DOB: Summer and Fall 2004 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XVIII  No. 2 and No. 3 Summer and Fall 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

As the fall season draws to a close, several items deserve mention in this consolidated edition of the Securities Bulletin.

Securities Forum 2004, held on October 26, 2004 at the Radisson Hotel and Conference Center in Cromwell, Connecticut, was a great success. Approximately 350 attendees from the securities industry and the private bar attended the event which featured nine panel presentations and a closing session on the increasing transparency of the financial markets. This year we were fortunate to have Governor M. Jodi Rell provide opening remarks and graciously field audience questions. Joining Governor Rell at the podium was U.S. Attorney Kevin J. O'Connor who stressed the significant enforcement efforts by his office in combating white collar crime.

Ralph Lambiase, Director of the department's Securities and Business Investments Division completed a very successful term as president of the North American Securities Administrators Association, Inc. (NASAA). Ralph will maintain a seat on the NASAA board during the year ahead, and will continue his advocacy of state securities regulation and investor rights.

Shortly before this issue went to print, the Securities and Exchange Commission adopted a final rule calling for the federal regulation of hedge fund managers as investment advisers. Connecticut, being home to a significant segment of the hedge fund industry, has been watching this development closely. Currently, hedge fund managers are required to register as investment advisers with the state if the hedge fund's assets do not exceed $25 million. The SEC's new proposal would spotlight the Commission's ability to allocate resources to an increased number of investment advisory registrants. Some commentators are predicting that the asset level required for SEC oversight will be increased to $40 or $50 million as a result. Should this occur, the department will experience an increase in the number of registrants subject to examination.

The agency is also providing input to the NASD concerning the automation of branch office registration filings. Plans are underway for branch office registrations to be processed through the Central Registration Depository, providing a more efficient process for regulators and the industry alike. The tentative roll-out date is October 2005.

As always, we welcome your views and comments.

John P. Burke
Banking Commissioner


Enforcement Highlights

ADMINISTRATIVE ACTIONS

Phymed Partners, Inc. Fined $20,000 for Selling Unregistered Promissory Notes, Employing Unregistered Agent of Issuer

On July 29, 2004, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2004-6761-S) against Phymed Partners, Inc. of 710 Miami Springs Drive, Longwood, Florida. The Order had been preceded by a March 30, 2004 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6761-S) alleging 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 employed an unregistered agent of issuer in contravention of Section 36b-6(b) of the Act. Phymed Partners, Inc. did not contest the Order to Cease and Desist which became permanent on April 20, 2004. Similarly, the respondent did not contest the imposition of a $20,000 fine based upon findings that the respondent violated Sections 36b-16 and 36b-6(b) of the Act.

Criterion Investment Capital LLC - Hedge Fund Manager Fined $130,000 for Engaging in Securities Fraud

On July 29, 2004, the Banking Commissioner entered an Order Imposing 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 respondent had been the subject of a February 5, 2004 Order to Cease and Desist (Docket No. CF-2004-6420-S) which, being uncontested, became permanent on February 27, 2004.

In fining the respondent $130,000, the Commissioner found 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 Commissioner found 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. The respondent did not contest the imposition of the fine.

Dean Russel Baker (CRD # 4493790) - Notice of Intent to Revoke Registration as Agent, Notice of Intent to Fine Issued Based on Alleged Dishonest or Unethical Practices

On July 19, 2004, the Banking Commissioner issued a Notice of Intent to Revoke Registration as Agent, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. RF-2004-6974-S) with respect to Dean Russel Baker of Oakland Park Florida. The respondent is a registered agent of LH Ross & Company, Inc. (CRD number 37920), a securities brokerage firm located at 2255 Glades Road, Suite 425W, Boca Raton, Florida. The Notice of Intent to Revoke Registration as Agent and Notice of Intent to Fine alleged that from at least June 2002 through November 2003, the respondent 1) engaged in unauthorized trading; 2) failed to obtain written discretionary trading authority from customers where required by law to do so; 3) opened margin accounts for Connecticut customers without obtaining the customers' consent; and 4) failed to provide Connecticut customers with the margin disclosure statement described in NASD Rule 2341(a). The action further alleged that such conduct constituted a dishonest or unethical practice in the offer, sale or purchase of a security within the meaning of Section 36b-4(b) of the Connecticut Uniform Securities Act, and a basis for the initiation of administrative proceedings under Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the Act.

