DOB: Summer 2007 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXI  No. 2
Summer 2007

Features

Enforcement and Other 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

Issues surrounding the mortgage lending industry surged to the forefront during the quarter.  The Securities and Business Investments Division and the agency's Consumer Credit Division enhanced their coordinated regulatory efforts through increased information sharing.  During the quarter, two Connecticut-licensed mortgage lenders resolved allegations involving the sale of securities to finance the making of mortgage loans.  The cases resulted in rescission offers of approximately $16 million being extended to affected investors.

The agency continued its investor outreach program through a very successful program co-sponsored by department, the AARP and the Securities and Exchange Commission.  On May 14, 2007, the agency held a "Safe Investing" Seminar for mature investors at the Aqua Turf Club in Plantsville, Connecticut.  The seminar featured tips on protecting investors from fraud and abusive sales practices.

In an effort to further streamline industry filing procedures, I am pleased to report that state-registered investment advisers now have the option of filing Part II of Form ADV online through the Investment Adviser Registration Depository ("IARD").  This development is the result of a new Web CRD/IARD software release (Release 9.0) which was implemented on Monday, April 23, 2007.

The Securities and Business Investments Division also urges those registering securities by coordination to avoid paper filing, and to use the Division's streamlined procedure.  Since key documents such as the registration statement are available for online viewing by our staff via the SEC's online EDGAR system, few paper filings need be made with the department.  Filers need only provide the department with the following:  1) a nonrefundable filing fee payable to "Treasurer, State of Connecticut"; 2) a Form U-1 Application to Register Securities; and 3) a Form U-2 Consent to Service of Process.  Effective July 9, 2007, Connecticut no longer requires the filing of a Form U-1 Supplement.  To read more about registration by coordination, please visit our website.

We are making progress in planning the department's annual Securities Forum, scheduled for October 25, 2007 at the Crowne Plaza Hotel and Conference Center in Cromwell, Connecticut.  Further details will follow as the event nears.

As always, we welcome your comments and suggestions.

Howard F. Pitkin
Banking Commissioner




1. Web CRD/IARD Release 9.0
 
A new Web CRD/IARD software release, Release 9.0, was implemented on Monday, April 23, 2007.  As part of this Release, functionality was implemented in IARD to enable investment advisers to submit the current Form ADV Part II through the IARD System

 
2. Submission of Form ADV Part II Through IARD
 
Form ADV Part II may now be submitted to IARD as a searchable text, portable document format (PDF) file.  Guidance on how to use this new functionality is available on the IARD website:  Form ADV Part 2 (IARD System Instructions)
 

3. Editable Version of Form ADV Part II
 
4. Adobe Reader
 
The editable PDF versions of the current Form ADV Part II available on the NASAA website may be completed and saved using the free Adobe Reader available on the Adobe website.

5. Full PDF Software
 
State-registered investment advisers that have full PDF software may use that software to complete the editable Form ADV Part II available on the NASAA website or may convert other versions of the current Form ADV Part II to PDF using their full PDF software.

NASAA - Industry & Regulatory Resources - Uniform Forms

A Guide for Electronic Filing of the ADV Part II

6. Submission of Form ADV Part II by Current Registrants
 
Current investment adviser registrants in Connecticut may begin submitting Form ADV Part II through IARD immediately in lieu of sending paper filings to the Securities and Business Investments Division.  

7. Submission of Form ADV Part II by Initial Applicants

Initial applicants for investment adviser registration in Connecticut may also submit Form ADV Part II through IARD with their initial filings.

8. Proposed Amendments to Form ADV

Several years ago, the Securities and Exchange Commission (SEC) proposed to amend Form ADV to replace the current Part II with a narrative text document, but the proposal has not yet been adopted.  Information relating to this proposal may be viewed on the SEC's website:

SEC Release No. IA-1862; 34-42620; File No. S7-10-00; Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV

9. Web CRD/IARD Release Notes

For an overview of all changes that have occurred for firms with Web CRD/IARD software Release 9.0, please see the Web CRD 9.0 Release Notes on the NASD’s website.





