DOB: Spring 2004 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XVIII  No. 1 Spring 2004

Features

Enforcement Highlights

Contributors

Ralph Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric Wilder, Assistant Director
Helen Crane, Subscription Coordinator


{ } A WORD FROM THE BANKING COMMISSIONER

This year opened on a gratifying note when the House Committee on Financial Services amended H.R. 2179, the Securities Fraud Deterrence and Investor Restitution Act of 2003, to remove federal preemptive language in Section 8(b) of the bill. Inserted in its place was language calling for the voluntary participation of the states, through the North American Securities Administrators Association ("NASAA"), in a joint study with the Securities and Exchange Commission, to improve coordination, cooperation and communication between state and federal securities regulators. The substitute language recognizes the important resources that states offer in combating securities fraud and other abuses that undermine the capital markets and erode investor confidence.

During the first quarter of 2004, Connecticut and other states continued their probe into improper practices in the mutual fund industry. The Securities and Business Investments Division has also been active in investigating a variety of other cases as reported in the pages of this Securities Bulletin.

On May 4, 2004, Governor Rowland signed into law P.A. 04-45, An Act Concerning the Connecticut Uniform Securities Act. The legislation carries an October 1, 2004 effective date. The amendments, outlined in this issue of the Securities Bulletin, make several clarifying changes to the statute. Significantly, P.A. 04-45 also extends from one year to two years the statute of limitations for private civil actions arising out of intentional misrepresentation or fraud in the purchase or sale of securities. The two year limitations period runs from the date the misrepresentation or fraud is discovered. The amendment adds that the action must be brought no later than five years from the date of the fraud or misrepresentation.

During the first quarter of 2004, the department also amended the order establishing the accredited investor exemption to provide greater administrative flexibility by inserting a provision permitting one or more of the conditions to be waived in appropriate circumstances. This issue of the Securities Bulletin also features an order emphasizing that registered broker-dealers that are also NASD member firms and who are in compliance with federal financial reporting requirements need not file annual audited financial reports with the department. We would encourage all affected firms to share this information with their accountants and compliance personnel.

As this issue goes to press, the Securities and Business Investments Division is developing a response to the SEC's new custody rule for investment advisers that takes into account the approach proposed by NASAA to its members. We hope to have more information on that development in the next issue.

John P. Burke
Banking Commissioner


Editorial Note

On April 14, 1998, the Commissioner issued an Order Exempting Certain Offers and Sales of Securities Solely to Accredited Investors. Certain technical changes were made to that Order on March 29, 2004. The changes included updating statutory references and adding a provision that would allow the Commissioner to waive the disciplinary disqualifer in paragraph (D)(1) of the Order. The text of the March 29, 2004 amended and restated Order follows:

Order Amending and Restating Order Exempting 
Certain Offers and Sales of Securities 
Solely to Accredited Investors


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

WHEREAS, Section 36b-21(b)(17) of the Act provides that "[t]he following transactions are exempted from sections 36b-16 and 36b-22: . . . any other transaction that the commissioner may exempt, conditionally or unconditionally, on a finding that registration is not necessary or appropriate in the public interest or for the protection of investors";

WHEREAS, Section 36b-31(a) of the Act provides, in pertinent part, that "[t]he commissioner may from time to time make, amend and rescind such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including . . . orders . . . defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of . . . orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";

WHEREAS, on April 14, 1998, the Commissioner issued an Order Exempting Certain Offers and Sales of Securities Solely to Accredited Investors ("Accredited Investor Exemption Order");

WHEREAS, the Commissioner finds that the issuance of this Order Amending and Restating the Accredited Investor Exemption Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;

THE COMMISSIONER THEREFORE ORDERS THAT:

1. Pursuant to Section 36b-21(b)(17) of the Act, offers and sales of securities by an issuer in a transaction that meets the requirements of this Amended and Restated Order, including, without limitation, offers and sales made over the Angel Capital Electronic Network ("ACE-Net") shall be exempt from Sections 36b-16 and 36b-22 of the Act if the following conditions are met:
(A) Sales of such securities shall be made only to persons who are, or the issuer reasonably believes are, accredited investors within the meaning of Rule 501(a) of Regulation D, 17 C.F.R. 230.501(a), promulgated under the Securities Act of 1933;
(B) The exemption hereunder shall not be available to a development stage issuer that either has no specific business purpose or has indicated that its business plan is to engage in a merger or acquisition with a "blank check company", "shell company" or "dormant company" as those terms are defined in Sections 36b-3(3) and 36b-3(18) of the Act;
(C) The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within 12 months of sale shall be presumed to be with a view to distribution and not for investment, except for a resale made pursuant to a registration statement effective under Section 36b-17 or 36b-18 of the Act or to an accredited investor pursuant to an exemption under Section 36b-21 of the Act;
(D)
(1) The exemption hereunder shall not be available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of ten percent (10%) or more of any class of the issuer's equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:
(a) Within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the Securities and Exchange Commission;
(b) Within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;
(c) Is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or
(d) Is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
(2) Subparagraph (D)(1) above, shall not apply if:
(a) The party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment or decree creating the disqualification was entered against such party;
(b) Before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment or decree, waives the disqualification; or
(c) The issuer establishes that it did not know and in the exercise of reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this paragraph.
(d) The Commissioner exempts a person, security or transaction from the provisions of such subparagraph, upon a finding that such exemption is in the public interest.
(E)
(1) A general announcement of the proposed offering may be made by any means;
(2) The general announcement shall include only the following information, unless additional information is specifically permitted by the Commissioner:
(a) The name, address and telephone number of the issuer of the securities;
(b) The name, a brief description and price (if known) of any security to be issued;
(c) A brief description of the business of the issuer in 25 words or less;
(d) The type, number and aggregate amount of securities being offered;
(e) The name, address, and telephone number of the person to contact for additional information; and
(f) A statement that: (i) sales will only be made to accredited investors; (ii) no money or other consideration is being solicited or will be accepted by way of this general announcement; and (iii) the securities have not been registered or approved by any state securities agency or the U.S. Securities and Exchange Commission and are being offered and sold pursuant to an exemption from registration.
(F) The issuer, in connection with an offer, may provide information in addition to the general announcement under paragraph (E) above if such information:
(1) Is delivered through an electronic database that is restricted to persons who have been pre-qualified as accredited investors; or
(2) Is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor.
(G) No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor;
(H) Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not, in and of itself, disqualify the issuer from claiming the exemption under this Amended and Restated Order; and
(I) The issuer shall file with the Commissioner a Model Accredited Investor Exemption Uniform Notice of Transaction, a consent to service of process and a copy of the general announcement within fifteen days after the first sale in this state.
2. Nothing in this Amended and Restated Order shall be construed to limit the Commissioner's authority to enforce the antifraud provisions in Section 36b-4 of the Act with respect to any person; and
3. This Amended and Restated Order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.
So ordered at Hartford, Connecticut
this 29th day of March 2004.
John P. Burke
Banking Commissioner