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

Vegas International Players.com, LLP Fined $20,000 For Selling Unregistered Securities Through Unregistered Agents

On July 12, 2004, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2004-6896-S) against Vegas International Players.com, LLP of 4701 North Federal Highway, Suite 380, Lighthouse Point, Florida. The respondent had been the subject of a May 11, 2004 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6896-S) alleging that, commencing in March 2003, the respondent sold unregistered non-exempt limited liability partnership units in violation of Section 36b-16 of the Connecticut Uniform Securities Act and, in so doing, employed one or more unregistered agents in violation of Section 36b-6(b) of the Act. The Order to Cease and Desist, being uncontested, had become permanent on June 25, 2004. The respondent also did not contest the imposition of the $20,000 fine. In fining the respondent, the Commissioner determined that the respondent had violated Sections 36b-6(b) and 36b-16 of the Act.

Triumph Corporate Finance Group, Inc. (CRD # 17022) - Order Revoking Registration as Broker-dealer Entered

On July 6, 2004, the Banking Commissioner entered an Order (Docket No. NRD-2004-6997-S) revoking the broker-dealer registration of Triumph Corporate Finance Group, Inc. of 186 Lincoln Street, 4th Floor, Boston, Massachusetts and 28 State Street, 37th Floor, Boston, Massachusetts. The revocation order had been preceded by an April 19, 2004 Notice of Intent to Revoke Registration as Broker and Order Denying Withdrawal of Registration as Broker-dealer. In revoking the firm's registration, the Commissioner found that the firm's 75% owner, Frederick William McCarthy, had been convicted on February 26, 2004 of one count of theft/bribery concerning programs receiving federal funds, specifically, wilfully and corruptly giving, offering, and agreeing to give consulting contracts valued at approximately $2 million to two persons with the intent to influence and reward an agent of state government, in connection with any business, transaction or series of such transactions of the State of Connecticut Office of State Treasurer involving an increased investment of state pension assets with the firm between 1990 and 2000 (United States of America v. Triumph Capital Group, Inc. et al., Docket No. 3:00CR217 (DJS) (2000)). The Commissioner further found that the conduct underlying Frederick William McCarthy's felony conviction constituted a dishonest or unethical practice in the securities business.

Triumph Corporate Finance Group, Inc. did not contest the revocation of its broker-dealer registration.

LH Ross & Company, Inc. (CRD # 37920) - Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine Issued

On May 25, 2004, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine against LH Ross & Company, a Connecticut-registered broker-dealer having its principal office at 2255 Glades Road, Suite 425W, Boca Raton, Florida. The action alleged that the firm 1) engaged in dishonest or unethical practices by employing "cold callers" who were not registered with the NASD and by using sales scripts that had not been approved by a registered principal of the firm; 2) violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing unregistered agents; 3) violated Section 36b-31-14a(a) of the Regulations under the Act by failing to accurately record loans and failing to keep payroll or bonus related records for any of the firm's cold callers; 4) engaged in dishonest or unethical practices by engaging in unauthorized trading on behalf of Connecticut customers; 5) engaged in dishonest or unethical practices by executing securities transactions without first obtaining written discretionary authority from affected customers; 6) violated a June 7, 2002 Consent Order entered by the Commissioner by employing unregistered personnel, failing to establish and enforce adequate supervisory procedures and failing to report a customer complaint; 7) engaged in dishonest or unethical practices by opening margin accounts for Connecticut customers without providing the margin disclosure statement described in NASD Rule 2341(a); and 8) violated Section 36b-31-6f(b) of the Regulations under the Act by failing to enforce and maintain a system for supervising the activities of its agents that was reasonably designed to achieve compliance with applicable securities laws and regulations.

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

Harrison Douglas, Inc. (CRD # 16515) - Broker-dealer Registration Denied

On April 30, 2004, the Banking Commissioner entered an Order Denying Registration as Broker-dealer (Docket No. ND-2004-6925-S) against Harrison Douglas, Inc. of 5303 E. Evans Avenue, Suite 201, Denver, Colorado. In denying the firm's registration, the Commissioner found 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 denial order had been preceded by March 26, 2004 Notice of Intent to Deny Registration as Broker-dealer based upon the same facts. Harrison Douglas, Inc. did not appear or contest the denial of its registration.