Public Act 07-91, effective June 5, 2007, made minor changes to the Connecticut Uniform Securities Act.  Section 36b-15(c) of the Act, which addresses the summary suspension of broker-dealer, agent, investment adviser and investment adviser agent registrations, was expanded to allow the Commissioner to require the registrant to take or refrain from taking certain action pending resolution of the proceeding.   Similarly amended was Section 36b-27(a) of the Act which permits the Commissioner to issue cease and desist orders.  The Commissioner’s authority under this provision was expanded to allow the Commissioner to direct that the respondent take or refrain from taking certain action.
 
The text of Section 36b-15(c) now reads as follows:
(c)  The commissioner may by order summarily postpone or suspend registration or require a registrant to take or refrain from taking such action that in the opinion of the commissioner will effectuate the purposes of sections 36b-2 to 36b-33, inclusive, as amended by this act, pending final determination of any proceeding under this section.  Upon the entry of the order, the commissioner shall promptly notify the applicant or registrant, as well as the employer or prospective employer if the applicant or registrant is an agent or an investment adviser agent, that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request the matter will be set down for hearing.  If no hearing is requested and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner.  If a hearing is requested or ordered, the commissioner, after notice of and opportunity for hearing, may modify or vacate the order or extend it until final determination.
As amended, Section 36b-27(a) of the Act now reads as follows:
 
(a) Whenever it appears to the commissioner after an investigation that any person has violated, is violating or is about to violate any of the provisions of sections 36b-2 to 36b-33, inclusive, as amended by this act, or any regulation, rule or order adopted or issued under said sections, or that the further sale or offer to sell securities would constitute a violation of said sections or any such regulation, rule or order, or that any person has engaged in a dishonest or unethical practice in the securities or commodities business within the meaning of sections 36b-31-15a to 36b-31-15d, inclusive, of the regulations of Connecticut state agencies, the commissioner may, in the commissioner’s discretion, order (1) the person, (2) any other person that directly or indirectly controls such person and that is, was or would be a cause of the violation of such sections or any such regulation, rule or order, due to an act or omission such other person knew or should have known would contribute to such violation, or (3) any other person that has materially aided, is materially aiding or is about to materially aid in such violation, to cease and desist from the violations or the causing of or aiding in the violations of the provisions of said sections or of the regulations, rules or orders thereunder, or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections or of the regulations, rules or orders thereunder, or from further engaging in such dishonest or unethical practice and to take or refrain from taking such action that in the opinion of the commissioner will effectuate the purposes of sections 36b-2 to 36b-33, inclusive, as amended by this act.  After such an order is issued, the person named in the order may, within fourteen days after receipt of the order, file a written request for a hearing.  Any such hearing shall be held in accordance with the provisions of chapter 54.



SAVE THE DATE

Thursday, October 25, 2007

SECURITIES FORUM 2007



The Department of Banking’s Annual Securities Forum will be held on Thursday, October 25, 2007 from 9:00 a.m. to 3:00 p.m.
 
The planned location is the Crowne Plaza Hotel and Conference Center in Cromwell, Connecticut.
 
Sponsored by the State of Connecticut Department of Banking and the Securities Advisory Council to the Banking Commissioner, the event will feature a general session focusing on the ability of U.S. capital markets to maintain their competitive edge.
 
Also in the works are panels tailor-made to the unique concerns faced by investment advisers and broker-dealers.
 
The modest program fee includes a luncheon.  Additional details will follow as the event nears.
 


Quintin Geoffrey Marshall (CRD # 4337208) and Argyle Capital, LLC – Order to Cease and Desist and Notice of Intent to Fine Issued Following Claims of Unregistered Security Sales, Antifraud Violations

On June 22, 2007, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7130-S) against Argyle Capital, LLC of 239 Glenville Road, Suite 300, Greenwich, Connecticut and its sole member, Quintin Geoffrey Marshall of Stamford, Connecticut.  The action alleged that 1) in 2000, the respondents sold unregistered securities of Argyle Capital, LLC in contravention of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by guaranteeing a return on monies invested and failing to disclose investment risks.  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 has been scheduled for August 13, 2007.