Amendments to Connecticut Uniform Securities Act 
Take Effect October 1st

On May 4, 2004, Governor Rowland signed into law Public Act 04-45, An Act Concerning the Connecticut Uniform Securities Act. The legislation carries an October 1, 2004 effective date. The legislation makes the following clarifying and other changes to the Connecticut Uniform Securities Act:

  • Section 36b-6(a) of the Act has been amended to prohibit broker-dealers and their agents from transacting business in Connecticut in contravention of a currently effective sanction imposed by the Securities and Exchange Commission or by a self-regulatory organization of which the broker-dealer is a member.
  • Section 36b-6(d) of the Act has been updated, in light of the National Securities Markets Improvements Act of 1996, to remove provisions requiring investment advisers registered with the Securities and Exchange Commission to make a branch office notice filing with the Commissioner, advise the Commissioner concerning branch office relocations and acquisitions and to pay the associated fee. Similarly, subsections (f), (g) and (h) of Section 36b-6 of the Act would apply only to investment advisers registered or required to be registered with the Commissioner.
  • Section 36b-8 of the Act has been modified to render the provision gender neutral.
  • Section 36b-12(c) has been amended to clarify that each registration expires at the close of business on December 31st of the year in which the registration became effective.
  • Section 36b-12(d) has been amended to clarify that, where there is a mass transfer of broker-dealer agents or investment adviser agents, the firm receiving the mass transfer is obligated to pay the transfer fee for each broker-dealer agent or investment adviser agent transferred.
  • Section 36b-15(a)(2)(K) of the Act has been amended to expand the failure to supervise ground to those broker-dealer agents and investment adviser agents charged with exercising supervisory authority.
  • Section 36b-29(f) of the Act, which concerns private civil actions, has been amended to extend from one year to two years the statute of limitations for actions arising out of intentional misrepresentation or fraud in the purchase or sale of securities. The two year limitations period runs from the date the misrepresentation or fraud is discovered or in the exercise of reasonable care should have been discovered. However, the action cannot be brought more than five years from the date of the fraud or misrepresentation.

Order Exempting Connecticut Registered Broker-dealers
That are NASD Member Firms from the
Filing of Annual Audited Financial Statements

WHEREAS, the Banking Commissioner ("Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act ("Act"), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies ("Regulations") promulgated under the Act;

WHEREAS, Section 36b-31(a) of the Act provides, in pertinent part, that: "[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of . . . [the Act] . . . . For the purpose of . . . orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";

WHEREAS, Section 36b-31(b) of the Act provides, in pertinent part, that: "[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of . . . [the Act] . . . In prescribing . . . orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of said sections to achieve maximum uniformity in the form and content of registration statements, applications and reports wherever practicable";

WHEREAS, P.L. 104-290, the National Securities Markets Improvement Act of 1996 ("NSMIA"), added to Section 15 of the Securities Exchange Act of 1934 subsection (h) which provides as follows:

No law, rule, regulation, or order, or other administrative action of any State or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to, the requirements in those areas established under this title. The Commission shall consult periodically the securities commissions (or any agency or office performing like functions) of the States concerning the adequacy of such requirements as established under this title.

WHEREAS, in response to NSMIA, P.A. 98-162 amended Section 36b-14(b) of the Act to provide, in pertinent part, that: "(2) Every . . . registered broker-dealer, shall file such financial reports as the commissioner by regulation prescribes, except that the commissioner shall not require the filing of financial reports that are not required to be filed with the Securities and Exchange Commission";

WHEREAS, Securities and Exchange Commission Rule 17a-5(d), 17 C.F.R. 240.17a-5(d), provides, in pertinent part, that: "(1)(i) Every broker or dealer registered pursuant to section 15 of the [Securities Exchange] Act shall file annually, on a calendar or fiscal year basis, a report which shall be audited by an independent public accountant . . . (5) The annual audit report shall be filed not more than sixty (60) days after the date of the financial statements. (6) The annual audit report shall be filed at the regional or district office of the Commission for the region or district in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, DC, and the principal office of the designated examining authority for such broker or dealer. Copies thereof shall be provided to all self-regulatory organizations of which said broker or dealer is a member";

WHEREAS, Securities and Exchange Commission Rule 17a-5(e)(3), 17 C.F.R. 240.17a-5(e)(3), provides, in pertinent part, that: "All of the statements filed pursuant to paragraph (d) of this section shall be public, except that, if the Statement of Financial Condition in a format which is consistent with Form X-17A-5, Part II or Part IIA, is bound separately from the balance of the annual audited financial statements filed pursuant to paragraph (d)(1) of this section, the balance of the annual audited financial statements shall be deemed confidential, except that they shall be available for official use by any official or employee of the United States or any State, by national securities exchanges and registered national securities associations of which the person filing such a report is a member, and by any other person to whom the Commission authorizes disclosure of such information as being in the public interest";