Ari Dinov (CRD # 2632408) - Agent Registration Revoked

On April 23, 2004, the Banking Commissioner entered an order revoking the broker-dealer agent registration of Ari Dinov of 1918 East 9th Street, Brooklyn, New York. The respondent had last been associated with the securities brokerage firm of Indianapolis Securities, Inc. (CRD number 10399) prior to 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 after a withdrawal. In revoking the respondent's registration, the Commissioner found 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 entry of the preliminary injunction formed a basis for the revocation of the respondent's registration. The respondent did not appear or contest the revocation action.

Indianapolis Securities, Inc. (CRD # 10399) - Broker-dealer Registration Revoked

On April 2, 2004, the Banking Commissioner entered an Order Revoking Registration as Broker-dealer against Indianapolis Securities, Inc. (Docket No. NR-2004-6853-S). The firm maintains offices at 4729 North Congress Avenue, Boynton, Beach, Florida and 139 North Central Avenue, Suite 4, Valley Stream, New York. The revocation order followed a February 2, 2004 Notice of Intent to Revoke Registration as Broker-dealer (Docket No. NR-2004-6853-S) alleging 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 allegations were subsequently adopted as findings in the revocation order.

The respondent did not contest the revocation of its broker-dealer registration.


SETTLEMENTS

CONSENT ORDERS

Kevin Dann & Partners, LLC (CRD # 113591) Fined $5,000 for Unregistered Agent Activity, Supervisory Lapses

On September 30, 2004, the Banking Commissioner entered a Consent Order (No. CO-06-7051-S) with respect to Kevin Dann & Partners, LLC, a Connecticut-registered broker-dealer located at 400 Madison Avenue, Suite 4A, New York, New York. The Consent Order alleged that 1) from approximately January 2003 to January 2004, the firm employed an unregistered agent in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act; 2) failed to maintain and enforce an adequate supervisory system; 3) failed to ensure that an agent's Form U-4 was properly updated to reflect the agent's outside business activity; and 4) permitted an employee to disseminate an inaccurate e-mail message containing information that was at odds with the firm's due diligence file. The Consent Order directed the firm to refrain from regulatory violations; fined the firm $5,000; mandated that the firm implement revised supervisory and compliance procedures; and required that the firm reimburse the department for expenses incurred in connection with one or more examinations of the firm's office to be conducted by the agency within 18 months following the entry of the Consent Order.


Butler, Wick & Co., Inc. (CRD # 120) Assessed $10,000 for Unregistered Brokerage Activity

On September 13, 2004, the Banking Commissioner entered a Consent Order (No. CO-2004-6933-S) with respect to Butler, Wick & Co., Inc., of City Centre One, Suite 700, Youngstown, Ohio. The firm had applied for registration as a broker-dealer under the Connecticut Uniform Securities Act. The Consent Order alleged that the firm had disclosed in its registration application that, at various times commencing in 1996, the firm had transacted business in Connecticut absent registration as a broker-dealer and had employed unregistered agents. The Consent Order directed the firm to cease and desist from regulatory violations; implement a revised compliance and supervisory system designed to improve the monitoring of state broker-dealer and agent licensing requirements; and provide quarterly reports for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents. In addition, the Consent Order fined the firm $10,000.

Butler, Wick & Co., Inc. became registered as a broker-dealer under the Act on September 13, 2004.

Retirement and Investment Advisors, LLC (CRD # 131736) Assessed $4,200 for Unregistered Investment Advisory Activity

On September 9, 2004, the Banking Commissioner entered a Consent Order (No. CO-04-7074-S) with respect to Retirement and Investment Advisers, LLC of 71 Grey Rocks Road, Wilton, Connecticut. The Consent Order alleged that, from April 2003 forward, the firm transacted business as an investment adviser and employed an unregistered investment adviser agent in violation of Section 36b-6(c) of the Connecticut Uniform Securities Act. The Consent Order required that the firm implement revised supervisory procedures designed to improve compliance with state licensing requirements and that the firm pay $4,200 to the department. Of that amount, $3,500 constituted an administrative fine, $200 represented past due investment adviser and investment adviser agent registration fees, and $500 represented reimbursement for agency investigative costs.

Retirement and Investment Advisors, LLC and its investment adviser agent became registered under the Act on September 9, 2004.

