DOB: Spring 2005 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XIX  No. 1 Spring 2005

Features

Enforcement Highlights

Contributors

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


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A WORD FROM THE BANKING COMMISSIONER

Strong enforcement is the backbone of an effective securities regulatory program. Imposing additional layers of regulation on the industry is of questionable utility if we do not effectively enforce the requirements that are already on the books. It is against this philosophical backdrop that we face the 2005 legislative session. The department's legislative proposal this year focused on strengthening the administrative and civil remedies available to the department and, in so doing, enhancing investor protection. A key component of the legislation was individual accountability for wrongful acts - something that has been conspicuously absent in the wake of the scandals that have rocked Wall Street. The agency is continuing to monitor the progress of HB 6829, An Act Updating and Revising the Connecticut Uniform Securities Act. Additional information on the department's legislative proposal will be available in a future issue of the Securities Bulletin.

This issue of the Securities Bulletin reminds issuers filing a registration by coordination that the agency has developed a streamlined procedure that eliminates the need to submit large amounts of paperwork directly to the agency. Since all issuers registering by coordination use the SEC's online EDGAR system, agency examiners are able to read EDGAR-filed documents online. Documents filed online need not be filed with Connecticut. Although all EDGAR filers may use the simplified procedure, we estimate that only 20% are taking advantage of it to date. We would encourage more filers to do so.

This issue also reminds Connecticut-registered broker-dealers who are in compliance with NASD financial reporting requirements that audited financials need not be filed each year. We would encourage affected registrants to spread the word to their accountants and compliance personnel.

The department's annual Securities Forum, an educational event that many registrants and their counsel find beneficial, is tentatively scheduled for October 11, 2005 at the Radisson Hotel and Conference Center in Cromwell, Connecticut. Additional details will be provided as the event nears.

As always, we welcome your comments.

John P. Burke
Banking Commissioner


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REGISTERING SECURITIES BY COORDINATION?
SAVE TIME BY USING CONNECTICUT'S EASY PROCEDURE FOR EDGAR FILERS

On July 3, 2001, the Banking Commissioner reduced much of the paperwork involved in registering securities by coordination under the Connecticut Uniform Securities Act by enabling filers to incorporate by reference filings made through the SEC's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") (see Order Simplifying the Filing of Registrations by Coordination in Connecticut) The idea was that, since much of the filing information was available to Division examiners online, it would be redundant to require issuers to make additional paper filings with the department.

Despite the reduced paperwork burden, use of the simplified procedure has been limited. According to Naomi Church, Associate Examiner in the Division's Licensing and Registration Section, "only about 20% of eligible filers are using the streamlined procedure, and some, out of an abundance of caution, not only use the shortcut but make unnecessary paper filings as well, especially where amendments are concerned." Examiner Church added that: "When educated about the streamlined procedure, filers tend to be pleasantly surprised, and have told me that Connecticut is the only state with this type of shortcut."

The Division urges filers registering an offering of securities by coordination to save time and paper by using the shortened procedure.

ONLY FOUR PAPER ITEMS MUST BE FILED WITH CONNECTICUT BEFORE THE SEC DECLARES THE REGISTRATION BY COORDINATION EFFECTIVE:

1. Connecticut Form U-1 Supplement for EDGAR Filers. This form tells us that a) your EDGAR filing is on-line; and b) that documents that must be filed after the registration statement becomes effective with the SEC will also be filed via EDGAR. File this form with Connecticut before the SEC declares your registration effective.
2. Nonrefundable filing fee payable to "Treasurer, State of Connecticut."

Amount of fee: 1/10 of 1% of the maximum aggregate offering price of securities to be offered in Connecticut. The minimum fee is $300, and the maximum fee is $1,500. If a registration statement covers multiple classes or series, a fee is due for each class or series. Securities offered for sale as a unit are considered to cover a single class.

3. Consent to Service of Process (Form U-2)
4. Form U-1, including information on
  1. Amount of securities to be offered in Connecticut
  2. The states where a registration statement has been, or will be filed
  3. Name of any broker-dealer or agent of issuer registered to do business under the Connecticut Uniform Securities Act who may offer the securities in Connecticut
  4. Any adverse order, judgment or decree entered in connection with the offering by the regulatory authorities in each state or by any court or the SEC

AFTER THE SEC DECLARES THE REGISTRATION BY COORDINATION EFFECTIVE:

Within one business day after your registration statement becomes effective with the
SEC, you must:

1. Notify us in writing (or by e-mail) of the date and time of SEC effectiveness;
2. Include (where applicable) an indication of when the price amendment would be filed federally via EDGAR.

