DOB: Spring 2003 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XVII  No. 1 Spring 2003


Features:
 

Contributors:

Ralph Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric Wilder, Assistant Director
Marge Kagan, Subscription Coordinator

 
 

As this issue goes to press, state and federal securities regulators are wrapping up investigations into what is perhaps one of the most serious events undermining investor confidence in recent history. I refer, of course, to the formerly widespread brokerage practice of permitting investment banking considerations to sap the objectivity of analysts. That practice contributed significantly to the loss of $7 trillion in market wealth and an incalculable drop in the measure of trust. State governments, too, were negatively impacted as revenues from capital gains all but vanished, exacerbating state deficits. Settlements are on the horizon with nine brokerage firms. The settlements call for the firms to pay $1.4 billion, including penalties of $437.5 million, disgorgement of $37.5 million, payments of $432.5 million to fund independent research and payments of $80 million to fund investor education. Connecticut is expected to receive in excess of $4 million in penalties. Aside from the deterrent effect of penalties, however, the settlements contain detailed remedial mandates to ensure that the conflicts of interest do not occur once more. For a copy of the full press release, see page 2 of this Securities Bulletin.
 
As reported in the last issue of the Securities Bulletin, mandatory IARD participation took effect on April 1, 2003. Only those Connecticut-registered investment adviser agents and investment advisory firms that renew their registrations and pay their renewal fees electronically at year-end will be renewed. For that reason, I would strongly encourage affected advisory personnel to "transition" their existing registrations to electronic filing as soon as possible. Securities Division staff have presented three well-attended how-to demonstrations to those registrants attempting electronic filing on their own. For others, using a filing service might be more convenient. A listing of filing services can be found on the SEC's Web site.
 
In a further effort to make filing easier, the Securities and Business Investments Division is pleased to report that it has developed form fillable versions of both Part II of Form ADV (the disclosure document provided to clients) and Form D (the form used for private offerings of securities in Connecticut). Part II of Form ADV has been posted to the agency's web site, and we hope to have Form D posted in the near future, resources permitting. In the interim, the fillable version of Form D can be e-mailed to interested parties upon request.
 
This issue of the Securities Bulletin also spotlights how registered broker-dealers who are in compliance with SRO financial reporting requirements may take advantage of Connecticut's waiver from having to file annual audited financial statements with the department.
 
As always, our staff stands ready to assist you with any questions you may have.
 
 
               John P. Burke
               Banking Commissioner
 


 
 
{Computer and Email Software} INSTANT DELIVERY OF
THE SECURITIES BULLETIN & OTHER COMPLIANCE NEWS
NOW AVAILABLE!
 
The Securities Division now offers a free and convenient service to have compliance news automatically delivered to you by E-mail.
 
As a subscriber, you'll receive the Securities Bulletin right at your desk or at home each quarter - before it even goes to the printer. And you'll receive other timely announcements from the Division, such as newly issued policy orders and advance word of events like the department's annual Securities Forum conference.
 
You can conveniently sign up for the new Securities listserv by visiting the department's Web site. Simply follow the easy instructions found on the page to subscribe and you'll begin receiving compliance news via E-mail. Best of all, there are no subscription limits, so you can have as many subscribers from your organization as you wish.
 
Listserv subscribers who are currently receiving the Securities Bulletin in hard copy form can eliminate paper delivery entirely by sending an e-mail to the division. Otherwise, you will receive the Securities Bulletin both electronically and in paper form.
 
Note that the securities compliance listserv will not be an open forum. The only messages you'll receive will be from the Division. You will not receive any spam or advertisements as a listserv subscriber.
 
Of course, you could always peruse the Securities Bulletin on-line or stake out the mail. But why wait?
Sign up for E-mail delivery today!

 

 
IN THE NEWS:
UBS Warburg LLC and UBS PaineWebber Inc. Fined
for Failing to Maintain Analyst Independence
 
April 28, 2003
For more information, contact: Ralph Lambiase (860) 240-8231
 
Hartford, Connecticut Ė Banking Commissioner John P. Burke today announced that securities regulators, including Connecticut, had reached a settlement with nine of the nation's largest investment firms. The settlement resulted from investigations into potential conflicts of interest and improper influence between research analysts and investment bankers at those firms.
 
Commissioner Burke said, "These settlements represent the conclusion of a shameful chapter in the history of our financial markets." The industry reforms agreed upon in this settlement will encourage more objective research and stronger protection for the nation's investors.
 