Christopher L. Bakowski (CRD # 4704723) d/b/a CLB Financial (IARD # 128323) - Consent Order Conditioning Registration as an Investment Adviser Issued

On September 1, 2004, the Banking Commissioner entered a Consent Order Conditioning Registration as an Investment Adviser (No. CO-04-6926-S) with respect to Christopher L. Bakowski d/b/a CLB Financial, an applicant for investment adviser registration located at 335 Rocky Rapids Road, Stamford, Connecticut. The Consent Order was based on allegations that, from at least July 1997, Christopher L. Bakowski transacted business as an investment adviser absent registration as such under the Connecticut Uniform Securities Act. The Consent Order required that Christopher L. Bakowski 1) cease and desist from engaging in violative conduct; 2) obtain a written advisory interpretation from the department prior to relying on any exemption from investment adviser registration or any definitional exclusion; 3) provide clients with written notice of the Consent Order within 30 days; 4) file quarterly reports concerning any securities-related complaints involving Connecticut residents for two years; and 5) remit $11,050 to the department. Of that amount, $10,000 constituted an administrative fine for failing to register as an investment adviser from 1997 to 2003, and $1,050 represented reimbursement for past due registration fees.

1.800 Vending, Inc. Fined $10,000 For Business Opportunity Investment Act Violations

On July 15, 2004, the Banking Commissioner entered a Consent Order (No. CO-2004-788-B) with respect to 1.800 Vending, Inc. of 347 North 300 West, Suite 201, Kaysville, Utah. The Consent Order alleged that 1) from at least 2003 forward, 1.800.Vending, Inc violated Section 36b-67(1) of the Connecticut Business Opportunity Investment Act by offering and selling unregistered vending machine business opportunities in Connecticut; 2) 1.800.Vending, Inc. violated Section 36b-80 of the Act by misrepresenting its prior Connecticut business opportunity sa1es activity in a document filed with the Commissioner; 3) 1.800.Vending, Inc. violated Section 36b-63 of the Act by failing to provide purchaser-investors with a disclosure statement and cover sheet that complied with Section 36b-63 of the Act; and 4) 1.800.Vending, Inc. violated Section 36b-67(2) of the Act by making earnings claims on its web site without including documented data to substantiate such claims and disclosing such data to prospective purchaser-investors at the time such representations were made.

The Consent Order also alleged that the company's application for business opportunity registration was materially incomplete in that, inter alia, the disclosure document 1) failed to adequately disclose a June 25, 2003 Stipulated Judgment and Order for Permanent Injunction obtained by the Federal Trade Commission against Michael S. Burnett and Jeff Marsh, officers of 1.800.Vending, Inc., in the U.S. District Court for the District of Utah, Northern Division, which action alleged that the defendants had sold consumers a fraudulent business opportunity (FTC File No. X020081, Civ. No.1:02 CV00075 ST) and also resulted in the imposition of a $22,000 civil penalty against the defendants, jointly and severally; 2) failed to include financial statements in compliance with Section 36b-65(b) of the Act; 3) failed to make adequate disclosure concerning 1.800.Vending, Inc.'s affiliates and predecessors; 4) failed to describe in sufficient detail the employment histories of Michael S. Burnett and Jeffrey L. Marsh, officers of 1.800.Vending, Inc.; 5) failed to adequately set forth the risks involved in the business opportunity venture; 6) lacked sufficient information on the employment and disciplinary histories of 1.800.Vending, Inc.'s sales representatives; and 7) did not mention the fact that purchaser-investors might have to pay retailers for the use of space for the purchaser-investors' vending machines.

The Consent Order fined 1.800.Vending, Inc. $10,000; directed the company to cease and desist from regulatory violations; prohibited the company from seeking business opportunity registration in Connecticut for 36 months; and required that 1.800.Vending, Inc. provide notice to Connecticut purchaser-investors of their rights and remedies under Connecticut's business opportunity statute.

J.R.D. Productions, Inc. and Jan Lewan Show Gifts, Inc. Permanently Barred from Transacting Business as Broker-dealers or Investment Advisers

On April 23, 2004, the Banking Commissioner entered a Consent Order (Docket No. CF-2003-6824-S) with respect to 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 March 3, 2004 Order imposing a $20,000 fine against them (Docket No. CF-2003-6824-S) as well as 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 had 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.