AFTER BOTH CONNECTICUT AND THE SEC MAKE THE REGISTRATION BY COORDINATION EFFECTIVE:

Unless you have paid the maximum filing fee ($1,500), you must advise us in writing (or via e-mail) of:

1.

The completion date of the initial distribution;

2.

The amount of securities sold in Connecticut; and

3.

The availability of an exemption for any nonissuer distribution.

PAPERWORK YOU DO NOT HAVE TO FILE WITH CONNECTICUT

1.

Prospectus and Amendments to the registration statement that are available for online viewing.

2.

Undertaking to forward all amendments to the federal prospectus (Section 36b-17(b)(4) of the Connecticut Uniform Securities Act);

3.

Issuer's articles of incorporation and by-laws currently in effect (Section 36b-31-17a(b) of the Regulations) unless the Commissioner so requests;

4. Underwriting agreement (Section 36b-31-17a(b) of the Regulations), unless the Commissioner so requests;
5. Indenture or other instrument governing issuance of the security (Section 36b-31-17a(b) of the Regulations), unless the Commissioner so requests;
6. Specimen or copy of the security (Section 36b-31-17a(b) of the Regulations), unless the Commissioner so requests;
7. Opinion of counsel regarding issuance of the securities (Section 36b-31-17a(b) of the Regulations), unless the Commissioner so requests;
8. Sales literature (Section 36b-31-22(a) of the Regulations), unless the Commissioner so requests;
9. Post-effective filing of a balance sheet and income statement (Section 36b-31-19a(f) of the Regulations) unless the Commissioner so requests.

HOW THE SIMPLIFIED PROCEDURE WORKS

1. Once we receive your pre-effective filing in its entirety, there is a five business day "waiting period." (For filers not using the simplified procedure, the waiting period is 15 days).
2. During that 5 business day period, and before the SEC declares your registration effective, we will pinpoint any disclosure deficiencies that could give rise to stop order proceedings under Section 36b-20 of the Connecticut Uniform Securities Act or otherwise cause concern.
3. Once you have notified us of SEC effectiveness, and all other filing requirements are met, we will issue an order declaring the registration effective in Connecticut.

YOUR CONTINUING DISCLOSURE OBLIGATIONS

EDGAR Filers using the simplified procedure must still notify the Commissioner of material items such as:

1. Any adverse order, judgment, decree or permanent or temporary injunction entered by a state or federal agency or court concerning the offering or other securities of the issuer or the person seeking registration;
2. A request by the issuer or the person seeking registration to withdraw an application pending before a state or federal agency to register the same security the applicant seeks to register under the Connecticut Uniform Securities Act;
3. Final notice from any state or federal administrative agency that the security or any information or document filed with the agency relating to the security fails to meet the agency's requirements;
4. Facts warranting a correcting amendment to avoid filed information or documents becoming materially inaccurate or incomplete.

 


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CONNECTICUT-REGISTERED BROKER-DEALERS COMPLYING WITH NASD FINANCIAL REPORTING REQUIREMENTS EXEMPT FROM CONNECTICUT ANNUAL AUDITED FINANCIAL STATEMENT FILING

On May 12, 2004, the Banking Commissioner entered an Order exempting Connecticut-registered broker-dealers that were NASD member firms and that were in compliance with NASD financial reporting requirements from having to file annual audited financial statements with the department. The Order also stated that financial statements submitted on a voluntary basis by firms that were exempt from filing would not be treated as required records for agency records retention purposes. The Order did not relieve registrants from having to comply with the net capital requirements in Section 36b-31-9b of the Regulations under the Connecticut Uniform Securities Act or to notify the Commissioner of any net capital deficiency.

Although many firms availed themselves of the exemption, others did not. The Division encourages all registered broker-dealers to reassess their need to file annual audited financial statements with the department in light of the Commissioner's Order.