The nine firms against whom enforcement actions were concluded today are:
  • Bear, Stearns & Co. Inc.
  • Credit Suisse First Boston, LLC 
  • Goldman Sachs & Co.
  • Lehman Brothers, Inc.
  • J.P. Morgan Securities, Inc.
  • Morgan Stanley & Co. Incorporated
  • Citigroup Global Markets Inc. f/k/a Salomon Smith Barney, Inc.
  • UBS Warburg LLC and UBS PaineWebber
  • U.S. Bancorp Piper Jaffray Inc.
A tenth firm, Merrill Lynch, Pierce, Fenner & Smith, Incorporated previously entered into an administrative consent order with the Department of Banking on September 30, 2002 settling similar charges.
 
That settlement followed joint investigations by a coalition of states, coordinated by the North American Securities Administration Association; the Securities and Exchange Commission; the New York Stock Exchange; the National Association of Securities Dealers, and the New York Attorney Generalís Office. The Securities Division of the Connecticut Department of Banking participated in the investigation of UBS Warburg and UBS PaineWebber, as part of a team of state securities regulators from Arizona, Illinois, Nevada and Oklahoma.
 
Commissioner Burke further stated, "The consequences of the firms' unethical activity will continue to be felt until public confidence is restored in the marketplace." The Commissioner expressed confidence that "this will begin the healing process in an environment in which some $7 trillion has been lost in market wealth by the nation's investors."The goal from the outset had been to restore public confidence by changing the investment banking and research culture, meting out penalties and providing investors with independent research. The settlement will require the firms to pay $1.4 billion, including penalties of $437.5 million, disgorgement of $437.5 million, payments of $432.5 million to fund independent research and payments of $80 million to fund investor education. The disgorgement amount will be deposited in a fund to provide payment to investors.
 
Commissioner Burke commented, "While the amounts allocated to penalties and a fund for investors may seem substantial to some, they may be of little recompense to the nation's 85 million investors, considering the staggering losses incurred." Burke added that "aside from the direct market participants, state governments were also negatively impacted as revenues
from capital gains all but vanished, exacerbating state deficits."
 
The penalty portion directed to the states will be divided among the fifty states, the District of Columbia and Puerto Rico based upon population with an established minimum. Based upon that formula, Connecticut is expected to receive in excess of $4 million in penalties, Burke noted.
 
"Any meaningful restitution for investors was incalculable because victims could not be identified," Burke added. By contrast, in other actions taken by the Department, Securities Division staff had been able to establish a direct relationship between the investors and the wrongdoers.
 
Commissioner Burke expressed his appreciation to Connecticut Attorney General Richard Blumenthal and his staff for their assistance and cooperation during the course of this investigation.
 
####
 
Payments in Global Settlement Relating to
Firm Research and Investment Banking Conflicts of Interest
 
Firm Retrospective Relief *
($ millions)
Independent
Research
($ millions)
Investor Education
($ millions)

Total
($ millions)

Bear Stearns

50

25

5

80

CSFB

150

50

0

200

Goldman

50

50

10

110

J.P. Morgan

50

25

5

80

Lehman

50

25

5

80

Merrill Lynch

100**

75

25

200

Morgan Stanley

50

75

0

125

Piper Jaffray

25

7.5

0

32.5

SSB

300

75

25

400

UBS

50

25

5

80

Total ($ millions)

875

432.5

80

$1,387.5

 
 
Firm Retrospective Relief *
($ millions)
Independent
Research
($ millions)
Investor Education
($ millions)

Total
($ millions)

Bear Stearns

50

25

5

80

CSFB

150

50

0

200

Goldman

50

50

10

110

J.P. Morgan

50

25

5

80

Lehman

50

25

5

80

Merrill Lynch

100**

75

25

200

Morgan Stanley

50

75

0

125

Piper Jaffray

25

7.5

0

32.5

SSB

300

75

25

400

UBS

50

25

5

80

Total ($ millions)

875

432.5

80

$1,387.5

 
 * Fines and disgorgement funds.
 
**Payment made in prior settlement of research analyst conflicts of interest with the states securities regulators.
 

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"My evil genius Procrastination has whispered me to tarry
Ďtil a more convenient season."