Subsequent to the entry of the March 3, 2004 Order Imposing Fine, the Commissioner received notice that the respondents had declared bankruptcy in Pennsylvania. As a result, the April 23, 2004 Consent Order rescinded the March 3, 2004 Order Imposing Fine, but permanently barred the respondents from transacting business as broker-dealers or investment advisers in Connecticut.

Schoff & Baxter, Inc. (CRD # 3290) Restricted from Seeking Broker-dealer or Investment Adviser Registration for 3 Years; Order to Cease and Desist Becomes Permanent

On April 5, 2004, the Banking Commissioner entered a Consent Order (Docket No. NDCDF-2004-6906-S) resolving certain allegations in a February 4, 2004 Notice of Intent to Deny Registration as Broker-dealer, Order to Cease and Desist and Notice of Intent to Fine against Schoff & Baxter, Inc. of 203 Washington Street, Burlington, Iowa. The February 4, 2004 action had claimed 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 Connecticut Uniform Securities 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).

In entering the Consent Order, the Commissioner acknowledged that the firm had refunded to affected Connecticut investors $4,396.14 in commissions earned during the period of unregistered activity, and had submitted documentation indicating that the firm would not be able to pay an administrative fine without impairing its minimum net capital. The Consent Order prohibited the firm from seeking registration as a broker-dealer or investment adviser under the Connecticut Uniform Securities Act for three years following the entry of the Consent Order. In addition, the Consent Order rendered the February 4, 2004 Order to Cease and Desist permanent as of April 5, 2004, and withdrew the February 4, 2004 Notice of Intent to Deny Registration as Broker-dealer and Notice of Intent to Fine.

Landers & Co. LLC f/k/a Landers, Lane & Moseley Capital Partners LLC (CRD # 124349) - Consent Order Conditioning Registration as Broker-dealer Issued

On April 2, 2004, the Banking Commissioner entered a Consent Order conditioning the broker-dealer registration of Landers & Co. LLC f/k/a Landers, Lane & Moseley Capital Partners LLC of 1177 High Ridge Road, Stamford, Connecticut (Docket No. ND-2003-6841-S). The firm had been the subject of a September 5, 2003 Notice of Intent to Deny Registration as Broker-dealer (Docket No. ND-2003-6841-S) alleging that 1) Frederick Strong Moseley IV, a control person of the firm, 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.

The Consent Order Conditioning Registration as Broker-dealer prohibited the firm for five years from 1) employing or engaging Frederick Strong Moseley IV as an agent, investment adviser agent, broker-dealer or investment notwithstanding any definitional exclusion or exemption covering such activity by Moseley; 2) permitting Moseley to act as an officer, director, voting partner or employee of the firm or any of its successors; 3) permitting Moseley to hold a voting interest directly in the firm or any of its successors; 4) compensating Moseley in the form of finder's fees, transaction fees or referral fees for activities with the firm, its successors or affiliates; 5) permitting Moseley to engage in the investment banking or securities business of the firm or its successors; and 6) permitting Moseley to supervise or train persons associated with the firm or its successors.

The Consent Order Conditioning Registration as Broker-dealer also withdrew the September 5, 2003 Notice of Intent to Deny Registration as Broker-dealer. Landers & Co. LLC f/k/a Landers, Lane & Moseley Capital Partners LLC became registered as a broker-dealer under the Connecticut Uniform Securities Act on April 2, 2004.


STIPULATION AND AGREEMENTS

St. Bernard Financial Services, Inc. (CRD # 36956) Fined $3,500 for Unregistered Broker-dealer and Agent Activity

On September 22, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7089-S) with St. Bernard Financial Services, Inc., an applicant for broker-dealer registration located at 220 West Main Street, Suite 200, Russellville, Arkansas. The Stipulation was based on allegations that, from approximately February 2004 until August 2004, the firm transacted business as a broker-dealer absent registration under the Connecticut Uniform Securities Act and employed an unregistered agent. Pursuant to the Stipulation and Agreement, the firm agreed to revise and implement supervisory and compliance procedures designed to prevent and detect any future violations of the Act. In addition, the firm agreed to pay a $3,500 fine to the department.

St. Bernard Financial Services, Inc. became registered as a broker-dealer under the Act on September 22, 2004.