Great Eastern Securities, Inc. (CRD # 2061) Fined $600,000 for Multiple Regulatory Violations

On June 22, 2007, the Banking Commissioner entered an Order Imposing Fine (Docket No. RSDF-2007-7309-S) with respect to Great Eastern Securities, Inc. of 50 Broad Street, Suite 1401, New York, New York.  The Order Imposing Fine had been preceded by a January 26, 2007 Notice of Intent to Revoke Registration as Broker-dealer, Order Summarily Suspending Registration, Order Denying Withdrawal of Registration as Broker-dealer and Notice of Intent to Fine.  The firm’s broker-dealer registration was revoked on March 22, 2007.

In fining the firm $600,000, the Commissioner found that 1) the respondent employed unregistered agents in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act; 2) the respondent violated Section 36b-16 of the Act by selling unregistered securities; 3) the respondent violated Section 36b-31-6f(b) of the Regulations under the Act by failing to enforce and maintain adequate supervisory procedures; 4) the respondent violated Section 36b-31-14a(a) of the Regulations by failing to keep true, accurate and current records; and 5) the firm violated Section 36b-14(d) of the Act and Section 36b-31-14f(b)(3) of the Regulations by not providing records requested by the Commissioner.  Great Eastern Securities, Inc. did not appear or contest the imposition of the fine.

Southern Connecticut Financial Services, Inc., David Kasowitz and Monte Klein Sanctioned for Unregistered Securities Sales to Finance Making of Mortgage Loans

On June 22, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7265-S) with respect to Southern Connecticut Financial Services, Inc., a Connecticut-licensed first and secondary mortgage lender located at 935 White Plains Road, Trumbull, Connecticut.  Also named were company officers David Kasowitz and Monte S. Klein.  The Consent Order alleged that from approximately 1999 to 2006, Southern Connecticut Financial Services, Inc., through Kasowitz and Klein, offered and sold over $12.3 million in promissory notes at a time when such notes were not registered under the Connecticut Uniform Securities Act.  Southern Connecticut Financial Services, Inc., Kasowitz and Klein represented to the Commissioner that the proceeds from the note sales were used to fund the making of mortgage loans by the company.  The Consent Order directed Southern Connecticut Financial Services, Inc. to 1) extend a written rescission offer of approximately $10.5 million to those note investors whose principal had not been repaid; 2) restrict future securities sales to offerees or purchasers qualifying as “accredited investors” within the meaning of Section 501(a) of Regulation D under the Securities Act of 1933; and 3) remit $30,000 to the department.  Of that amount $25,000 constituted an administrative fine and $5,000 represented reimbursement for investigative costs.  The Consent Order also directed Southern Connecticut Financial Services, Inc., David Kasowitz and Monte Klein to cease and desist from regulatory violations.

Bayou Technologies, Inc. and Steven O. Canady Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On June 15, 2007, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7331-S) against Bayou Technologies, Inc.  and Steven O. Canady, both of 1170 Peachtree Street, Suite 1200, Atlanta, Georgia.   The action alleged that, between 2003 and 2005, respondent Bayou Technologies, Inc., through respondent Canady, sold unregistered shares of its common stock to Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act.  The action also alleged that, in contravention of Section 36b-6 of the Act, respondent Bayou Technologies, Inc. employed respondent Canady as an unregistered agent of issuer, and that respondent Canady transacted business in such capacity.  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 has been scheduled for August 8, 2007.