Annual audited financial statements must be filed only under the following circumstances:

1. The Commissioner requests on a case-by-case basis that financial statements be submitted.
2. The broker-dealer registrant's financial statements are subject to special review by the NASD or the SEC.
3. 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 SEC Rule 15c3-1, 17 C.F.R. 240.15c3-1.
4. The broker-dealer registrant is not in compliance with NASD and SEC filing requirements.
5. A trustee has been appointed for the broker-dealer under the Securities Investor Protection Act of 1970, 15 U.S.C. 78aaa et seq.
6. The firm is submitting an initial registration application under the Connecticut Uniform Securities Act.
7.  The firm is not registered with the NASD.

 



Enforcement Highlights

ADMINISTRATIVE ACTIONS

David Michael Faubert (CRD # 2150188) - Agent Registration Summarily Suspended; Notice of Intent to Revoke Registration as Agent Issued

On March 31, 2005, the Banking Commissioner issued a Notice of Intent to Revoke Registration as Agent and Order Summarily Suspending Registration as Agent (Docket No. SS-2005-7159-S) against David Michael Faubert, a Connecticut-based agent of Tower Square Securities, Inc., a broker-dealer. The respondent is also the president of Faubert Financial Group, Inc., an insurance agency located in Avon, Connecticut. The action alleged that the respondent 1) wilfully violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities in the form of promissory notes and investments in his business, Creative Marketing Consultants, LLC; 2) wilfully violated Section 36b-31-6e of the Regulations under the Act by engaging in private securities transactions without notice to his employing broker-dealer; and 3) wilfully violated the antifraud provisions in Section 36b-4(a) of the Act by appropriating for his personal use investor funds given to him for investment in the promissory notes and Creative Marketing Consultants, LLC investments and by disseminating false account statements to Connecticut investors regarding those investments. The Notice of Intent to Revoke Registration as Agent and Order Summarily Suspending Registration as Agent recited that the respondent had admitted to Division personnel that, since 2000, he had stolen approximately $4 million from at least 15 clients through the sale of fraudulent securities. On March 24, 2005, the United States District Court for the District of Connecticut granted a Temporary Restraining Order, Order Freezing Assets and Order for Other Equitable Relief against the respondent and Faubert Financial Group, Inc. in an action brought by the Securities and Exchange Commission.

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Revoke and the summary suspension order.

Best Gourmet Coffee, Inc. Ordered to Cease and Desist From Unregistered Business Opportunity Offers and Sales; Notice of Intent to Fine Issued

On March 14, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket Nos. CF-2005-808-B and CF-2005-815-B) against Best Gourmet Coffee, Inc. of 141 NW 20th Street, Suite B-17, Boca Raton, Florida. The action claimed that, from at least 2003, the respondent offered and sold unregistered coffee distributorship business opportunities to Connecticut purchaser-investors in violation of Section 36b-67(1) of the Connecticut Business Opportunity Investment Act. The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine has been scheduled for May 4, 2005.

Louis P. Celentano (CRD # 2112977) and Michelle Montano, Ex-Officers of Circle Trust Company, Ordered to Cease and Desist From Violating Antifraud Provisions in Connection With Improper Market Timing; Notice of Intent to Fine Issued

On March 7, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket Nos. CF-2004-7101-S and CF-2004-7102-S) against Louis P. Celentano and Michelle Montano. From January 2000 to July 2002, respondent Celentano had been the Chairman and Chief Executive Officer of Circle Trust Company, a Connecticut bank organized to function solely in a fiduciary capacity, and respondent Montano had been the bank's President and Chief Operating Officer. Circle Trust Company is affiliated with Orbitex Financial Management Group. Collectively, respondents Celentano and Montano owned over 10 percent and less than 25 percent of the bank's common stock.

The action alleged that respondent Celentano violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act by 1) introducing Brean Murray, a broker-dealer, and Canary Investment Management, LLC, a Secaucus, New Jersey-based investment adviser and hedge fund, to PEA Capital LLC f/k/a PIMCO Advisors LLC for the purpose of market timing PIMCO mutual funds, an arrangement that resulted in $77,578 in fees being paid to Circle Trust Company for the market timing of PIMCO funds by Canary Investment Management, LLC; and 2) facilitating improper market timing by Kaplan & Co. Securities Inc., Geek Securities, Inc. and Canary Investment Management, LLC by permitting those entities to use the bank's electronic trading platform for that purpose, an arrangement that resulted in approximately $1.2 million in profits for Kaplan & Co. Securities, Inc., $5.5 million in profits for Geek Securities, Inc. and $1.7 in profits for Canary Investment Management, LLC as well as $211,000 in fees for Circle Trust Company.