Ludwell E. Gaines III (CRD # 2816682) Fined $1,500 for Transacting Business as Unregistered Broker-dealer Agent

On September 22, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-06-7052-S) with Ludwell E. Gaines III of New York, New York. Prior to his association with Legend Securities, Inc., Ludwell E. Gaines III had been associated with Kevin Dann & Partners, LLC (CRD number 113591), a broker-dealer registered under the Connecticut Uniform Securities Act. The Stipulation and Agreement alleged that from approximately January 2003 to January 2004, Ludwell E. Gaines III transacted business as an agent of Kevin Dann & Partners, LLC while not registered as an agent of the firm under the Act. Pursuant to the Stipulation and Agreement, Ludwell E. Gaines III agreed to pay a $1,500 fine to the department.

Maxim Series Fund, Inc. Assessed $2,500 for Failing to File Investment Company Notice

On July 27, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7006-S) with Maxim Series Fund, Inc. of 8525 East Orchard Road, Greenwood Village, Colorado. The corporation is an open-end management investment company that has been in operation since 1982 and that is registered with the Securities and Exchange Commission. The Stipulation and Agreement alleged that, from January 1, 2003 until April 28, 2004, when a notice was filed, Maxim Series Fund, Inc. failed to make the yearly investment company notice filing required by Section 36b-21(c) of the Connecticut Uniform Securities Act for Maxim Loomis Sayles Bond Portfolio and failed to pay the fees required by Section 36b-21(c) of the Act. In resolution of the matter, Maxim Series Fund, Inc. agreed to pay $2,500 to the agency. Of that amount $2,000 constituted an administrative fine and $500 represented reimbursement for notice filing fees covering calendar year 2003.

Rodman & Renshaw, LLC (CRD # 16415) Assessed $3,500 for Unregistered Broker-dealer Activity

On July 23, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7056-S) with Rodman & Renshaw, LLC, a broker-dealer located at 330 Madison Avenue, 27th Floor, New York, New York. The Stipulation and Agreement alleged that 1) in or about January 2004, the firm effected sales of Cortex Pharmaceuticals, Inc. securities in a private placement to an individual located in Connecticut; 2) at the time of the sale, the firm was not registered as a broker-dealer under the Connecticut Uniform Securities Act; and 3) because the Connecticut securities activities conducted by the firm did not involve the effecting of transactions exclusively with or through the institutions described in Section 36b-3(5)(D) of the Act, the exclusion from the definition of "broker-dealer" in Section 36b-3(5)(D) of the Act was not available for transactions in the securities of Cortex Pharmaceuticals, Inc. Pursuant to the Stipulation and Agreement, the firm agreed to pay a $3,000 fine to the department and reimburse the agency $500 for the agency's investigative costs. In addition, the firm agreed to review, revise and implement supervisory and compliance procedures designed to prevent and detect any future regulatory violations. The firm became registered as a broker-dealer under the Act on July 23, 2004.

New England Mobile Communications, Inc. Assessed Back Fees for Business Opportunity Registration Lapse

On July 15, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-798-B) with New England Mobile Communications, Inc. d/b/a KarTele, formerly of 93 New Canaan Avenue, Norwalk, Connecticut. The corporation was a franchisor of telecommunications equipment. The Stipulation and Agreement alleged, from approximately 1991 until September 8, 1992, when it registered its service mark and logo with the U.S. Patent and Trademark Office, New England Mobile Communications, Inc. sold a business opportunity in and from Connecticut absent compliance with the registration requirements in Sections 36b-62(a) and 36b-65(a) of the Connecticut Business Opportunity Investment Act. Under the Connecticut Business Opportunity Investment Act, the sale of a marketing program in conjunction with the licensing of a federally registered trademark or service mark is excluded from the definition of "business opportunity."

In entering into the Stipulation and Agreement, New England Mobile Communications, Inc., through its counsel, represented to the Commissioner that it had not sold any franchises since 1996, and that it was no longer in the telecommunications franchising business. The Stipulation and Agreement required that New England Mobile Communications, Inc. refrain from selling business opportunities absent compliance with the Connecticut Business Opportunity Investment Act and reimburse the agency $300 for past due registration fees calculated on the basis of the law in effect from 1991 to 1992.