WHEREAS, Section 36b-31(c) of the Act provides, in part, that: "To encourage uniform interpretation and administration of sections 36b-2 to 36b-33, inclusive, and effective securities regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of other states, Canadian provinces or territories, or other countries, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Securities Investor Protection Corporation, any self-regulatory organization, any national or international organization of securities officials or agencies, and any governmental law enforcement or regulatory agency. The cooperation authorized by this subsection includes, but is not limited to, the following actions: . . . (3) sharing and exchanging information and documents subject to the restrictions of chapter 3";

WHEREAS, Section 36b-31-14c of the Regulations, last amended prior to the passage of NSMIA, provides, in part, that:

(a) Each registered broker-dealer shall annually file with the commissioner, or, subject to the conditions set forth in subsection (b) of this section, with the National Association of Securities Dealers, Inc., on a calendar or fiscal year basis, a financial report (1) audited by an independent public accountant or independent certified public accountant and (2) containing the information required by Securities and Exchange Commission Rule 17a-5(d), 17 C.F.R. 240.17a-5(d). The report shall be filed not more than 60 days following the end of the calendar or fiscal year. If the date of the filing exceeds such 60-day requirement, an unaudited statement similar in all respects shall also be filed and shall not be dated more than 60 days prior to the filing.

WHEREAS, subsection (b) of Section 36b-31-14c of the Regulations, last amended prior to the passage of NSMIA, provides the following alternative to satisfying the filing requirement in Section 36b-31-14c(a) of the Regulations, subject to certain conditions:

(b) The annual filing described in subsection (a) of this section may be made with the National Association of Securities Dealers, Inc. subject to the following conditions: The broker-dealer (1) shall be, and continue to be, a member of a self-regulatory organization registered under federal laws administered by the United States Securities and Exchange Commission; (2) shall file annual audited financial reports with the self-regulatory organization of which it is a member; (3) shall be current in filing with such self-regulatory organization all required financial reports, including, without limitation, the annual audited financial report; (4) shall undertake in writing 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; and (5) shall undertake in writing to provide upon request by the commissioner, and within 24 hours, any financial reports, statements, supplements and amendments required by subsection (a) of this section and by subsection (a) of section 36b-31-14a of the regulations.

WHEREAS, 36b-31-31c of the Regulations provides that: "The commissioner may exempt a person, security or transaction from a specified provision of sections 36b-31-2 to 36b-31-33, inclusive, of the regulations upon a finding that such exemption is in the public interest";

WHEREAS, the Commissioner finds that requiring Connecticut-registered broker-dealers who are registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc. ("NASD") to file with the Commissioner a copy of the annual audited financial statements filed with the Securities and Exchange Commission and the NASD is duplicative and unnecessary provided that specific guidelines are observed;

AND WHEREAS, the Commissioner further finds that the exemption provided by this Order is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act.

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

1. A Connecticut-registered broker-dealer that, because of its registered status with the Securities and Exchange Commission, its self-regulatory organization membership and its compliance with federal financial reporting requirements, would be exempt from the filing requirement in Section 36b-31-14c(a) of the Regulations by virtue of Section 36b-31-14c(b) of the Regulations shall not file with the Commissioner the financial statements required by Section 36b-31-14c(a) of the Regulations, and shall be exempt from filing the written undertakings referenced in Sections 36b-31-14c(b)(4) and 36b-31-14c(b)(5) of the Regulations;
2. Nothing in this Order shall preclude or restrict the Commissioner from requiring the filing of annual audited financial statements in the following circumstances:
(a) The Commissioner requests on a case-by-case basis that financial statements be submitted;
(b) The broker-dealer registrant's financial statements are subject to special review by the NASD or the Securities and Exchange Commission;
(c) The broker-dealer registrant's liabilities exceed its assets, or its most recent audited financial statements reflect that it has failed, at any time covered by the audited financial statements, to maintain the minimum net capital required by Securities and Exchange Commission Rule 15c3-1, 17 C.F.R. 240.15c3-1;
(d) The broker-dealer registrant is not in compliance with NASD and Securities and Exchange Commission filing requirements;
(e) A trustee has been appointed for the broker-dealer pursuant to the Securities Investor Protection Act of 1970, 15 U.S.C. 78aaa et seq.;
(f) The broker-dealer is submitting an initial application to become registered under the Act; or
(g) The broker-dealer is not registered with the NASD.
3. Subject to Section 15(h) of the Securities Exchange Act of 1934, nothing in this Order shall relieve a Connecticut-registered broker-dealer relying on the exemption herein from compliance with the net capital requirements in Section 36b-31-9b of the Regulations, including notice to the Commissioner of any net capital deficiency;
4. The policy, first announced in 1999, that Connecticut-registered broker-dealers relying on the exemption in Section 36b-31-14c(b) of the Regulations file a Waiver Eligibility Certification as a condition precedent to claiming the exemption is hereby rescinded as of the date of this Order;
5. Annual audited financial statements that are voluntarily submitted and that would otherwise be exempt from filing under this Order shall no longer be deemed required records for state record retention purposes; and
6. This Order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.
So ordered at Hartford, Connecticut
this 12th day of May, 2004.
John P. Burke
Banking Commissioner

Enforcement Highlights

ADMINISTRATIVE ACTIONS

Phymed Partners, Inc. - Order to Cease and Desist, Notice of Intent to Fine Issued in Connection With Unregistered Agent of Issuer Activity, Sales of Unregistered Promissory Notes

On March 30, 2004, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6761-S) against Phymed Partners, Inc. of 710 Miami Springs Drive, Longwood, Florida. The action alleged that from June 1999 to January 1, 2001, the respondent violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered securities in the form of promissory notes; and that, during such time frame, the respondent employed an unregistered agent of issuer in contravention of Section 36b-6(b) of the Act. Since Phymed Partners, Inc. did not request a hearing on the Order to Cease and Desist, that order became permanent on April 20, 2004. A hearing on the Notice of Intent to Fine is pending.