The Private Mortgage Fund, LLC and Joseph A. Antonios (CRD # 1681227) Sanctioned for Unregistered Note Sales to Fund Mortgage Loan Activity

On June 13, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7136-S) with respect to The Private Mortgage Fund, LLC, a Connecticut-licensed first mortgage lender located at 765 Straits Turnpike, Crossroads West II, Suite 2002, Middlebury, Connecticut, and its managing member, Joseph A. Antonios.   The Consent Order alleged that from approximately 2000 to 2006, The Private Mortgage Fund, LLC and Joseph A. Antonios sold over $5.5 million in unregistered securities consisting of promissory notes in violation of Section 36b-16 of the Connecticut Uniform Securities Act.  The proceeds of the note sales would be used to fund the making of mortgage loans by The Private Mortgage Fund, LLC.  The Consent Order directed The Private Mortgage Fund, LLC to 1) extend a rescission offer to the affected note investors; 2) restrict future offers or sales of securities to “accredited investors” as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933; and 3) remit $20,000 to the department, $15,000 of which constituted an administrative fine and $5,000 of which would defray costs incurred by the department in investigating the matter.  The Consent Order also directed The Private Mortgage Fund, LLC and Joseph A. Antonios to cease and desist from regulatory violations.

GDC Securities, LLC (CRD # 38931) Assessed $1,200 for Unregistered Agent, Unregistered Branch Office Activity

On June 12, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7358-S) with GDC Securities, LLC, a Connecticut-registered broker-dealer located at 929 Kings Highway East, Fairfield, Connecticut.  The Stipulation and Agreement alleged that 1) from August 2004 to approximately October 2005, the firm employed Vincent W. Spera (CRD number 1108720) as an agent when that individual was not registered under Section 36b-6(a) of the Connecticut Uniform Securities Act; 2) from approximately July 2004 to February 2005, the firm employed Robert Vitale (CRD number 2332412) as an agent at a time when that individual was not registered under Section 36b-6(a) of the Act; and 3) from approximately July 2004 to January 17, 2007, the firm transacted business from an unregistered branch office located at 420 Center Street, Wallingford, Connecticut in contravention of Section 36b-6(d) of the Act.  Robert Vitale became registered as an agent of the firm on February 24, 2005, and the Wallingford location became registered as a branch office on January 17, 2007.  The Stipulation and Agreement also recited that the firm had represented to the Division that Vincent W. Spera would not transact business as an agent until he was registered under Section 36b-6(a) of the Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay $1,200 to the department.  Of that amount, $1,000 constituted an administrative fine and $200 constituted reimbursement for past due agent registration fees.  The firm also agreed to comply with all statutory requirements governing branch office registration and the registration of affected personnel as broker-dealer agents, and to review, revise and implement such supervisory and compliance procedures as would be necessary to ensure such compliance.

Charles Morgan Securities, Inc. (CRD # 138887) – Broker-dealer Registration Conditioned

On June 12, 2007, the Banking Commissioner entered a Consent Order Conditioning Registration as a Broker-dealer (No. CO-07-7344-S) with respect to Charles Morgan Securities, Inc. of 120 Wall Street, 16th Floor, New York, New York.  The action was based on 2004 and 2001 sanctions levied by the National Association of Securities Dealers, Inc. against Paul Eric Taboada (CRD number 2033981), the firm’s president, chief executive officer and control person; and Barry Morton Ferrari (CRD number 848024), chief compliance person and control person of the firm.   The Consent Order Conditioning Registration as a Broker-dealer required that the firm 1) file quarterly reports with the department for three years describing any securities-related complaints, actions or proceedings involving Connecticut entities and individuals; 2) reimburse the agency up to $3,500 for the costs of one or more future examinations of the firm’s offices to be conducted within 36 months; 3) for three years, restrict its Connecticut business to transactions in exchange-listed securities, federally regulated investment companies, governmental securities, exchange-listed options and, where the customer qualified as an “accredited investor”, private offerings; 4) designate a full-time employee, preapproved by the Division Director, to act as Connecticut Compliance Supervisor; 5) maintain such electronic surveillance systems as necessary to maintain proper supervisory controls over the firm’s trading activities; 6) remit $2,500 to the department to defray the costs associated with the department’s investigation of the firm; and 7) refrain from engaging in violative conduct.  Charles Morgan Securities, Inc. became registered as a broker-dealer in Connecticut on June 12, 2007.