The action claimed that respondent Montano violated the antifraud provisions in Section 36b-4(a) of the Act by authorizing Canary Investment Management, LLC, Kaplan & Co. Securities, Inc. and Geek Securities, Inc. to use the bank's electronic trading platform to engage in improper marketing timing and failing to stop the practice, notwithstanding complaints from various mutual funds concerning the excessive trading activity.

The respondents were 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.

Anthony John Catinella Fined $20,000 for Unregistered Broker-dealer Agent Activity; Unregistered Securities Offering

On February 7, 2005, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2004-7115-S) against Anthony John Catinella of 3097 NW 72nd Avenue, Margate, Florida. The action had been preceded by a December 2, 2004 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing. Since the respondent did not contest the Order to Cease and Desist, the Order to Cease and Desist had become permanent on January 11, 2005. In fining the respondent $20,000, the Commissioner found that the respondent committed one violation of Section 36b-16 of the Connecticut Uniform Securities Act by offering unregistered non-exempt securities of Care Concepts, Inc. to at least one Connecticut person; and committed one violation of Section 36b-6(a) of the Act by transacting business as an unregistered broker-dealer agent of Richmark Capital Corporation. The respondent did not contest the imposition of the fine.

Richmark Capital Corporation (CRD # 43162) Fined $50,000; Broker-dealer Registration Revoked

On January 12, 2005, the Banking Commissioner entered an Order revoking the broker-dealer registration of Richmark Capital Corporation of 5525 North MacArthur Boulevard, Suite 615, Irving, Texas. The order had been preceded by a December 2, 2004 Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. RF-2004-7106-S). In revoking the firm's registration, the Commissioner found that the respondent 1) wilfully violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing at least two unregistered broker-dealer agents; 2) engaged in dishonest or unethical practices in the securities business by executing transactions on behalf of customers without authority to do so, and exercising discretionary power in effecting customer transactions without first obtaining written discretionary authority from the customers; 3) wilfully violated Section 36b-16 of the Act by offering and selling an unregistered security; 4) violated Section 36b-31-14a(a) of the Regulations under the Act by maintaining untrue and inaccurate books and records; and 5) wilfully violated Section 36b-31-6f(b) of the Regulations under the Act by failing to establish, enforce and maintain an adequate supervisory system. The respondent did not contest the revocation of its broker-dealer registration.

The respondent also did not contest the December 2, 2004 Notice of Intent to Fine. On February 7, 2005, the Commissioner entered an Order fining the respondent $50,000 based upon a determination that the respondent had committed two violations of Section 36b-6(b) of the Connecticut Uniform Securities Act; one violation of Section 36b-16 of the Act; one violation of Section 36b-31-14a(a) of the Regulations under the Act; and one violation of Section 36b-31-6f(b) of the Regulations.

Cast Shield International, Inc. Ordered to Cease and Desist From Regulatory Violations; Notice of Intent to Fine Issued

On January 25, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2005-7050-S) against Cast Shield International, Inc., an issuer of securities located at 6979 Galewood Street, San Diego, California, The action alleged that, from February 2001 to May 2001, the respondent sold unregistered, non-exempt stock to at least one Connecticut investor in violation of Section 36b-16 of the Connecticut Uniform Securities Act. Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on March 11, 2005. A hearing on the Notice of Intent to Fine is pending. 

Aetna Venture Capital, Inc. Ordered to Cease and Desist From Regulatory Violations; Notice of Intent to Fine Issued

On January 25, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2005-7050-S) against Aetna Venture Capital, Inc. of 5694 Mission Center Road, Suite 519, San Diego, California. The action alleged that 1) on January 12, 2001, the respondent contracted with Cast Shield International, Inc., an issuer of securities, to seek out sources for the funding of Cast Shield International, Inc. stock sales; 2) between January 2001 and May 2001, the respondent, through its agent, sold Cast Shield International, Inc. securities to at least one Connecticut investor; 3) at the time of the sales, the respondent was not registered as a broker-dealer under the Connecticut Uniform Securities Act nor was the individual representing Aetna Venture Capital, Inc. registered as an agent; and 4) the securities sold by Aetna Venture Capital, Inc. were not registered under Section 36b-16 of the Act. Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on March 11, 2005. A hearing on the Notice of Intent to Fine is pending.