Charles Michael Ameer (CRD # 4093615) - Order to Cease and Desist, Notice of Intent to Fine Issued in Connection With Unregistered Promissory Note Sales

On March 29, 2004, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6616-S) against Charles Michael Ameer of 69 Old Farm Road, Weston, Connecticut. The action alleged that 1) from July 1996 forward, the respondent sold unregistered securities in the form of promissory notes to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) the respondent violated the fraud prohibition in Section 36b-4 of the Act by failing to place investor funds in safe, conservative investments as promised; representing to investors that he was a Certified Public Accountant when the Connecticut Board of Accountancy had revoked his license on March 3, 1998; and failing to return investor funds as promised. Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on April 17, 2004. A hearing on the Notice of Intent to Fine is pending.

Steven Douglas Klein (CRD # 1940511) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On March 29, 2004, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6950-S) against Steven Douglas Klein of 1549 August Road, North Babylon, New York. From at least October 1989 to September 23, 2003, the respondent was the president and 75% owner of Ameriprop, Inc., a broker-dealer. The Order to Cease and Desist and Notice of Intent to Fine alleged that, in that capacity, respondent Klein was the authorized signatory on the Form BDW (Uniform Request for Broker-dealer Withdrawal) filed by Ameriprop, Inc. and on the Form U-5 (Uniform Termination

Notice for Securities Industry Registration) filed by Ameriprop, Inc. and relating to respondent Klein's association with that firm. The action also alleged that in October 2003, the respondent filed a Form U-4 (Uniform Application for Securities Industry Registration or Transfer) to apply for registration as a broker-dealer agent of Seidel & Shaw, LLC. Specifically, the action claimed that respondent Klein violated Section 36b-23 of the Connecticut Uniform Securities Act and Section 36b-31-14e(a) of the Regulations thereunder by failing to address in the filings a June 23, 2003 Notice of Opportunity for Hearing issued by the Georgia Commissioner of Securities against respondent Klein and Ameriprop, Inc. The Georgia Notice had informed respondent Klein and Ameriprop, Inc. that the State of Georgia intended to issue an Order of Censure and Imposition of Civil Penalty against them based upon alleged violations of the Georgia Securities Act of 1973 (Case No. EN-18758).

Since respondent Klein did not request a hearing on the Order to Cease and Desist, that order became permanent on April 21, 2004. A hearing on the Notice of Intent to Fine is pending.

Harrison Douglas, Inc. (CRD # 16515) - Notice of Intent to Deny Registration as Broker-dealer Issued

On March 26, 2004, the Banking Commissioner issued a Notice of Intent to Deny the broker-dealer registration of Harrison Douglas, Inc. (Docket No. ND-2004-6925-S). The firm maintains its principal office at 5303 E. Evans Avenue, Suite 201, Denver, Colorado. Although the firm had filed a request to withdraw its registration application, Section 36b-15(e)(1) of the Connecticut Uniform Securities Act permits the initiation of denial proceedings within one year following the effective date of the withdrawal. The Commissioner's action was based on allegations that the firm and its president, Douglas Wayne Schriner, had been the subject of the following NASD sanctions: 1) a July 7, 2000 fine of $5,000 imposed against the firm for failing to satisfy minimum net capital requirements (Docket No. C3A000024); 2) a June 25, 2001 censure and fine imposed against the firm and Douglas Wayne Schriner for selling shares of an IPO to residents of a state where the offering was not registered, completing a false offering questionnaire for the lead underwriter and failing to promptly amend Forms BD and U-4 to reflect certain disciplinary items (Docket No. C3A010023); and 3) a September 17, 2003 censure and fine imposed against the firm and Douglas Wayne Schriner for failing to exercise adequate supervisory controls by permitting Douglas Schriner to perform duties requiring registration while his registration was inactive (Disciplinary proceeding No. C3A030028).

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Deny Registration as Broker-dealer.

Debit Corporation of America, Inc. Fined $50,000 for Violations of Business Opportunity Statute; Stop Order Entered Denying Business Opportunity Registration

On March 18, 2004, the Commissioner entered a Stop Order (Docket No. CSF-2003-790-B) denying effectiveness to the pending business opportunity of Debit Corporation of America, Inc. of 3475 Sheridan Street, Suite 215F, Hollywood, Florida. On the same day, the Commissioner fined the corporation $50,000. Debit Corporation of America, Inc. is purportedly 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. In sanctioning the respondent, the Commissioner found 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 Commissioner also found 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.

The respondent did not contest the stop order or the imposition of the $50,000 fine. Debit Corporation of America, Inc. had also been the subject of a December 22, 2003 Order to Cease and Desist which, being uncontested, had become permanent on January 13, 2004.

Frederick Strong Moseley IV (CRD # 835684) Fined $20,000; Agent Registration Denied

On March 10, 2004, the Banking Commissioner entered an Order denying the registration of Frederick Strong Moseley IV as a broker-dealer agent of Landers, Lane & Moseley Capital Partners LLC under the Connecticut Uniform Securities Act (Docket No. NDF-2003-6841-S). On the same day, the Commissioner entered an order fining respondent Moseley $20,000. The Commissioner's action had been preceded by a September 5, 2003 Notice of Intent to Deny Registration as Agent and Notice of Intent to Fine (Docket No. NDF-2003-6841-S). In denying the respondent's agent registration and fining him $20,000, the Commissioner found 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 did not contest the denial order or the imposition of the fine.