York Stockbrokers, Inc. (CRD # 102740) Assessed $4,500 for Unregistered Broker-dealer Activity

On June 6, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7374-S) with York Stockbrokers, Inc., an applicant for broker-dealer registration located at 610 Fifth Avenue, 6th Floor, New York, New York.  The Stipulation and Agreement claimed that from at least January 2005 through January 2007, the firm had 1) transacted business as a broker-dealer absent registration in contravention of Section 36b-6(a) of the Connecticut Uniform Securities Act; and 2) at various times employed at least three unregistered broker-dealer agents in contravention of Section 36b-6(b) of the Act.  The Stipulation and Agreement acknowledged that the firm had no reported disciplinary history and that it had provided the department with documentation showing that it had relied on the advice of outside compliance consultants in not pursuing Connecticut broker-dealer registration during the period in question.  Pursuant to the Stipulation and Agreement, the firm agreed to 1) refrain from violative conduct; 2) implement revised supervisory and compliance procedures providing for enhanced monitoring of state broker-dealer and agent licensing requirements; 3) file quarterly reports for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents; and 4) pay $4,500 to the department.  Of that amount, $2,500 constituted an administrative fine, $600 represented past due broker-dealer and agent registration fees and $1,400 would be applied to defray the Division’s costs of investigation.  York Stockbrokers, Inc. became registered as a broker-dealer in Connecticut on June 6, 2007.

Charles Edward Dear (CRD # 1079490) – Order Modifying Consent Order Conditioning Registration as an Investment Adviser Agent Issued

On May 22, 2007, the Banking Commissioner issued an Order Modifying Consent Order Conditioning Registration as an Investment Adviser Agent with respect to Charles Edward Dear.  Charles Dear had been the subject of a February 24, 2003 Consent Order Conditioning Registration as an Investment Adviser Agent (File No. CO-02-6436-S) following his application for registration as an investment adviser agent of Diastole Wealth Management, Inc. of 1254 Boston Post Road, Old Saybrook, Connecticut.  Acknowledging that Charles Dear had not been the subject of any reported regulatory actions, complaints or arbitrations arising from conduct occurring while he was associated with Diastole Wealth Management, Inc., the May 22, 2007 Order amended the earlier Consent Order to 1) permit Charles Dear to render investment advisory services on a broader segment of insurance and securities products authorized by Diastole Wealth Management, Inc., subject to the client suitability constraints in Sections 36b-31-15d(a)(3) and 36b-31-15c(a)(1) of the Regulations under the Connecticut Uniform Securities Act; 2) permit securities-related communications involving Charles Dear to be maintained with those of other Diastole Wealth Management, Inc. advisory personnel; and 3) allow Diastole Wealth Management, Inc. to review documents relating to accounts serviced by Charles Dear on a quarterly rather than a monthly basis.

Sands Brothers Asset Management LLC (CRD # 110076) – Order to Cease and Desist and Notice of Intent to Fine Issued

Laidlaw & Company (UK) Ltd. f/k/a Sands Brothers International Ltd. (CRD # 119037) – Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Broker-dealer Issued

On May 18, 2007, the Banking Commissioner issued an Order to Cease and Desist and a Notice of Intent to Fine (Docket No. RCF-2007-7093-S) against Sands Brothers Asset Management LLC, an investment adviser registered with the Securities and Exchange Commission, and against Laidlaw & Company (UK) Ltd., a broker-dealer registered under the Connecticut Uniform Securities Act.   Sands Brothers Asset Management LLC maintains its principal place of business at 90 Park Avenue, 39th Floor, New York, New York.  Laidlaw & Company (UK) Ltd. is located at 35 Dover Street, London, England.  The action also contained a Notice of Intent to Revoke Laidlaw & Company (UK) Ltd.’s broker-dealer registration in Connecticut.  The respondents had been signatories to a November 29, 2004 Consent Order Conditioning Registration as an Investment Adviser Agent and Restricting Securities-Related Activities (File No. CO-04-7093) involving Martin Scott Sands (CRD number 1186904), then a broker-dealer agent of Laidlaw & Company (UK) Ltd.'s predecessor and an investment adviser agent of Sands Brothers Asset Management LLC.  The Consent Order obligated the respondents to file periodic reports with the agency concerning disciplinary matters involving Martin Scott Sands.