John C. Cohn Ordered to Cease and Desist From Regulatory Violations; Notice of Intent to Fine Issued

On January 25, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2005-7050-S) against John C. Cohn, an individual associated with Aetna Venture Capital, Inc. of 5694 Mission Center Road, Suite 519, San Diego, California. The action alleged that 1) on January 12, 2001, Aetna Venture Capital, Inc. contracted with Cast Shield International, Inc., an issuer of securities, to seek out sources for the funding of Cast Shield International, Inc. stock sales; 2) between January 2001 and May 2001, the respondent offered Cast Shield International, Inc. securities to at least one Connecticut investor; 3) at the time of the sales, the respondent was not registered as an agent under the Connecticut Uniform Securities Act; and 4) the securities offered by the respondent were not registered under Section 36b-16 of the Act. Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on March 11, 2005. A hearing on the Notice of Intent to Fine is pending.

James Arthur Wilson, Sr. (CRD # 801265) - Order Conditioning Effectiveness of Withdrawal of Registration as Agent Issued; Notice of Intent to Revoke Registration as Agent Withdrawn

On January 18, 2005, the Banking Commissioner issued an Order Conditioning Effectiveness of Withdrawal of Registration as Agent with respect to James Arthur Wilson, Sr. of Newburgh, New York (Docket No. NR-2004-7068-S). The January 18, 2005 action had been preceded by a December 7, 2004 Notice of Intent to Revoke Registration as Agent (Docket No. NR-2004-7068-S) alleging that that, on February 10, 2004, in New York Superior Court, County Court of Orange County, the respondent had been convicted by plea of grand larceny in the fourth degree, a class E felony under New York law, for stealing $5,265 in unemployment benefits from the New York State Department of Labor, and had been sentenced to pay $5,265 in restitution. Restitution allegedly had been paid on or about February 2, 2004. On December 17, 2004, following the Commissioner's issuance of the Notice of Intent to Revoke Registration as Agent, the respondent's then employer, Ormes Capital Markets, Inc., filed a Forum U-5 to withdraw the respondent's registration as an agent of that firm.

The Order Conditioning Effectiveness of Withdrawal of Registration as Agent made the respondent's registration withdrawal effective as of January 18, 2005 subject to certain conditions. Those conditions consisted of: 1) a 10 year bar from transacting business in or from Connecticut as an agent of issuer, a broker-dealer agent, an investment adviser agent, a broker-dealer or an investment adviser; 2) a 10 year bar from acting, in or from Connecticut, as a finder for compensation, splitting commissions or receiving referral fees in connection with any recommendation, sale or purchase of securities; and 3) a prohibition on violating the Connecticut Uniform Securities Act or any rule, regulation or order under the Act. The Order Conditioning Effectiveness of Withdrawal of Registration as Agent also withdrew the December 7, 2004 Notice of Intent to Revoke Registration as Agent, and provided that, upon a showing of good cause, the respondent could apply for relief from the restrictions in the January 18, 2005 order after seven years had elapsed from the entry of the order.

LH Ross & Company, Inc. (CRD # 37920) - Broker-dealer Registration Revoked; Firm Fined $420,000; Prior Order to Cease and Desist Made Permanent

On January 18, 2005, the Banking Commissioner issued an Order to Cease and Desist and Amended Order revoking the broker-dealer registration of LH Ross & Company, Inc. of 2255 Glades Road, Suite 425W, Boca Raton, Florida. On the same day the Commissioner entered an order fining the firm $420,000. The January 18, 2005 action amended and superseded an Order Revoking Registration as Broker-dealer and Order Imposing Fine that had been incorrectly dated January 4, 2004. The 2005 sanctions had been preceded by a May 25, 2004 Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine which were uncontested by the respondent. In addition to rendering the May 25, 2004 Order to Cease and Desist permanent as of January 18, 2005, the January 18, 2005 action found that the respondent had: 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; 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.

Taxback, L.L.C. Ordered to Cease and Desist From Sale of Unregistered Business Opportunities; Notice of Intent to Fine Issued

On January 10, 2005, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2005-817-B) under the Connecticut Business Opportunity Investment Act against Taxback, L.L.C. of 10429 S 51st Street, Suite 201, Phoenix, Arizona. The Order to Cease and Desist and Notice of Intent to Fine alleged that Taxback, L.L.C. violated Section 36b-67(1) of the Act from April 2004 forward by offering and selling unregistered "Tax Review and Recovery" business opportunities to one or more Connecticut persons. Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on January 29, 2005. A hearing on the Notice of Intent to Fine is pending.