Mary Todd Lincoln

 

WHEN IT COMES TO ELECTRONIC FILING, INVESTMENT
ADVISORY REGISTRANTS WON'T HAVE THE SAME LUXURY
 
By order dated January 16, 2003, the Banking Commissioner required all new applicants for investment adviser and investment adviser agent registration, and all existing investment adviser and investment adviser agent registrants to file electronically, and make related fee payments, through the Investment Adviser Registration Depository ("IARD") effective April 1, 2003. To date, less than a majority of all registrants have taken advantage of the electronic filing procedure.
 

CONNECTICUT RENEWAL FILINGS WILL ONLY BE PROCESSED
FOR REGISTRANTS WHO HAVE FILED ELECTRONICALLY
 
When renewal season arrives in November, the department will only process renewal filings and fee payments for investment
 
advisers and investment adviser agents who have filed electronically. Therefore, it is important for affected advisory
 
personnel to start the electronic filing process early.
 
BASIC STEPS
(See www.iard.com/GetStarted.asp for More)
 
1. Set up an IARD User Account with the NASD, the operator of the IARD system. This procedure is called "Entitlement" and permits you to access the secure system.
 
2. Send funds to your firm's IARD financial account to cover registration fees for the firm and its investment adviser agents as well as initial set-up fees assessed by the NASD.
 
3. Existing registrants must make a Transition Filing for the firm and its investment adviser agents to capture data on the existing registration and allow regulators to enter original registration dates. If you do not make a Transition Filing, and you try to submit an electronic Form ADV, that Form ADV will be treated as a new filing and your firm will incur additional registration fees.
 
4. Update Forms ADV and U-4 via the IARD system.
 

 

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NEW FILLABLE FORMS (IN PDF) AVAILABLE

 PART II OF FORM ADV
(Uniform Application for Investment Adviser Registration)

FORM D (Notice of Sale of Securities Pursuant to Regulation D,
Section 4(6) And/Or Uniform Limited Offering Exemption)

Call (860) 240-8230 For an E-Mailed Copy of Form 
 


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ATTENTION: CONNECTICUT-REGISTERED BROKER-DEALERS
SAVE TIME, POSTAGE AND PAPERWORK
DON'T FILE FINANCIAL STATEMENTS NEEDLESSLY


Section 36b-31-14c(a) of the Regulations under the Connecticut Uniform Securities Act requires every Connecticut-registered broker-dealer to annually file a financial report on a calendar or fiscal year basis within 60 days following the close of its calendar or fiscal year. The report must be audited by an independent public accountant or independent certified public accountant and contain the information required by Securities and Exchange Commission Rule 17a-5(d).
 
DID YOU KNOW THAT YOUR FIRM CAN ALSO SATISFY
THIS CONNECTICUT FINANCIAL REPORTING REQUIREMENT
BY MAKING ITS ANNUAL FILING WITH
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS?
 
To qualify, your firm must 1) file annual audited financial reports with the NASD; 2) be current in filing those reports; 3) undertake in writing to notify the Commissioner within 24 hours if your firmís net capital does not meet the threshold in Section 36b-31-9b(a) of the Regulations; and 4) undertake in writing to provide the Commissioner with financial information within 24 hours following the Commissioner's request.
 
To qualify, your firm must 1) file annual audited financial reports with the NASD; 2) be current in filing those reports; 3) undertake in writing to notify the Commissioner within 24 hours if your firmís net capital does not meet the threshold in Section 36b-31-9b(a) of the Regulations; and 4) undertake in writing to provide the Commissioner with financial information within 24 hours following the Commissioner's request.
 
To qualify, your firm must 1) file annual audited financial reports with the NASD; 2) be current in filing those reports; 3) undertake in writing to notify the Commissioner within 24 hours if your firmís net capital does not meet the threshold in Section 36b-31-9b(a) of the Regulations; and 4) undertake in writing to provide the Commissioner with financial information within 24 hours following the Commissioner's request.
 

INTERESTED?

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

THE WAIVER ELIGIBILITY CERTIFICATION:

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


WAIVER ELIGIBILITY CERTIFICATION FOR FILING OF FINANCIAL REPORTS
BY CONNECTICUT-REGISTERED BROKER-DEALERS

The undersigned broker-dealer (hereinafter, "Registrant"), being duly registered under Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act"), elects to satisfy Connecticut financial reporting requirements by making its annual filing with the National Association of Securities Dealers, Inc. pursuant to Section 36b-31-14c(b) of the Regulations under the Act. Accordingly, Registrant certifies and undertakes under penalty of false statement as follows:

1. Registrant is and continues to be a member of a self-regulatory organization ("SRO") registered under laws administered by the United States Securities and Exchange Commission;