The May 18, 2007 action claimed that the respondents had violated the November 29, 2004 Consent Order as well as Section 36b-23 of the Connecticut Uniform Securities Act by filing incomplete or inaccurate reports with the department.  The respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist, and respondent Laidlaw & Company (UK) was likewise afforded an opportunity to request a hearing on the Notice of Intent to Revoke Registration as Broker-dealer.  A hearing on the Notice of Intent to Fine has been scheduled for July 17, 2007.

Blue Coast Financial Group, Inc. a/k/a Questar Financial Group – Notice of Intent to Issue Stop Order Denying Effectiveness to a Business Opportunity Registration Issued

On May 4, 2007, the Banking Commissioner issued a Notice of Intent to issue a stop order (Docket No. SO-2007-846-B) denying the business opportunity registration of Blue Coast Financial Group, Inc. a/k/a Questar Financial Group under the Connecticut Business Opportunity Investment Act.   The corporation, located at 2929 North Power Road, Suite C100, Mesa, Arizona, offers an arrangement whereby purchasers can start a business auditing workers compensation insurance premiums.  The Notice of Intent to Issue Stop Order alleged that the business opportunity registration was materially incomplete or contained materially false or misleading statements with respect to disciplinary events involving the seller’s principals and related entities, the risks factors involved in the arrangement and key background information.   Shawn Hull, CEO of the respondent, was also the president of Taxback, LLC, against whom the Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine on January 10, 2005, and Taxback Opportunities, LLC, which had been the subject of a January 10, 2005 Notice of Intent to Issue Stop Order Revoking Business Opportunity Registration and Notice of Intent to Fine.  The claims against Taxback, LLC and Taxback Opportunities, LLC had been resolved via a June 7, 2005 Consent Order involving both parties.   Respondent Blue Coast Financial Group, Inc. was afforded an opportunity to request a hearing on the Notice of Intent to Issue Stop Order.

KMH Management, Inc. (CRD # 143036) Resolves Unregistered Investment Adviser Issue

On May 4, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7380-S) with KMH Management, Inc., an investment adviser located at 133 Lords Highway, Weston, Connecticut.  The Stipulation and Agreement alleged that, from at least 2002 forward, the firm had rendered investment advisory services through one or more unregistered investment adviser agents at a time when the firm was not registered as an investment adviser under the Connecticut Uniform Securities Act.   The Stipulation and Agreement acknowledged, however, that 1) the firm had represented that, from 2002 forward, it had rendered advisory services to only three clients in Connecticut and Hong Kong and that those clients had been obtained through the family connections of the firm’s president, Karen Mae Ho; 2) upon being apprised of the department’s concerns, the firm filed for investment adviser and investment adviser agent registration under the Act; and 3) neither the firm nor its president had any reported disciplinary history.

Pursuant to the Stipulation and Agreement, the firm agreed to comply with all statutory requirements governing investment advisers and their operations, and to pay $1,500 to the department.  Of that amount, $1,000 constituted reimbursement for past due registration fees and $500 would be applied to defray the agency’s costs of investigating the matter.  KMH Management, Inc. became registered as an investment adviser in Connecticut on May 4, 2007.

Terry Lee Feibus (CRD  # 2923404) Fined $100,000; Amended and Restated Order to Cease and Desist Made Permanent