Light Management Systems Fund, LLC (CRD # 73208) Fined $30,000 in Connection With Sales of Membership Units

On March 3, 2004, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2003-6579-S) against Light Management Systems Fund, LLC of 5694 Mission Center Road, Suite 428, San Diego, California. The action followed a November 25, 2003 Order to Cease and Desist issued by the Commissioner against the respondent. The Order to Cease and Desist, being uncontested, had become permanent on December 20, 2003. In fining Light Management Systems Fund, LLC $30,000, the Commissioner found 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.

J.R.D. Productions, Inc. and Jan Lewan Show Gifts, Inc. Fined $20,000 for Regulatory Violations in Connection With Note Sales

On March 3, 2004, the Banking Commissioner entered an Order Imposing Fine (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 respondents had been the subject of a November 19, 2003 Order to Cease and Desist which, being uncontested, had become permanent on December 16, 2003. In fining the respondents $20,000, the Commissioner found 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.

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

On February 17, 2004, the Banking Commissioner entered a Stop Order 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 (Docket No. SO-2003-789-B). 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. In denying effectiveness to the corporation's business opportunity registration under the Connecticut Business Opportunity Investment Act, the Commissioner found 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 did not contest the entry of the Stop Order.

Wilder Douglas Carnes (CRD # 2891466) - Order to Cease and Desist, Notice of Intent to Revoke Registrations as Agent and Investment Adviser Agent and Notice of Intent to Fine Issued in Conjunction With Sales of Hedge Fund Interests

On February 5, 2004, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registrations as Agent and Investment Adviser Agent and Notice of Intent to Fine (Docket No. CRF-2004-6420-S) against Wilder Douglas Carnes of 150 A Hanover Road, Newtown, Connecticut. The respondent is registered as an agent and investment adviser agent of Quick & Reilly, Inc. (CRD # 11217) in Southbury, Connecticut. The respondent was also the co-manager of Criterion Investment Capital LLC, an entity that acted as the general partner of the Criterion Investment Fund I L.P., a Connecticut-based hedge fund. Criterion Investment Fund I L.P. was co-managed by the respondent and by Eddie Papic. The action alleged that, in connection with offers and sales of hedge fund interests effected from at least January 2001 to January 2002, the respondent violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by 1) not disclosing that, contrary to representations made to prospective investors, hedge fund interests were being sold for less than $500,000 to non-accredited investors; 2) not disclosing that, although the offering circular represented that the hedge fund's objective was to achieve long term appreciation, the average investment was only 19 days in duration; 3) not disclosing that, contrary to representations made in the offering circular, hedge fund trading focused on options; and 4) failing to disclose the respondent's 1999 bankruptcy. In addition, the action claimed that the respondent 1) violated Section 36b-31-14e(a) of the Regulations under the Act by failing to update his Form U-4 to disclose the department's pending investigation; and 2) contravened Section 36b-6(c) of the Act by transacting business as an unregistered investment adviser agent in conjunction with his hedge fund activities.

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

Eddie Papic (CRD # 3140836) - Order to Cease and Desist and Notice of Intent to Fine Issued in Conjunction With Sales of Hedge Fund Interests

On February 5, 2004, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6420-S) against Eddie Papic of 58 Camp Avenue, Darien, Connecticut. The respondent was the co-manager of Criterion Investment Capital LLC, an entity that acted as the general partner of the Criterion Investment Fund I L.P., a Connecticut-based hedge fund. Criterion Investment Fund I L.P. was co-managed by the respondent and by Wilder Douglas Carnes. The action alleged that, in connection with offers and sales of hedge fund interests effected from at least January 2001 to January 2002, the respondent violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by 1) misrepresenting the performance of the hedge fund to prospective investors; 2) misrepresenting the amount of total deposits in the fund; 3) not disclosing that, contrary to representations made to prospective investors, hedge fund interests were being sold for less than $500,000 to non-accredited investors; 4) not disclosing that, although the offering circular represented that the hedge fund's objective was to achieve long term appreciation, the average investment was only 19 days in duration; 5) not disclosing that, contrary to representations made in the offering circular, hedge fund trading focused on options; and 6) failing to disclose the respondent's 1998 bankruptcy. In addition, the action claimed that the respondent violated Section 36b-6(c) of the Act by transacting business as an unregistered investment adviser agent in conjunction with his hedge fund activities.

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.

Criterion Investment Capital LLC - Hedge Fund Manager Ordered to Cease and Desist from Violating Antifraud Provisions; Notice of Intent to Fine Issued

On February 5, 2004, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6420-S) against Criterion Investment Capital LLC of One Lafayette Place, Greenwich, Connecticut. The respondent, which was run by Eddie Papic and Wilder Douglas Carnes, is the general partner of Criterion Investment Fund I L.P., a Connecticut-based hedge fund. The action alleged that, in connection with offers and sales of hedge fund interests effected from at least January 2001 to January 2002, the respondent violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by 1) not disclosing that, contrary to representations made to prospective investors, hedge fund interests were being sold for less than $500,000 to non-accredited investors; 2) not disclosing that, although the offering circular represented that the hedge fund's objective was to achieve long term appreciation, the average investment was only 19 days in duration; 3) not disclosing that, contrary to representations made in the offering circular, hedge fund trading focused on options; 4) misrepresenting the hedge fund's performance; 5) misrepresenting the fund's total deposits; and 5) failing to disclose the past bankruptcies of Eddie Papic and Wilder Douglas Carnes. In addition, the action claimed that the respondent violated Section 36b-6(c) of the Act by transacting business as an unregistered investment adviser and by employing Eddie Papic and Wilder Douglas Carnes as unregistered investment adviser agents.

Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on February 27, 2004. A hearing on the Notice of Intent to Fine is pending.