2. Registrant files annual audited financial reports with the SRO of which it is a member;

3. Registrant is current in filing with such SRO all required financial reports, including, without limitation, the annual audited financial report referenced in Section 36b-31-14c(a) of the Regulations;

4. Registrant hereby undertakes to provide immediate telegraphic notice to the Commissioner within 24 hours if at any time its net capital becomes less than the minimum prescribed in Section 36b-31-9b(a) of the Regulations under the Act. Registrant understands that it may substitute notice by fax for the telegraphic notice required under this paragraph if a hard copy of such notice is received by the Commissioner the following business day;

5. Registrant hereby undertakes to provide, upon request by the Commissioner, and within 24 hours, any financial reports, statements, supplements and amendments required by Section 36b-31-14c(a) of the Regulations under the Act;

6. Registrant hereby undertakes to immediately notify the Commissioner in writing if there is any change in circumstances supporting its reliance upon this Waiver;

7. Registrant understands that this Waiver does not relieve the Registrant from compliance with other provisions of the Act or the Regulations thereunder, including, without limitation, Section 36b-31-14c(c) of the Regulations; and

8. This election shall remain in effect indefinitely provided that the conditions in Section 36b-31-14c(b) of the Regulations continue to be met and the Registrant is otherwise in compliance with the Act and the Regulations thereunder.

 
Print Broker-dealer Name _______________________ CRD No. ______________
 
Signature of CFO or other authorized individual ___________________________
 
Title of Signatory ______________________________  Date: _______________
 
 


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Enforcement Highlights

 Administrative Actions

The Marketrack Investment Club Ordered to Cease and Desist From Regulatory Violations; Notice of Intent to Fine Issued

On March 18, 2003, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6511-S) against The Marketrack Investment Club, a partnership whose last known address is P.O. Box 11303, Waterbury, Connecticut. The action alleged that from at least November 2000 forward, The Marketrack Investment Club sold unregistered, non- exempt partnership units to at least 86 investors through its Internet website in violation of Section 36b-16 of the Connecticut Uniform Securities Act. The action also alleged that The Marketrack Investment Club violated Section 36b-6(b) of the Act by employing one Karl Ramonas, its general partner, as an unregistered agent of issuer. The action also claimed that the respondent violated the antifraud provisions of the Act by 1) falsely representing to investors that their funds would be invested in securities for the benefit of the partners when, in reality, such funds were never so invested, and at least $94,500 in investor monies were used by Karl Ramonas to cover his personal expenses; and 2) failing to disclose that there had been a material change in the number of partnership units available to the investing public and the maximum number of partners allowable under the partnership agreements.
 
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.

Karl Ramonas Ordered to Cease and Desist From Regulatory Violations; Notice of Intent to Fine Issued

On March 18, 2003, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6511-S) against Karl Ramonas, now or formerly of 69 Morris Street, Naugatuck, Connecticut and 23 Schroback Road, Plymouth, Connecticut. Respondent Ramonas was the sole general partner of The Marketrack Investment Club, a partnership whose last known address is P.O. Box 11303, Waterbury, Connecticut. The Order to Cease and Desist and Notice of Intent to Fine claimed that from at least November 2000 forward, respondent Ramonas sold unregistered, non- exempt partnership units in The Marketrack Investment Club to at least 86 investors through the issuer's Internet website in violation of Section 36b-16 of the Connecticut Uniform Securities Act. The action also alleged that respondent Ramonas violated Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer.. In addition, the action also claimed that the respondent violated the antifraud provisions of the Act by 1) falsely representing to investors that their funds would be invested in securities for the benefit of the partners when, in reality, such funds were never so invested, and at least $94,500 in investor monies were used by respondent Ramonas to cover his personal expenses; and 2) failing to disclose that there had been a material change in the number of partnership units available to the investing public and the maximum number of partners allowable under the partnership agreements.

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.

Discovery Capital Group, Inc. (CRD # 29355) - Broker-dealer Registration Revoked

On March 4, 2003, the Banking Commissioner entered an Order revoking the broker-dealer registration of Discovery Capital Group, Inc. (Docket No. NR-2002-6626-S) The firm maintains its principal office at 2768 North University Drive, Coral Springs, Florida. The revocation order incorporated as findings the allegations in the Commissioner's December 18, 2002 Notice of Intent to Revoke Registration as Broker-dealer and Notice of Right to Hearing against the firm. The revocation action was based on the October 24, 2002 entry of a permanent injunction against the firm by the United States District Court for the Southern District of Florida (Securities and Exchange Commission v. Discovery Capital Group, Inc. et al., Case No. 02-60363 CIV-HUCK, 3/14/2002) prohibiting the firm from violating the antifraud provisions in Section 17(a) of the Securities Act of 1933 as well as Sections 10(b), 15(c) and 17(a) of the Securities Exchange Act of 1934. Discovery Capital Group, Inc. did not contest the revocation of its broker-dealer registration.

