment banks $2.7 million in underwriting fees at the direction of issuers to provide research coverage; and 2) failed to establish, enforce and maintain an adequate supervisory system to detect and prevent improper conflicts of interest.

The Consent Order mandated that the respondent cease and desist from regulatory violations and fined the respondent $262,402.

Vision Securities, Inc. (CRD # 35001) Fined $3,500, Activities Restricted, for Impeding State Examination and Employing Unregistered "Cold Callers"

On August 6, 2003, the Banking Commissioner entered a Consent Order (File No. CO-03-6720-S) with respect to Vision Securities, Inc. of 647 Franklin Avenue, Garden City, New York. The Consent Order alleged that, during a Securities and Business Investments Division examination, the firm, through its former compliance officer, Danielle Terzano and former president, Mark Eisenberg, prohibited Division staff from proceeding with the examination in violation of Section 36b-31-14f(b)(3) of the Regulations under the Connecticut Uniform Securities Act. The Consent Order also alleged that the firm engaged in dishonest or unethical practices by employing "cold callers" who were not registered with the NASD and failing to establish and enforce an adequate supervisory system.. The firm, previously owned by Lantern Investments, Inc., is now under new ownership.

The Consent Order fined the firm $3,500 and restricted its Connecticut securities business to investment company securities, governmental securities, exchange-listed and NASDAQ-NMS securities, annuities and non-securities insurance products. The Consent Order also required that the firm reimburse the agency up to $2,500 to cover the costs of a future examination of the firm's offices to be conducted within 24 months.

Todd R. Scully (CRD # 2139448) Permanently Barred from Securities Business in Connecticut; Ordered to Cease and Desist from Regulatory Violations

On July 8, 2003, the Banking Commissioner entered a Consent Order (No. CO-03-6627-S) with respect to Todd R. Scully of 4 East Trail, Darien, Connecticut. The Consent Order alleged that, commencing in March 1996, respondent Scully engaged in dishonest and unethical business practices by borrowing money and sharing in customer account profits or losses without the prior written consent of the customer or his employing broker-dealer, Merrill Lynch, Pierce, Fenner & Smith, Incorporated. The Consent Order also claimed that, commencing in August 1997, respondent Scully violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by representing that investor funds would be invested in "Treasury Direct" securities or "Certificates of Deposit" when, in actuality, respondent retained the funds for his personal use.

The Consent Order permanently barred respondent Scully from transacting business in Connecticut as a broker-dealer, investment adviser, agent or investment adviser agent, and directed him to cease and desist from regulatory violations.

On May 23, 2003, respondent Scully had pled guilty in Stamford Superior Court to one count of securities fraud, one count of second degree forgery and two counts of first degree larceny in a case prosecuted by the Office of the Chief State's Attorney. The criminal action had focused on allegations that Todd Scully defrauded an elderly client of $1million by closing the victim's brokerage account without the victim's knowledge and transferring the proceeds to accounts that Scully controlled. Under the terms of the plea, Todd Scully would receive a prison term of 5 years, suspended after 18 months incarceration, and pay $1,008,732 in restitution.

Stephen P. Funk (CRD 2224312) Fined $25,000, Barred from Securities Business in Connecticut for 5 Years in Connection With Promissory Note Sales

On January 29, 2003, the Banking Commissioner entered a Consent Order (Docket No. CF-2002-6277-S) against Stephen P. Funk of 196 Fern Avenue, Litchfield, Connecticut. The respondent had been the subject of a September 25, 2002 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2002-6277-S) alleging that, from at least January 1999 to June 2001, the respondent offered and sold unregistered non-exempt promissory notes of Wellesley Services, LLC to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and that, in so doing, the respondent transacted business as an unregistered agent of the issuer in violation of Section 36b-6(a) of the Act. The action had also alleged that the respondent violated Section 36b-23 of the Act by making a false statement during the course of the department's investigation with respect to the respondent's involvement in the promissory note sales.

In entering the Consent Order, the Commissioner found that the respondent had violated Sections 36b-16 and 36b-6(a) of the Act but withdrew the department's allegation that the respondent had violated Section 36b-23 of the Act. The Consent Order fined the respondent $25,000 and barred him from acting as a broker-dealer, agent, investment adviser or investment adviser agent in Connecticut for five years. In addition, the Consent Order rendered the September 25, 2002 Order to Cease and Desist permanent.

STIPULATION AND AGREEMENTS

Investment Consulting Resources, LLC (CRD # 126165) Assessed $1,700 for Transacting Investment Advisory Business After Prior Registration Expired

On September 24, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6868-S) with Investment Consulting Resources, LLC of 29 Ten Acre Lane, West Hartford. The firm, whose business focuses exclusively on providing advice on the selection or retention of other investment managers, had been registered as an investment adviser under the Connecticut Uniform Securities Act for three years before its registration expired on December 31, 2001 and was not renewed for calendar year 2002. In reapplying for registration in 2003, the firm voluntarily disclosed that it had transacted business after its prior registration had expired.

Pursuant to the Stipulation and Agreement, the firm agreed to pay the department $1,700. Of that amount $1,500 constituted an administrative fine and $200 represented past due investment adviser and investment adviser agent registration fees.

Sentra Securities Corporation (CRD # 10249) Fined $1,000 for Transacting Business from Unregistered Broker-dealer Branch Office

On September 17, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6856-S) with Sentra Securities Corporation of 2800 North Central Avenue, Suite 2100, Phoenix, Arizona. The Stipulation and Agreement alleged that from approximately February, 2002 forward, the firm transacted business from 565 Washington Avenue, North Haven, 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. Sentra Securities Corporation is a broker-dealer registered under the Act. The branch office has since been registered.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $1,000 fine and implement supervisory procedures designed to prevent violations of Connecticut's branch office registration requirements.