Kleos Capital Management, Inc. Assessed $2,100 for Not Registering as Investment Adviser

On July 13, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7000-S) with Kleos Capital Management, Inc., an investment adviser subject to Securities and Exchange Commission regulation under the Investment Advisers Act of 1940. The firm has been located at 100 Prospect Street, Penthouse N., Stamford, Connecticut since late 2002 when it relocated its office from New York. The Stipulation and Agreement alleged that from approximately November 2002 until February 2004, when it became subject to exclusive SEC oversight, the firm transacted business as an investment adviser in Connecticut absent registration under the Connecticut Uniform Securities Act and employed unregistered investment adviser agents. The firm brought its unregistered activity and that of its investment adviser agents to the agency's attention, claiming that the failure to register was due to ineffective representation by prior legal counsel and to a preoccupation with a proposed merger that did not occur.

Pursuant to the Stipulation and Agreement, the firm agreed to pay two thousand one hundred dollars to the department. Of that amount, $1,500 constituted an administrative fine and $600 represented past due investment adviser and investment adviser agent registration fees for calendar years 2002 and 2003.


Libertas Partners LLC Fined $2,500 For Employing Unregistered Agents

On July 9, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7018-S) with Libertas Partners LLC of One Greenwich Office Park North, Third Floor, Greenwich, Connecticut. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The Stipulation and Agreement alleged from approximately February 2, 2004 to March 24, 2004, six agents transacted securities business for the firm at a time when such agents were not registered as required by Section 36b-6(a) of the Act. In entering into the Stipulation and Agreement, the firm represented that its failure to register the agents was attributable to a transfer of customer accounts from another brokerage firm occurring at approximately the same time, and to miscommunications between the firm, its legal counsel and its filing service. The agents have since been registered under the Act.

In resolution of the matter, Libertas Partners LLC agreed to pay a $2,500 fine to the department.

Ambient Corporation Assessed $3,500 For Engaging Unregistered "Finder"

On July 1, 2004, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7043-S) with Ambient Corporation, an issuer of securities located at 79 Chapel Street, Newton, Massachusetts. The Stipulation and Agreement alleged that 1) in 2003, Ambient Corporation employed one Dennis M. Quirk d/b/a United Resources as a "finder" of securities investors and paid Quirk compensation, including a cash success fee and warrants for his activities in connection therewith; 2) in connection with a private placement of Ambient Corporation securities, Quirk directed that his compensation be split with Brighton Capital, Ltd. of 1875 Century Park East, Los Angeles, California; and 3) neither Quirk nor Brighton Capital, Ltd. were registered as broker-dealers or as agents under the Connecticut Uniform Securities Act.

Pursuant to the Stipulation and Agreement, Ambient Corporation agreed to refrain from employing unregistered agents of issuer or from selling securities to Connecticut investors through any broker-dealer that was not registered under the Act. In addition, Ambient Corporation agreed to pay a $3,000 fine to the department and reimburse the department $500 for investigative costs.

Hornor, Townsend & Kent, Inc. (CRD # 4031) Fined $10,000 for Delay in Advising Customers of Branch Office Closing

On June 29, 2004, the Banking Commissioner entered into a Stipulation and Agreement with Hornor, Townsend & Kent, Inc., a Connecticut-registered broker-dealer having its principal office at 600 Dresher Road, Suite C1C, Horsham, Pennsylvania. The Stipulation and Agreement alleged that 1) the firm violated Section 36b-6(f) of the Connecticut Uniform Securities Act by waiting nearly one year to notify customers that its branch office at 39 Pheasant Court, Windsor Locks, Connecticut had closed, and 2) the firm engaged in dishonest or unethical practices by representing to customers that the branch had closed effective March 15, 2004 when, in reality, the branch ceased operations in August 2003. The Windsor Locks, Connecticut location had been the subject of a July 25, 2003 Stipulation and Agreement by the Commissioner alleging that the site had not been properly registered as a branch office under the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay a $10,000 fine and mail to each affected customer of the Windsor Locks branch a copy of the Stipulation and Agreement as well as a complete description of the maintenance, transfer and delivery procedures referenced in Section 36b-6(f) of the Act.

InCap Securities, Inc. (CRD # 25401) Assessed $1,500 for Splitting "Finder's Fee" With Unregistered Broker-dealer Agent

On May 10, 2004, the Banking Commissioner entered into a Stipulation and Agreement with InCap Securities, Inc. of 630A Fitzwatertown Road, Willow Grove, Pennsylvania. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act. The Stipulation alleged that InCap Securities, Inc. received a "finder's fee" in conjunction with a private placement of American Biophysics Corp. stock and warrants, and paid a portion of that fee, attributable to an investment made by a Connecticut resident, to an individual who was not then registered as a broker-dealer agent under the Act and who had a familial relationship with the Connecticut investor. The individual has since become registered as a broker-dealer agent of InCap Securities, Inc. in Connecticut. Pursuant to the Stipulation and Agreement, InCap Securities, Inc. agreed to review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of Connecticut agent registration requirements. In addition, the firm agreed to pay an administrative fine of $1,500.