John Patrick Abresch (CRD # 2280271) - Agent Registration Revoked

On March 4, 2003, the Banking Commissioner entered an Order revoking the registration of John Patrick Abresch as an agent of Discovery Capital Group, Inc. (Docket No. NR-2002-6626-S). The respondent's last known address is 6261 NW 125th Avenue, Coral Springs, Florida. The revocation order had been preceded by a December 18, 2002 Notice of Intent to Revoke Registration as Agent which stated that the respondent was the subject of an October 24, 2002 permanent injunction entered by the United States District Court for the Southern District of Florida (Securities and Exchange Commission v. Discovery Capital Group, Inc., Erik Walsh and John Abresch, Case No. 02-60363 CIV-HUCK, 3/14/2002). The injunction prohibited the respondent from violating the antifraud provisions in Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. Respondent Abresch did not contest the revocation of his agent registration.

Erik Baxter Walsh (CRD # 2589145) - Agent Registration Revoked

On March 4, 2003, the Banking Commissioner entered an Order revoking the registration of Erik Baxter Walsh as an agent of Discovery Capital Group, Inc. (Docket No. NR-2002-6626). Respondent Walsh, the president of Discovery Capital Group, Inc., maintains an address at 4450 NW 95th Avenue, Coral Springs, Florida. The revocation order had been preceded by a December 18, 2002 Notice of Intent to Revoke Registration as Agent and Notice of Right to Hearing which recited that the respondent was subject to an October 24, 2002 permanent injunction entered by by the United States District Court for the Southern District of Florida (Securities and Exchange Commission v. Discovery Capital Group, Inc., Erik Walsh and John Abresch, Case No. 02-60363 CIV-HUCK, 3/14/2002). The injunction prohibited the respondent from violating the antifraud provisions in Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. Respondent Walsh did not contest the revocation of his agent registration.

Tri-West Investment Club Ordered to Cease and Desist From Allegedly Fraudulent Sales of Membership Units; Notice of Intent to Fine Issued

On January 23, 2003, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2003-6319-S) against Tri-West Investment Club of 160 North Front Street, P.O. Box 354, Belize City, Belize. The action alleged that from at least June 2000 to December 2001, the firm violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered membership units through its Internet website at www.triwestinvest.com. The action also alleged that, in connection with the offering, the respondent violated Section 36b-4 of the Act by making false statements and omissions in connection with the offering. Specifically, the Order to Cease and Desist and Notice of Intent to Fine claimed that the respondent stated that it was selling memberships in a club that invested membership money in Prime Bank Notes, Prime Bank Debenture Forfeitures, Leveraged Bond Purchases and Bank Debentures when, in reality, 1) the respondent made no such investments; and 2) Prime Banks did not exist and, accordingly, could not issue any type of note, debenture or bond. The action also alleged that the respondent represented that 1) membership investments were of minimal risk, when such investments were highly risky; and 2) respondent would pay a ten percent rate of return per month, when, in actuality, the respondent never paid such returns to investors.

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.

 

Settlements

Consent Orders

UBS Warburg LLC (CRD # 7654) and UBS PaineWebber Inc. (CRD # 8174) Fined for Failing to Maintain Analyst Independence

On April 28, 2003, the Banking Commissioner entered a Consent Order with respect to UBS Warburg LLC of 677 Washington Boulevard, Stamford, Connecticut and its affiliate, UBS PaineWebber Inc. of 1285 Avenue of the Americas, New York, New York. Both entities are registered as broker-dealers under the Connecticut Uniform Securities Act. The agency investigation leading up to the Consent Order focused on the firms' research practices for the period 1999 through 2001, and was part of similar investigations conducted by a multi-state task force and a joint task force of the SEC, the New York Stock Exchange and the National Association of Securities Dealers. The global resolution capping the investigations resulted in $25 million allocated to the states; $25 million representing the disgorgement of commissions and fees; $25 million to be earmarked for the procurement of independent research by the respondents; and $5 million to be used for investor education. The respondents also agreed to abide by certain undertakings designed to separate their investment banking and research functions.