Schoff & Baxter, Inc. (CRD # 3290) - Notice of Intent to Deny Registration as Broker-dealer, Order to Cease and Desist and Notice of Intent to Fine Issued

On February 4, 2004, the Banking Commissioner issued a Notice of Intent to Deny Registration as Broker-dealer, Order to Cease and Desist and Notice of Intent to Fine (Docket No. NDCDF-2004-6906-S) with respect to Schoff & Baxter, Inc. of 203 Washington Street, Burlington, Iowa. Although the firm had filed a request to withdraw its registration application, Section 36b-15(e)(1) of the Connecticut Uniform Securities Act permits the initiation of denial proceedings within one year following the effective date of the withdrawal. The action was based on allegations that 1) at various times between November 1997 and at least February 2002, the respondent transacted business as a broker-dealer absent registration in violation of Section 36b-6(a) of the Act and employed at least one unregistered agent in violation of Section 36b-6(b) of the Act; 2) the respondent violated Section 36b-23 of the Act by filing with the Commissioner a false or misleading statement concerning the scope of its prior unregistered activity in Connecticut; 3) on January 11, 2001, the Superior Court of the State of California, County of Los Angeles, permanently enjoined the respondent from violating California's securities laws and fined the respondent $150,505.90 for lapses in supervision (People v. Schoff & Baxter, Inc. et al., Case No. BC 242163); 4) the respondent was the subject of an April 26, 2002 NASD censure based upon alleged supervisory deficiencies (Case No. CO2020020); and 5) on March 7, 2003, the NASD fined the respondent $15,000 for permitting registered representatives to perform duties as registered persons while their registration status was inactive due to a failure to complete continuing education requirements (Case no. CO4030009).

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

Absolute Capital Management, LLC (CRD # 121484) - Investment Adviser Registration Denied; Application to Withdraw Registration Made Effective

On February 2, 2004, the Banking Commissioner entered an Order Effecting Withdrawal of Application for Registration as Investment Adviser and Denying Application for Registration as Investment Adviser (Docket No. ND-2003-6778-S). The order was entered against Absolute Capital Management, LLC of 101 Pennsylvania Boulevard, Pittsburgh, Pennsylvania. Absolute Capital Management, LLC had been the subject of a related September 4, 2003 Notice of Intent to Deny Registration issued by the Commissioner (Docket No. ND-2003-6778-S). The Notice of Intent to Deny Registration had 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 Registration had 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 constituted a basis to deny the firm's investment adviser registration in Connecticut.

The respondent did not contest the denial of its registration.

Indianapolis Securities, Inc. (CRD # 10399) - Notice of Intent to Revoke Registration as Broker-dealer Issued

On February 2, 2004, the Banking Commissioner issued a Notice of Intent to Revoke Registration as Broker-dealer (Docket No. NR-2004-6853-S) with respect to Indianapolis Securities, Inc. of 4729 North Congress Avenue, Boynton Beach, Florida and 139 North Central Avenue, Suite 4, Valley Stream, New York. Although the firm had filed a request to withdraw its registration on November 4, 2003, Section 36b-15(e)(1) of the Connecticut Uniform Securities Act permits the initiation of revocation proceedings within one year. The Notice of Intent to Revoke Registration as Broker-dealer was based on allegations that: 1) on July 30, 2003, the United States District Court for the District of Columbia had entered a preliminary injunction by consent against the respondent prohibiting it from violating the antifraud provisions of the federal securities laws (Securities and Exchange Commission v. Discover Capital Holdings Corp. et al., Case No. 03 Civ. 1496 (RMC)); 2) on October 29, 2003, the Division of Securities of the Wisconsin Department of Financial Institutions had revoked the respondent's registration as a broker-dealer after finding that the respondent executed orders for the sale of unregistered securities, recommended that a customer engage the services of an unregistered investment adviser, broker-dealer or agent, engaged in unauthorized trading; and made material misrepresentations to, and withheld information from, the Wisconsin Division of Securities; and 3) on November 4, 2003, the NASD suspended the respondent for failing to pay arbitration fees pursuant to NASD Rule 9531 (Case No. 03-018231-CH).

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Revoke Registration as Broker-dealer.

Ari Dinov (CRD # 2632408) - Notice of Intent to Revoke Registration as Agent Issued

On February 2, 2004, the Banking Commissioner issued a Notice of Intent to Revoke Registration as Agent (Docket No. NR-2004-6853-S) with respect to Ari Dinov of 1918 East 9th Street, Brooklyn, New York. The respondent was last associated with the securities brokerage firm of Indianapolis Securities, Inc. (CRD number 10399) until his September 4, 2003 request to withdraw his Connecticut agent registration. Section 36b-15(e)(1) of the Connecticut Uniform Securities Act permits the initiation of revocation proceedings within one year following a withdrawal.

The Notice of Intent to Revoke Registration as Agent was based on allegations that on July 30, 2003, the United States District Court for the District of Columbia had entered a preliminary injunction by consent against the respondent prohibiting him from violating the antifraud provisions of the federal securities laws (Securities and Exchange Commission v. Discover Capital Holdings Corp. et al., Case No. 03 Civ. 1496 (RMC))

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Revoke Registration as Agent.

Telecom Entertainment a/k/a Telecom Action Entertainment, LP (CRD # 70660) Fined $20,000 for Selling Unregistered Limited Partnership Interests

On January 20, 2004, the Banking Commissioner entered an Order Imposing Fine (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 respondent had been the subject of a related November 13, 2003 Order to Cease and Desist and Notice of Intent to Fine based upon the same conduct underlying the Order Imposing Fine.

In fining the respondent $20,000, the Commissioner found that, from at least December 2001 forward, the respondent had 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. The respondent did not contest the imposition of the fine.