Taxback Opportunities, L.L.C. - Notice of Intent to Issue Stop Order Revoking Effectiveness of a Business Opportunity Registration, Notice of Intent to Fine Issued

On January 10, 2005, the Banking Commissioner issued a Notice of Intent to Issue a Stop Order revoking the business opportunity registration of Taxback Opportunities, L.L.C. (Docket No. SF-2005-817-B). On the same day, the Commissioner issued a Notice of Intent to Fine against the respondent. The respondent maintains an address at 10429 S 51st Street, Suite 201, Phoenix, Arizona. The action alleged that the respondent violated Section 36b-65(f) of the Connecticut Business Opportunity Investment Act by failing to notify the Commissioner of material changes in information contained in the respondent's registration application and in failing to amend its disclosure document. Specifically, the changes concerned an October 12, 2004 Consent Order entered by the Securities Division of the State of Washington Department of Financial Institutions against Taxback, LLC, Shawn D. Hull and Lindsay J. Hull based upon the alleged sale of unregistered business opportunities in Washington state (Case No. 04-183). The Commissioner's action also alleged that, in violating Section 36b-65(f) of the Act, the respondent failed to comply with the terms of the department's registration order which obligated the respondent to immediately notify the Commissioner of any material change in the information contained in the registration application and to make appropriate amendment of the disclosure document. The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Issue Stop Order Revoking Effectiveness of a Business Opportunity Registration. A hearing on the Notice of Intent to Fine is pending.


SETTLEMENTS

CONSENT ORDERS

Zyng International, LLC Fined $5,000 For Unregistered Business Opportunity Sale; Ordered to Pay $55,000 in Restitution

On March 15, 2005, the Banking Commissioner entered a Consent Order (No. CO-2005-821-B) with respect to Zyng International, LLC, a seller of noodle shop business opportunities located at 132 King Street, Alexandria, Virginia. The Consent Order alleged that 1) in at least June 2003, the respondent violated Sections 36b-67(1), 36b-62(a) and 36b-65(a) of the Connecticut Business Opportunity Investment Act by selling an unregistered business opportunity in Connecticut; 2) at the time of the sale, the business opportunity was not excluded from the scope of the Act by virtue of Section 36b-61(6)(D) of the Act; 3) the respondent violated Section 36b-80 of the Act by misrepresenting its prior Connecticut sales activity in a January 2004 registration application filed with the department; and 4) the respondent violated Section 36b-63 of the Act by failing to provide at least one purchaser-investor with a disclosure statement and cover sheet that complied with Section 36b-63 of the Act. The Consent Order directed Zyng International, LLC to cease and desist from regulatory violations and to pay a $5,000 fine to the department. In addition, the Consent Order mandated that the respondent refund $55,000 to the affected Connecticut purchaser-investor and deliver written proof of payment to the Commissioner no later than April 4, 2005.

Charles Michael Ameer (CRD # 4093615) Fined $3,000, Ordered to Pay $165,000 in Restitution in Connection With Unregistered Promissory Note Sales

On January 24, 2005, the Banking Commissioner entered a Consent Order (Docket No. CF-2004-6616-S) with respect to Charles Michael Ameer of 69 Old Farm Road, Weston, Connecticut. The Consent Order followed a March 29, 2004 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2004-6616-S) alleging 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 had not requested a hearing on the Order to Cease and Desist within the time prescribed, the Order to Cease and Desist had become permanent on April 17, 2004. Subsequent to April 17, 2004, the respondent appealed the entry of the permanent cease and desist order to the Superior Court for the Judicial District of New Britain, contesting the underlying allegations and claiming lack of notice. The Consent Order resolved both the matter under appeal and the allegations in the Notice of Intent to Fine.

The Consent Order 1) barred the respondent from acting as a broker-dealer, agent, investment adviser, investment adviser agent or agent of issuer in Connecticut for five years, with leave to reapply after three years had elapsed; 2) directed the respondent to pay the affected investor $165,000 no later than the date the Consent Order was signed by the Commissioner; and 3) fined the respondent $3,000. The Consent Order also rescinded the Commissioner's March 29, 2004 Order to Cease and Desist and withdrew the related Notice of Intent to Fine. The Consent Order also recited that the respondent would withdraw his appeal no later than five business days following the issuance of the Consent Order.