In entering the Consent Order, the Commissioner found that the respondents had 1) engaged in dishonest or unethical practices in violation of Section 36b-4(b) of the Connecticut Uniform Securities Act by enabling their investment banking departments to exert improper influence over firm research analysts, thus creating an inherent conflict of interest; issuing research reports that were affected by such conflict of interest; making payments for research to other broker-dealers who were not involved in underwriting transactions; and receiving payments in connection with underwriting transactions from outside entities for research issued without making public disclosure of those payments as required by Section 17(b) of the Securities Act of 1933; and 2) failed to establish, enforce and maintain adequate supervisory controls to prevent and detect the allegedly violative conduct.

The Consent Order directed the respondents to cease and desist from regulatory violations and mandated that they collectively pay $262,402 to the department. Of that amount, $150,000 constituted a fine and $112,402 represented reimbursement for the agency's legal and investigative costs.

Foundation Worldwide, Inc. Permanently Barred from Securities Activity in Connecticut; Order to Cease and Desist Made Permanent

On March 17, 2003, the Banking Commissioner entered a Consent Order with respect to Foundation Worldwide, Inc. of 151 New Park Avenue, Hartford, Connecticut (Docket No. CF-2002-6582-S). The Consent Order had been preceded by a November 22, 2002 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2002-6582-S) alleging that, from at least April 2002 forward, Foundation Worldwide, Inc. conducted an unregistered common stock offering through its Internet web site at www.foundationworldwide.com in violation of Section 36b-16 of the Connecticut Uniform Securities Act. The action had also alleged that the respondent violated the antifraud provisions in Section 36b-4 of the Act by falsely representing on the respondent's web site that: 1) the respondent's directors had major portions of their net worth invested in the respondent at a time when the respondent had no directors and only one investor; 2) the respondent had long- term shareholders at a time when it had only one shareholder; 3) the respondent had undistributed earnings, when the respondent never had any earnings; 4) the respondent's common stock had a book value of $5.47 per share and a market value of $12 per share, when, in actuality, the shares had no value; 5) the respondent had income from its businesses, when in fact those businesses had never generated income; and 6) the respondent was a holding company owning subsidiaries engaged in a number of diverse business activities, when none of those subsidiaries had clients nor had they generated income. In addition, the action claimed that the respondent, through an employee, posted on an Internet message board that the respondent had a 63% return on equity for 2001 when in actuality the respondent had no earnings during that period and its return on equity was zero.

The March 17, 2003 Consent Order resolved the allegations in the November 22, 2002 Order to Cease and Desist and Notice of Intent to Fine. Acknowledging that the respondent had demonstrated in writing its inability to pay the administrative fine sought by the Commissioner, the Consent Order permanently barred the respondent from acting as a broker-dealer, issuer or investment adviser in Connecticut and from selling a "business opportunity" as defined in the Connecticut Business Opportunity Investment Act. In addition, the Consent Order rendered the November 22, 2002 Order to Cease and Desist permanent as of March 17, 2003 and withdrew the Notice of Intent to Fine. 

Germaine Ryan (CRD # 2768219) Barred from Securities Activity in Connecticut for Five Years; Order to Cease and Desist Made Permanent

On March 17, 2003, the Banking Commissioner entered a Consent Order (Docket No. CF-2002-6582-S) with respect to Germaine Ryan of 22 Morris Street, #302, Hartford, Connecticut. Respondent Ryan had been the subject of a November 22, 2002 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2002-6582-S) alleging that, from at least April 2002 forward, respondent Ryan, acting on behalf of Foundation Worldwide, Inc., created and posted a multi-paged Internet website offering unregistered common stock to the public in violation of Section 36b-16 of the Connecticut Uniform Securities Act. The action had also alleged that the respondent violated the antifraud provisions in Section 36b-4 of the Act by falsely representing on the web site that: 1) the Foundation Worldwide, Inc.'s directors had major portions of their net worth invested in the corporation at a time when the corporation had no directors and only one investor; 2) Foundation Worldwide, Inc. had long-term shareholders at a time when it had only one shareholder; 3) Foundation Worldwide, Inc. had undistributed earnings, when it never had any earnings; 4) Foundation Worldwide, Inc.'s common stock had a book value of $5.47 per share and a market value of $12 per share, when, in actuality, the shares had no value; 5) Foundation Worldwide, Inc. had income from its businesses, when in fact those businesses had never generated income; and 6) Foundation Worldwide, Inc. was a holding company owning subsidiaries engaged in a number of diverse business activities, when none of those subsidiaries had clients nor had they generated income. In addition, the action had claimed that the respondent posted on an Internet message board that Foundation Worldwide, Inc. had a 63% return on equity for 2001 when in actuality the corporation had no earnings during that period and its return on equity was zero.