SETTLEMENTS

CONSENT ORDERS

American Express Financial Advisors Inc. (CRD # 6363) Assessed $110,000 for Penalizing Representatives Who Moved Client Funds to Wrap Accounts

On March 29, 2004, the Banking Commissioner entered a Consent Order (No. CO-03-6788-S) with respect to American Express Financial Advisors Inc., a broker-dealer registered under the Connecticut Uniform Securities Act. The firm maintains its principal office at 707 Second Avenue South, Minneapolis, Minnesota. The Consent Order alleged that the firm had acted improperly by not disclosing to clients that representatives of the firm were being penalized $1,000 per occurrence if they moved client funds held less than 30 months from a mutual fund to a wrap account. The firm has since discontinued that policy. In addition, the Consent Order alleged that American Express Financial Advisors, Inc. had provided inaccurate information to the agency.

The Consent Order fined the firm $110,000. Of that amount, $100,000 constituted an administrative fine and $10,000 represented reimbursement for agency investigative costs. In entering the Consent Order, the Commissioner acknowledged that the firm had agreed to reimburse thirty-two Connecticut representatives $42,000 in penalties assessed against them by the firm for moving certain client funds to wrap accounts.

Robert Pierce Onthank, Sr. (CRD # 1277561) Fined $5,000 for Failing to Provide Records to the Department

On March 26, 2004, the Banking Commissioner entered a Consent Order (No. 03-12-6919) with respect to Robert Pierce Onthank, Sr. of Fairfield, Connecticut. Robert Onthank, Sr. had been registered as a broker-dealer agent of VFinance Investments, Inc. (CRD # 44962) under the Connecticut Uniform Securities Act. VFinance Investments, Inc. maintained its principal office at 3010 North Military Trail, Suite 300, Boca Raton, Florida. The Consent Order alleged that, at various times between March 2003 and December 2003, Robert Onthank failed to provide records to the Commissioner in a timely manner, conduct that, if proven, would have then supported the suspension, revocation or restriction of Robert Onthank, Sr.'s broker-dealer agent registration. The Consent Order directed Robert Onthank to cease and desist from violating those regulatory provisions relating to agency examinations; pay a $5,000 fine; and refrain from effecting securities transactions for five business days commencing on April 12, 2004.

Calvert D. Crary (CRD # 56567) Fined $5,000 for Failing to Provide Records to the Department

On March 15, 2004, the Banking Commissioner entered a Consent Order (No. 04-01-6962) with respect to Calvert D. Crary. Calvert Crary had been registered as a broker-dealer agent of VFinance Investments, Inc. (CRD # 44962) under the Connecticut Uniform Securities Act from June 14, 2002 to December 19, 2003. VFinance Investments, Inc. maintained its principal office at 3010 North Military Trail, Suite 300, Boca Raton, Florida. The Consent Order alleged that, at various times between March 2003 and December 2003, Calvert Crary failed to provide records to the Commissioner in a timely manner, conduct that, if proven, would have then supported the suspension, revocation or restriction of Calvert Crary's broker-dealer agent registration. The Consent Order directed Crary to cease and desist from violating those regulatory provisions relating to agency examinations; pay a $5,000 fine; and refrain from effecting securities transactions for five business days commencing on March 15, 2004.

Jan Lewandowski a/k/a Jan Lewan Permanently Barred from the Securities Business; Order to Cease and Desist Becomes Permanent

On February 5, 2004, the Banking Commissioner entered a Consent Order resolving the allegations in the agency's November 19, 2003 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 Order to Cease and Desist and Notice of Intent to Fine had 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.

In entering the Consent Order, the Commissioner observed that 1) the respondent had demonstrated economic hardship and was incapable of paying a fine; 2) the respondent had pled guilty to racketeering, theft, sale of unregistered securities, sale of securities by an unregistered agent and securities fraud relating to note sales in the state of Delaware for which he had been sentenced to five years in prison; and 3) the respondent had pled guilty to charges of mail and wire fraud in the U.S. District Court for the Middle District of Pennsylvania, and, as part of that plea, had agreed to make restitution to note investors, including those in Connecticut.

The Consent Order permanently barred the respondent from transacting business in Connecticut as an agent, investment adviser agent, broker-dealer or investment adviser. In addition, the Consent Order rendered the November 19, 2003 Order to Cease and Desist permanent as of February 5, 2003 and withdrew the November 19, 2003 Notice of Intent to Fine.

Mark M. Eisenberg (CRD number 2154127) Fined $5,000; Order to Cease and Desist Becomes Permanent

On January 23, 2004, the Banking Commissioner entered a Consent Order (Docket No. CD-2003-6760-S) with respect to Mark M. Eisenberg of Long Beach, New York. The respondent had been the subject of an October 21, 2003 Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-2003-6760-S) whose allegations the Consent Order resolved. The Order to Cease and Desist had claimed 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 Lantern Investments, Inc., owner of Vision Securities, Inc.

The Consent Order rendered the October 21, 2003 Order to Cease and Desist permanent, and required that the respondent pay a $5,000 fine.


STIPULATION AND AGREEMENTS

Karn Couzens & Associates, Inc. (CRD # 115582) Assessed $3,900 for Employing Unregistered Investment Adviser Agent

On March 19, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-6966-S) with Karn Couzens & Associates, Inc., a Securities and Exchange Commission-registered investment adviser located at 10 Melrose Drive, Farmington, Connecticut. The Stipulation and Agreement alleged that the firm had engaged an unregistered investment adviser agent in violation of Section 36b-6(c) of the Connecticut Uniform Securities Act. In resolution of the matter, the firm registered the investment adviser agent and agreed to pay $3,900 to the agency. Of that amount, $3,500 constituted an administrative fine and $400 represented past due registration fees.