Morgan Wilshire Securities, Inc. (CRD # 44807) Assessed $8,000 for Unregistered Broker-dealer and Agent Activity

On January 31, 2005, the Banking Commissioner entered a Consent Order (No. CO-2004-7121-S) with respect to Morgan Wilshire Securities, Inc., an applicant for broker-dealer registration located at 1400 Old Country Road, Suite 106, Westbury, New York. The Consent Order was based on allegations that, between November 1998 and December 2001, the firm 1) violated Section 36b-6(a) of the Connecticut Uniform Securities Act by effecting securities transactions for four Connecticut customers at a time when the firm was not registered as a broker-dealer; and 2) employed four unregistered agents in contravention of Section 36b-6(b) of the Act. The Consent Order also alleged that, on or about April 13, 2004, the NASD censured the firm and directed it to pay $175,000 in restitution based on claims that the firm charged its customers excessive markups, markdowns and commissions in violation of NASD Conduct Rules 2110, 2440 and 3010(A), and that the firm failed to implement a supervisory system for the review of markups, markdowns and commissions that was reasonably designed to achieve compliance with NASD rules (Docket/Case No. CAF030030). In addition, the Consent Order alleged that on or about August 14, 2000, the NASD fined the firm $8,500 based on allegations that the firm failed to timely file statistical and summary report information regarding customers complaints, failed to obtain best execution for customers in several transactions and failed to report 24 out of 134 transactions in a timely manner to the Automated Confirmation Transaction (ACT) system (Docket/Case No. C10000143). According to the Consent Order, the NASD sanctions would have provided a basis for denying the firm's registration or restricting its securities activities under Section 36b-15(a) of the Act. In its defense, the firm had maintained that its unregistered Connecticut activity occurred while the firm was under previous management, and that the NASD sanctions occurred while the former president of the firm had overall responsibility of the firm.

The Consent Order directed Morgan Wilshire Securities, Inc. to cease and desist from violative conduct and to implement revised supervisory and compliance procedures providing, at a minimum, for the enhanced monitoring of state broker-dealer and agent licensing requirements. In addition, the Consent Order required that the firm pay $8,000 to the department. Of that amount, $6,000 constituted an administrative fine, $1,500 represented past due registration fees for the firm and its unregistered agents and $500 constituted reimbursement for agency investigative costs. The Consent Order also required that the firm furnish the department with quarterly reports for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

The firm became registered as a broker-dealer in Connecticut on January 31, 2005.


STIPULATION AND AGREEMENTS

Northcoast Asset Management LLC (CRD # 109582) Assessed $1,950 for Unregistered Investment Adviser Agent Activity

On March 14, 2005, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-05-7140-S) with Northcoast Asset Management LLC, a federally registered investment adviser located at 35 Mason Street, Greenwich, Connecticut. The Stipulation and Agreement alleged that, in conjunction with the 2005 renewal of its investment advisory notice under Section 36b-6(e) of the Connecticut Uniform Securities Act, the firm disclosed to the Commissioner that it had permitted the registrations of two investment adviser agents to lapse on December 31, 2002, and that such investment adviser agents had acted in an unregistered capacity from January 1, 2003 forward. The investment adviser agents have since become re-registered under the Act. The Stipulation and Agreement obligated the firm to comply with all statutory requirements governing the registration of affected personnel as investment adviser agents and to pay $1,950 to the department. Of that amount, $1,750 constituted an administrative fine and $200 represented past due investment adviser agent registration fees.

Barker Asset Management, Inc. (CRD # 109980) Assessed $1,950 for Unregistered Investment Adviser Agent Activity

On February 22, 2005, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-05-7139-S) with Barker Asset Management, Inc., a Connecticut-registered investment adviser located at 28 Big Oak Road, Stamford, Connecticut. The Stipulation and Agreement alleged that, following its organizational change from a sole proprietorship to a corporation in January 2001, the firm failed to register an investment adviser agent and, in so doing, contravened Section 36b-6(c) of the Connecticut Uniform Securities Act and Section 36b-31-6b(a) of the Regulations thereunder. Pursuant to the Stipulation and Agreement, the firm agreed to comply with all statutory requirements governing the registration of affected personnel as investment adviser agents and to implement such procedures as were necessary to ensure such compliance. In addition, the firm agreed to pay $1,950 to the department. Of that amount, $1,750 constituted an administrative fine and $200 represented past due investment adviser agent registration fees.