The March 17, 2003 Consent Order resolved the allegations in the November 22, 2002 Order to Cease and Desist and Notice of Intent to Fine. Acknowledging that the respondent had demonstrated in writing his inability to pay the administrative fine sought by the Commissioner, the Consent Order barred the respondent for five years from acting as a broker-dealer, agent, investment adviser or investment adviser agent in Connecticut and from selling a "business opportunity" as defined in the Connecticut Business Opportunity Investment Act. In addition, the Consent Order rendered the November 22, 2002 Order to Cease and Desist permanent as of March 17, 2003 and withdrew the Notice of Intent to Fine.

Merrill Lynch, Pierce, Fenner & Smith, Inc. (CRD # 7691) - Prior Settlement Sanctions Firm for Failing to Maintain Analyst Independence

On September 30, 2002, the Banking Commissioner entered a Consent Order with respect to Merrill Lynch, Pierce, Fenner & Smith, Inc., a New York-based broker- dealer registered under the Connecticut Uniform Securities Act. The Consent Order had been preceded by an investigation into the firm's research practices which had also been the subject of scrutiny by the New York Attorney General. The State of New York settled with the firm earlier in 2002. In entering the Consent Order, the Commissioner claimed that the firm had engaged in dishonest or unethical business practices in conjunction with its research activities.

Pursuant to the Consent Order, the firm agreed to pay $567,346 to the department.

Of that amount, $525,000 constituted an administrative fine and $42,346 represented reimbursement for the agency's legal and investigative costs. The Consent Order also directed the firm to implement specific remedial measures, including enhanced disclosure of underwriting compensation relating to entities covered by research reports; divorcing research analyst evaluations from investment banking considerations; establishing a research recommendations committee to ensure that equity research recommendations were objective; monitoring electronic communications between investment bankers and equity research analysts; prohibiting analysts from implying that there would be a quid pro quo for investment banking transactions awarded to the firm; and the designation of an employee to act as compliance monitor to ensure compliance with the policies reflected in the Consent Order.


Stipulation and Agreements

T. Robbins Capital Management, LLC (CRD # 124673) Assessed $3,900 for Unregistered Investment Advisory Activity, Late Notice Filing

On February 27, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-03-6725-S) with T. Robbins Capital Management, LLC, an SEC-registered investment adviser having its principal office at 7 Edgehill Drive, Darien, Connecticut. The Stipulation and Agreement claimed that 1) from approximately January 2000 until October 1, 2000, when it became subject to exclusive SEC oversight, the firm transacted business as an investment adviser absent registration under Section 36b-6(c) of the Connecticut Uniform Securities Act; and 2) from October 1, 2002 until January 27, 2003, when a notice filing was made, the firm failed to make the investment advisory notice filing required of SEC-registered investment advisers by Section 36b-6(e) of the Act.

In entering into the Stipulation and Agreement, the Commissioner acknowledged the firm's representations that the firm had relied upon the advice of legal counsel in not pursuing state registration, that the firm had brought its state registration lapse to the agency's attention and that the firm had since filed the notice required of SEC- registered investment advisers by Section 36b-6(e) of the Act. Pursuant to the Stipulation and Agreement, the firm agreed to pay $3,900 to the department. Of that amount, $3,000 constituted an administrative fine and $900 represented past due registration fees for the firm and its investment adviser agent as well as past due notice filing fees.

RBC Dominion Securities Corporation (CRD # 6579) Fined $1,000 for Unregistered Branch Office Activity

On January 2, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-02-6680-S) with RBC Dominion Securities Corporation, a Connecticut-registered broker-dealer having its principal office at One Liberty Plaza, New York, New York. The Stipulation and Agreement alleged that, commencing in October 2002, the firm transacted business from One East Weaver Street, Greenwich, Connecticut prior to that location being registered as a branch office under the Connecticut Uniform Securities Act. The Greenwich site has since been registered as a branch office in Connecticut.