Janney Montgomery Scott LLC (CRD # 463) Fined $3,500 for Unregistered Agent Activity

On March 9, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-6957-S) with Janney Montgomery Scott LLC of 1801 Market Street, Philadelphia, Pennsylvania. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The Stipulation and Agreement alleged that in December 2003, the firm voluntarily disclosed to the Commissioner that, as a result of a back office system clerical error which the firm claimed was inadvertent, certain agents of the firm had transacted securities business in Connecticut before their state registrations had become effective. Pursuant to the Stipulation and Agreement, the firm agreed to pay a $3,500 fine to the agency, and represented that it had enhanced its compliance systems to prevent recurrence of unregistered activity.

Mellon Consultants, Inc. (CRD # 108695) Assessed $2,200 for Delinquent Investment Advisory Notice Filing

On February 23, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6934-S) with Mellon Consultants, Inc., a Securities and Exchange Commission-registered investment adviser located at One Pennsylvania Plaza, 30th Floor, New York, New York. The Stipulation and Agreement alleged that, from 1999 until November 10, 2003, when a notice was filed, the firm failed to make the investment advisory notice filing required by Section 36b-6(e) of the Connecticut Uniform Securities Act and failed to pay the fees required by that section. In resolution of the matter, the firm agreed to pay $2,200 to the department. Of that amount, $1,500 constituted an administrative fine and $700 represented reimbursement for past due notice filing fees.

Greenwich Prime Trading Group, LLC (CRD # 121430) Fined $5,000 for Employing Unregistered Agent

On February 23, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6930-S) with Greenwich Prime Trading Group, LLC, a Connecticut-registered broker-dealer having its principal office at 411 West Putnam Avenue, Greenwich, Connecticut. The Stipulation and Agreement claimed that the firm had employed an unregistered agent in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act and had failed to maintain and enforce an adequate supervisory system notwithstanding its outsourcing of licensing responsibilities to an outside consultant. Pursuant to the Stipulation and Agreement, the firm agreed to 1) refrain from engaging in regulatory violations; 2) review, revise and implement supervisory procedures designed to prevent and detect violations of Connecticut's securities laws; and 3) pay a $5,000 fine.

Wachovia Securities, LLC (CRD # 19616) Fined $2,500 for Employing Unregistered Investment Adviser Agents and Unregistered Broker-dealer Agent

On January 23, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6927-S) with Wachovia Securities, LLC of 901 East Byrd Street, Richmond, Virginia. The Stipulation and Agreement claimed that the firm, a registered broker-dealer and SEC-regulated investment adviser, 1) employed at least three unregistered investment adviser agents since March, 2002 in purported violation of Section 36b-6(c) of the Connecticut Uniform Securities Act; and 2) employed an unregistered broker-dealer agent from January 1, 2002 to January 21, 2003 in purported violation of Section 36b-6(b) of the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $2,500 fine, review its supervisory and compliance procedures concerning the licensing of investment adviser agents and broker-dealer agents and modify those procedures to ensure prompt and accurate renewal processing.


CRIMINAL PROCEEDINGS

Nathan Weissberg (CRD # 462528) Arrested for Selling Unregistered Securities, Failing to Register as an Agent of Issuer

On February 27, 2004, Chief State's Attorney Christopher L. Morano announced in a press release that Nathan Weissberg of Manchester, Connecticut had been charged with two counts each of selling unregistered securities and failing to register as an agent of issuer in violation of the Connecticut Uniform Securities Act. The charges against Nathan Weissberg are merely accusations, and he is presumed innocent unless and until proven guilty. The arrest warrant affidavit had alleged that Nathan Weissberg sold unregistered securities to a Guilford, Connecticut man and his family in the form of promissory notes issued by two different entities, resulting in investor losses of approximately $165,000. If convicted, Nathan Weissberg faces a maximum possible sentence of eight years in prison and a restitutionary order. The matter is pending.


{ } STATISTICAL SUMMARY

Licensing At A Glance
March 31, 2004
Broker-dealers Registered 2,526
Broker-dealer Agents Registered 112,749
Broker-dealer Branch Offices Registered 2,230
Investment Advisers Registered 412
SEC Registered Advisers Filing Notice 1,342
Investment Adviser Agents Registered 6,179
Investment Advisory Branch Offices Registered 175
Agents of Issuer Registered 68
 
   1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities and
Business Opportunity Filings
Offerings Reviewed 55       55
Investment Company Notice Filings 732       732
Exemptions and Exemptive Notices 694       694
{ }  
Examinations
Broker-dealers 11       11
Investment Advisers 3       3
{ }  
Securities Investigations
Opened 61       61
Closed 57       57
Ongoing as of March 31, 2004 109        
Subpoenas issued 21       21
Cases referred from Attorney General 6       6
Cases referred from Other Agencies 1       1
{ }  
Business Opportunity Investigations
Investigations Opened 8       8
Investigations Closed 7       7
Ongoing as of March 31, 2004 10        
{ }  
Securities Enforcement:
Remedies and Sanctions
Notices of Intent to Deny (Licensing) 2       2
Notices of Intent to Suspend (Licensing) 0       0
Notices of Intent to Revoke (Licensing) 3       3
Denial Orders (Licensing) 2       2
Suspension Orders (Licensing) 0       0
Revocation Orders (Licensing) 0       0
Notices of Intent to Fine 7       7
Orders Imposing Fine 5       5
Cease and Desist Orders 8       8
Notices of Intent to Issue Stop Order 0       0
Activity Restrictions/Bars 3       3
Stop Orders 2       2
Vacating/Withdrawal Orders 2       2
Censures 0       0
Formal Orders of Restitution 0       0
Cancellation Orders 0       0
{ }  
Proceedings and Settlements
Administrative Actions 17       17
Consent Orders 5       5
Stipulation and Agreements 5       5
{ }  
Monetary Relief
Monetary Sanctions Imposed $ 282,100        $ 282,100
Restitution or Other Monetary Relief $ 81,880       $ 81,880
{ }  
Securities Referrals
Criminal (Chief State's Attorney) 0       0
Civil (Attorney General) 0       0
Other Agency Referrals 0       0

Securities Division