Pension Consulting Alliance, Inc. (CRD # 106025) Assessed $1,150 for Delinquent Investment Advisory Notice Filing

On February 22, 2005, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-05-7128-S) with Pension Consulting Alliance, Inc., an SEC-registered investment adviser having its principal office at 15760 Ventura Boulevard, Suite 700, Encino, California. The Stipulation and Agreement alleged that, from February 2003, the firm rendered investment advisory services to one Connecticut institutional client at a time when no notice filing had been made pursuant to Section 36b-6(e) of the Connecticut Uniform Securities Act. The firm, which brought its filing delinquency to the Commissioner's attention and ultimately filed a notice on December 17, 2004, had established a Connecticut office at 53 Forest Avenue in Old Greenwich, Connecticut in February 2003.

Pursuant to the Stipulation and Agreement, the firm agreed to implement revised supervisory and compliance procedures to ensure compliance with state investment advisory notice filing requirements. In addition, the firm agreed to remit $1,150 to the department. Of that amount, $1,000 constituted an administrative fine and $150 represented reimbursement for past due notice filing fees.

Lincoln Financial Advisors Corporation (CRD # 3978) Fined $1,500 For Failing to Notify Clients of Branch Closure

On February 14, 2005, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-04-7103-S) with Lincoln Financial Advisors Corporation, a registered broker-dealer having its principal office at 1300 South Clinton Street, Suite 150, Fort Wayne, Indiana. The Stipulation and Agreement alleged that the firm failed to give affected customers and clients notice that the firm's branch office at 500 East Main Street, Suite 316, Branford, Connecticut had closed. Section 36b-6(f) of the Connecticut Uniform Securities Act requires that brokerage firms advise customers and clients of branch closures and explain the procedures for maintaining or transferring accounts or obtaining delivery of customer funds or securities.

Pursuant to the Stipulation and Agreement, the firm agreed to 1) mail each affected customer a copy of the Stipulation and Agreement, together with the notice required by Section 36b-6(f) of the Act; and 2) remit a $1,500 fine to the department.

 


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STATISTICAL SUMMARY

Licensing At A Glance
March 31, 2005
Broker-dealers Registered 2,567
Broker-dealer Agents Registered 117,009
Broker-dealer Branch Offices Registered 2,447
Investment Advisers Registered 422
SEC Registered Advisers Filing Notice 1,442
Investment Adviser Agents Registered 6,673
Investment Advisory Branch Offices Registered 178
Agents of Issuer Registered 63

 

 

   1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities and
Business Opportunity Filings
 
Offerings Reviewed 73       73
Investment Company Notice Filings 348        348
Exemptions and Exemptive Notices 728       728
{ }  
Examinations  
Broker-dealers 13       13
Investment Advisers 3       3
{ }  
Securities Investigations  
Opened 29       29
Closed 24       24
Ongoing as of March 31, 2004 106       106
Subpoenas issued 9       9
Cases referred from Attorney General 1       1
Cases referred from Other Agencies 4       4
{ }  
Business Opportunity Investigations  
Investigations Opened 2       2
Investigations Closed 1       1
Ongoing as of March 31, 2004 17       17
{ }
Securities Enforcement:
Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0       0
Notices of Intent to Suspend (Licensing) 0       0
Notices of Intent to Revoke (Licensing) 1       1
Denial Orders (Licensing) 0       0
Suspension Orders (Licensing) 1       1
Revocation Orders (Licensing) 2       2
Notices of Intent to Fine 6       6
Orders Imposing Fine 3       3
Cease and Desist Orders 6       6
Notices of Intent to Issue Stop Order 1       1
Activity Restrictions/Bars 2       2
Stop Orders 0       0
Vacating/Withdrawal Orders 2       2
Censures 0       0
Restitutionary Orders 2       2
Cancellation Orders 0       0
{ }
Proceedings and Settlements  
Administrative Actions 12       12
Consent Orders 3       3
Stipulation and Agreements 4       4
 
Monetary Relief  
Monetary Sanctions Imposed $ 512,550       $ 512,550
Restitution or Other Monetary Relief $ 872,225       $ 872,225
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Securities Referrals  
Criminal (Chief State's Attorney) 2       2
Civil (Attorney General) 0       0
Other Agency Referrals 0       0

 Securities Division