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

Access Financial Group, Inc. (CRD # 33065) Fined $1,500 for Unregistered Branch Office Activity

On January 2, 2003, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-02-6685-S) with Access Financial Group, Inc., a Connecticut-registered broker-dealer having its principal office at 118 North Clinton Street, Suite 250, Chicago, Illinois. The Stipulation and Agreement claimed that, commencing in October 1995, the firm transacted business from 241 Cedar Lane, Torrington, Connecticut prior to that site being registered as a branch office under the Connecticut Uniform Securities Act. The Torrington location has since been registered as a branch office in Connecticut.

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

Conditional Registrations

Charles Edward Dear (CRD # 1079490) Subject to Three Year Administrative Probation; Consent Order Conditioning Registration as an Investment Adviser Agent Issued

On February 24, 2003, the Banking Commissioner issued a Consent Order (No. CO-02-6436-S) conditioning the registration of Charles Edward Dear as an investment adviser agent of Diastole Wealth Management, Inc. (CRD number 111604), an SEC-registered investment adviser. Dear had previously been registered as an investment adviser in his own right pursuant to a June 3, 2002 Consent Order Conditioning Registration as an Investment Adviser. However, on December 5, 2002, the Commissioner had entered an order (Docket No. RF-2002-6436-S) revoking Dear's registration as an investment adviser and fining him $5,000 based upon a determination that Dear had violated the terms of his conditional registration. The February 24, 2003 Consent Order acknowledged that Dear would be subject to the supervision of Diastole Wealth Management, Inc., and prescribed specific supervisory protocols to be observed by that firm with respect to Dear's activities.

The February 24, 2003 Consent Order imposed a three-year probationary period on Dear and directed him to cease and desist from engaging in conduct that would constitute a violation of the Connecticut Uniform Securities Act or any regulation or order under the Act. In addition, the Consent Order prohibited Dear from supervising investment adviser agents and from supervising himself. The Consent Order also required that Dear 1) limited his advisory services to insurance products regulated by the Connecticut Insurance Commissioner, investment company securities, exchange listed securities and securities traded on NASDAQ-NMS; 2) refrain from having custody of client funds or securities; and 3) refrain from holding or exercising discretionary authority over client accounts except as in accordance with the policies and procedures of his supervising firm. In addition, the Consent Order obligated Dear's employing firm to provide quarterly reports to the department for two years describing any securities-related complaints, actions or proceedings involving Dear.

Charles Dear became registered as an investment adviser agent of Diastole Wealth Management, Inc. in Connecticut on February 24, 2003.


STATISTICAL SUMMARY

Licensing At A Glance
March 31, 2003
Broker-dealers Registered 2,578
Broker-dealer Agents Registered 111,330
Broker-dealer Branch Offices Registered 1,906
Investment Advisers Registered 392
SEC Registered Advisers Filing Notice 1,222
Investment Adviser Agents Registered 5,726
Investment Advisory Branch Offices Registered 149
Agents of Issuer Registered 96

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1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Securities Investigations
Opened 60        60
Closed 73       73
Ongoing as of End of Quarter 76      
Subpoenas issued 2       2
Cases referred from Attorney General 2       2
Cases referred from Other Agencies 3       3
{ }   
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) 0       0
Denial Orders (Licensing) 0       0
Suspension Orders (Licensing) 0       0
Revocation Orders (Licensing) 3       3
Notices of Intent to Fine 3       3
Orders Imposing Fine 0       0
Cease and Desist Orders 4       4
Notices of Intent to Issue Stop Order 0       0
Activity Restrictions/Bars 2       2
Stop Orders 0       0
Vacating/Withdrawal Orders 2       2
Censures 0       0
Formal Orders of Restitution 0       0
{ }            
Proceedings and Settlements
Administrative Actions 6       6
Consent Orders 2 1     4
     Carryover from 2002 1        
Stipulation and Agreements 4       4
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Monetary Relief
Monetary Sanctions Imposed $ 9,500 $262,402     $839,248
     Carryover from 2002 $567,346        
Restitution or Other Monetary Relief $67,865       $67,865
{ }  
Securities Referrals
Criminal (Chief State's Attorney) 0       0
Criminal (Other) 0       0
Civil (Attorney General) 0       0
Other Agency Referrals 0       0
{ }  
Securities and Business
Opportunity Filings
Offerings Reviewed 38       38
Investment Company Notice Filings 292       292
Exemptions and Exemptive Notices 511       511
Examinations
Broker-dealers 7       7
Investment Advisers 4       4

Securities Division