D.F. Hadley & Co., Inc. (CRD # 103897) Assessed $1,500 for Acting as "Finder" Absent Broker-dealer Registration

On May 10, 2004, the Banking Commissioner entered into a Stipulation and Agreement with D.F. Hadley & Co., Inc. of 2321 Rosecrans Avenue, Suite 3255, El Segundo, California. The Stipulation and Agreement alleged that, at a time when the firm was not registered as a broker-dealer under the Connecticut Uniform Securities Act, the firm received sales commissions in conjunction with a 2003 private placement; contacted potential investors; and assisted in negotiating and structuring the investment and conducting sales. D.F. Hadley & Co., Inc. has since become registered as a broker-dealer in Connecticut.

In entering into the Stipulation and Agreement, the Commissioner acknowledged that the firm had cooperated in providing requested information and had extended a $4 million rescission offer to affected Connecticut investors whom the firm represented were "accredited." The Stipulation and Agreement required that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect any future violations of the Act. In addition, the Stipulation and Agreement required that the firm pay $1,500 to the department. Of that amount, $1,000 constituted an administrative fine, and $500 represented reimbursement for agency investigative costs.


STATISTICAL SUMMARY

Licensing At A Glance
September 30, 2004
Broker-dealers Registered 2,587
Broker-dealer Agents Registered 117,862
Broker-dealer Branch Offices Registered 2,288
Investment Advisers Registered 427
SEC Registered Advisers Filing Notice 1,410
Investment Adviser Agents Registered 6,415
Investment Advisory Branch Offices Registered 157
Agents of Issuer Registered 66
 
  1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities and Business Opportunity Filings  
Offerings Reviewed 55 77 53   185
Investment Company Notice Filings 732 227 254   1,213
Exemptions and Exemptive Notices 694 676 641   2,011
{ }   
Examinations  
Broker-dealers 11 3 0   14
Investment Advisers 3 0 0   3
{ }   
Securities Investigations  
Opened 61 56 46   163
Closed 57 29 37   123
Ongoing as of September 30, 2004 109 131 81    
Subpoenas issued 21 12 10   43
Cases referred from Attorney General 6 1 1   8
Cases referred from Other Agencies 1 6 0   7
{ }   
Business Opportunity Investigations  
Investigations Opened 8 6 3   17
Investigations Closed 7 3 2   12
Ongoing as of September 30, 2004 10 12 4    
{ }   
Securities Enforcement: Remedies and Sanctions  
Notices of Intent to Deny (Licensing) 2 0 0   2
Notices of Intent to Suspend (Licensing) 0 0 0   0
Notices of Intent to Revoke (Licensing) 3 2 1   6
Denial Orders (Licensing) 2 1 0   3
Suspension Orders (Licensing) 0 0 0   0
Revocation Orders (Licensing) 0 2 1   3
Notices of Intent to Fine 7 2 1   10
Orders Imposing Fine 5 0 3   8
Cease and Desist Orders 8 2 3   13
Notices of Intent to Issue Stop Order 0 0 0   0
Activity Restrictions/Bars 3 4 2   9
Stop Orders 2 0 0   2
Vacating/Withdrawal Orders 2 3 0   5
Censures 0 0 0   0
Formal Orders of Restitution 0 0 0   0
Cancellation Orders 0 0 0   0
{ }   
Proceedings and Settlements  
Administrative Actions 17 6 5   28
Consent Orders 5 3 5   13
Stipulation and Agreements 5 3 8   16
{ }   
Monetary Relief  
Monetary Sanctions Imposed $ 282,100 $13,000 $229,650   $ 524,750
Restitution or Other Monetary Relief $ 81,880 $4,014,406 $41,082   $4,137,368
(totals are rounded to nearest dollar)
Securities Referrals  
Criminal (Chief State's Attorney) 0 0 0   0
Civil (Attorney General) 0 2 0   2
Other Agency Referrals 0 0 2   2

Securities Division