On April 27, 2007, the Banking Commissioner entered an Order (Docket No. CF-2006-7155-S) fining Terry Lee Feibus of Boca Raton, Florida $100,000 and rendering permanent an Amended and Restated Order to Cease and Desist issued against the respondent on November 6, 2006.  The respondent did not appear at the hearing which preceded the Commissioner’s action.  Under Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, where a party fails to appear at a scheduled hearing, the allegations against the party may be deemed admitted.  Accordingly, in imposing the $100,000 fine, the Commissioner adopted the allegations in the agency’s November 6, 2006 Amended and Restated Order to Cease and Desist and Notice of Intent to Fine, finding that the respondent violated Sections 36b-16 and 36b-6(a) of the Connecticut Uniform Securities Act.   Specifically, the earlier action had alleged that 1) at various times in 2003, respondent Feibus sold unregistered securities of Deltagen Inc., GoAmerica Inc., Hop-On.com, Loudeye Technologies, Paradigm Med Inds, Peregrine Pharmaceuticals Inc., Predictive Systems Inc., Robotic Vision Systems Inc., Sagent Tech Inc., Skyway Communications, Tellium Inc. and Valicert Inc. (the “Unregistered Securities”) in violation of Section 36b-16 of the Act; and 2) respondent Feibus violated Section 36b-6 of the Act by transacting business as an unregistered agent in conjunction with sales and purchases of the Unregistered Securities as well as securities of 1st Investors Blue Chip FD-1, 1st Investors Growth & Inc.-A, 1st Investors Tot Return FD A, 1st Investors USA Midcap Opp A, Charter Communications CL A, Federated Growth Strategy FD-B, Federated Hi Inc. BD FD CL-B, Federated Kaufmann B, Lantronix Inc., Lucent Technologies Inc., Prosoft I-net Solutions Inc., Radview Software Ltd., Redback Networks Inc., Silicon Graphics Inc. (DE) and Transwitch Corp.

L & L Financial Holdings, Inc. Sanctioned for Employing Unregistered Agent; Selling Unregistered Securities

On April 26, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7271-S) with respect to L & L Financial Holdings, Inc., a securities issuer located at 720 Third Avenue, Suite 1611, Seattle, Washington.  The Consent Order alleged that L & L Financial Holdings, Inc. employed Stephen Patrick Johnston of California as an Investor Relations Executive; that Johnston would receive a 35% commission, paid in cash upon the closing of investor subscriptions and based on the total investment funds generated through Johnston’s efforts; that in 2004, Johnston made at least one sale of the issuer’s Class A common stock to a Connecticut investor and received $1,750 in commissions for that activity; that, at no time, was Johnston registered as an agent of issuer or as a broker-dealer or broker-dealer agent under the Connecticut Uniform Securities Act; and that the Class A common stock was not registered under the Act nor was it the subject of a perfected exemption claim or claim of covered security status.  The Consent Order further recited that, on May 16, 2006, the State of California Department of Corporations had entered a Desist and Refrain Order against the issuer, Johnston and International Market Group, Inc., a Nevada corporation of which Johnston was president, based on claims that from May 2003 through at least October 2004, they sold unregistered common stock and warrants through unsolicited telephone calls and engaged in fraudulent conduct by not telling investors that Johnston was receiving a 35% commission.  The Consent Order also noted that the issuer had represented to the agency that 1) in April 2005, it had extended a $5,000 offer of rescission to the affected Connecticut investor; 2) since August 2004, it had not made any securities offerings in Connecticut; 3) it had severed its relationship with Johnston and not engaged any unregistered person since; and 4) it would comply with Connecticut agent registration requirements prior to offering securities in Connecticut.

The Consent Order directed the issuer to refrain from engaging in violative conduct, and barred the issuer for 10 years from selling securities in or from Connecticut notwithstanding any claim of exemption or covered security status that it could otherwise assert.  In addition, the Consent Order required that the issuer pay $2,500 to the department.  Of that amount, $1,500 constituted an administrative fine and $1,000 represented reimbursement for division investigative costs.

MLP Real Estate Securities, Inc. (CRD # 140383) – Consent Order Conditioning Registration as a Broker-dealer Issued

On April 25, 2007, the Banking Commissioner issued a Consent Order Conditioning Registration as a Broker-dealer (No. CO-07-7368-S) with respect to MLP Real Estate Securities, Inc., a newly formed entity and applicant for broker-dealer registration located at 555 Capitol Mall, Suite 766, Sacramento, California.  The action alleged that the applicant’s  sole officer did not satisfy the securities-related experience requirements prescribed by Section 36b-31-7a of the Regulations under the Connecticut Uniform Securities Act.   As a condition to registering the firm, the Consent Order required, among other things, that the firm 1) restrict its business for two years to institutional investors and to “accredited” investors as defined in Rule 501(a) of federal Regulation D; 2) restrict its business to the sale of private placements that were either registered under the Act or the subject of an exemptive claim or claim of covered security status; and 3) provide the agency with quarterly written 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 April 25, 2007.