American Portfolios Financial Services, Inc. (CRD # 18487) Fined $500 for Transacting Business from Unregistered Broker-dealer Branch Office

On September 10, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6850-S) with American Portfolios Financial Services, Inc. of 4250 Veterans Memorial Highway, 4th Floor East, Holbrook, New York. The Stipulation and Agreement alleged that from approximately August 15, 2002 forward, the firm transacted business from 245 Brooklyn Road, Canterbury, 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. American Portfolios Financial Services, Inc. is a broker-dealer registered under the Act. The branch office has since been registered.

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

Newsholme Financial Group, Inc. (CRD # 26165) Assessed $1,200 for Unregistered Investment Advisory Activity

On September 3, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6848-S) with Newsholme Financial Group, Inc. of 40 Triangle Center, Suite 215, Yorktown Heights, New York. The investment advisory firm became subject to SEC oversight on June 30, 2003 when its assets under management exceeded $25 million. The Stipulation and Agreement alleged that from approximately 2002 until June 30, 2003, Newsholme Financial Group, Inc. transacted business as an investment adviser in Connecticut absent registration under Section 36b-6(c) of the Connecticut Uniform Securities Act and engaged an unregistered investment adviser agent. In entering into the Stipulation and Agreement, the Commissioner noted that the firm had brought its unregistered activity to the department's attention in conjunction with an application for state registration that was filed prior to the time the firm became eligible for SEC registration.

The Stipulation and Agreement required that the firm pay $1,200 to the department. Of that amount, $1,000 constituted an administrative fine and $200 represented past due investment adviser and investment adviser agent registration fees.

Regal Discount Securities, Inc. (CRD # 7297) Fined $1,000 for Transacting Business from Unregistered Broker-dealer Branch Office

On August 6, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6835-S) with Regal Discount Securities, Inc. of 950 Milwaukee Avenue, Suite 102, Glenview, Illinois. The Stipulation and Agreement alleged that from approximately May 2002 forward, the firm transacted business from 131 Mountain Road, West Redding, 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. Regal Discount Securities, Inc. is a broker-dealer registered under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $1,000 fine and implement supervisory procedures designed to prevent violations of Connecticut's branch office registration requirements.

Medical Media Systems, Inc. Fined $2,500 for Delinquent Rule 506 Notice Filings

On July 22, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6831-S) with Medical Media Systems, Inc. of 12 Commerce Lane, West Lebanon, New Hampshire. The Stipulation and Agreement alleged that the company, an issuer of securities, had been two and three years late in making two Rule 506 notice filings 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. In resolution of the matter, the company agreed to pay a $2,500 fine to the department.


{ } STATISTICAL SUMMARY

Licensing At A Glance
September 30, 2003
Broker-dealers Registered 2,643
Broker-dealer Agents Registered 112,813
Broker-dealer Branch Offices Registered 2,080
Investment Advisers Registered 421
SEC Registered Advisers Filing Notice 1,296
Investment Adviser Agents Registered 6,099
Investment Advisory Branch Offices Registered 173
Agents of Issuer Registered 89
 
 
  1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities and Business Opportunity Filings  
Offerings Reviewed 38 53 58   149
Investment Company Notice Filings 292 228 315   835
Exemptions and Exemptive Notices 511 500 539   1550
{ }   
Examinations  
Broker-dealers 7 26 27   60
Investment Advisers 4 24 17   45
{ }   
Securities Investigations  
Opened 60 58 61   179
Closed 73 48 53   174
Ongoing as of September 30, 2003 76 86 94    
Subpoenas issued 2 8 12   22
Cases referred from Attorney General 2 3 5   10
Cases referred from Other Agencies 3 4 0   7
{ }   
Business Opportunity Investigations  
Investigations Opened 2 2 6   10
Investigations Closed 0 4 0   4
Ongoing as of September 30, 2003 5 3 9    
{ }   
Securities Enforcement: Remedies and Sanctions  
Notices of Intent to Deny (Licensing) 0 0 5   5
Notices of Intent to Suspend (Licensing) 0 0 0   0
Notices of Intent to Revoke (Licensing) 0 0 0   0
Denial Orders (Licensing) 0 0 0   0
Suspension Orders (Licensing) 0 0 0   0
Revocation Orders (Licensing) 3 0 0   3
Notices of Intent to Fine 3 2 4   9
Orders Imposing Fine 0 3 0   3
Cease and Desist Orders 4 3 7   14
Notices of Intent to Issue Stop Order 0 0 0   0
Activity Restrictions/Bars 2 2 3   7
Stop Orders 0 0 0   0
Vacating/Withdrawal Orders 2 0 1   3
Censures 0 0 0   0
Formal Orders of Restitution 0 0 0   0
Cancellation Orders 0 0 0   0
{ }   
Proceedings and Settlements  
Administrative Actions 6 5 8   19
Consent Orders 2 4 6   15
     Carryover from 2002 1        
     Carryover from Q1   1 1    
Stipulation and Agreements 4 1 6   11
{ }   
Monetary Relief  
Monetary Sanctions Imposed $ 9,500 $104,500 $1,330,912   $2,299,660
     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   $1,397,679
{ }   
Securities Referrals  
Criminal (Chief State's Attorney) 0 2 1   3
Civil (Attorney General) 0 0 0   0
Other Agency Referrals 0 0 0   0

Securities Division