Cauzae McCall (CRD # 3005713) and The McCall Business Group, LLC d/b/a MBG Private Trading – Order to Cease and Desist, Notice of Intent to Fine Issued in Connection With Promissory Note Sales

On April 19, 2007, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7225-S) against The McCall Business Group, LLC d/b/a MBG Private Trading of 3047 Pinewood Hills Drive, Matthews, North Carolina, and Cauzae McCall, principal of the company.  The respondents previously maintained a place of business at 23 Schoolhouse Road, Old Saybrook, Connecticut and 222 Stonehouse Lane, Guilford, Connecticut.  The action alleged that from at least September 2003 forward, the respondents offered and sold unregistered promissory notes in violation of Section 36b-16 of the Connecticut Uniform Securities Act.   In addition, the action claimed that the respondents violated the antifraud provisions of the Act by 1) not disclosing to investors the risk factors underlying the investment as well as financial information on the respondents and the work history of The McCall Business Group, LLC’s managing member; and 2) guaranteeing a 100% return on the investment.  Since neither respondent requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to each on May 17, 2007.  A hearing on the Notice of Intent to Fine is pending.

UBS Financial Services, Incorporated (CRD # 8174) Fined $1.5 Million for Inadequate Oversight of Market Timing Activity; Directed to Fund Financial Literacy Programs

On April 16, 2007, the Banking Commissioner entered a Consent Order (Docket No. CO-2007-7330-S) with respect to UBS Financial Services, Inc., a broker-dealer registered under the Connecticut Uniform Securities Act.  The Consent Order alleged that from 2000 through 2002, the firm failed to implement adequate supervisory controls over market timing activity involving mutual funds, variable annuities or any other products having mutual funds as the underlying investment vehicle.  The Consent Order also alleged that the firm failed to maintain certain books and records in violation of Section 36b-31-14a of the Regulations under the Act.  The Consent Order acknowledged that the firm had taken recent steps to improve its oversight of marketing timing activity, and had cooperated with the agency’s investigative efforts.  The Consent Order fined the firm $1,500,000.  In addition, the Consent Order directed the firm to pay 1) $1,250,000 to the State of Connecticut Department of Education to promote financial literacy initiatives in Connecticut public schools and state-funded adult education programs; 2) $1 million over three years to the State of Connecticut Department of Higher Education to promote financial literacy initiatives in Connecticut colleges and universities; 3) $1.5 million over three years to the State of Connecticut Department of Social Services to promote financial literacy initiatives benefiting low-income and elderly persons in Connecticut;  and 4) $250,000 over two years to the National White Collar Crime Center to train Connecticut regulatory and law enforcement personnel in investigating, preventing and prosecuting financial fraud perpetrated on Connecticut senior citizens.

Christina E. Foster – Order to Cease and Desist, Notice of Intent to Fine Withdrawn

On April 4, 2007, the Banking Commissioner withdrew a November 21, 2006 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2006-7137-S) against Christina E. Foster, managing member of Crystal Sky Enterprises, LLC of 238 Raritan Street, Keyport, New Jersey.  The withdrawal was prompted by respondent Foster’s demise during the pendency of the proceeding.   The Order to Cease and Desist and Notice of Intent to Fine had alleged that respondents Crystal Sky Enterprises, LLC and Foster sold unregistered securities consisting of promissory notes in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that respondent Foster was not registered as an agent of issuer under the Act.  The note investment would finance the purchase of real property and the related redevelopment of a New Jersey former middle school building.  The action had also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Act by failing to disclose in the issuer’s prospectus risk factors, financial information on the issuer and the work histories of the issuer’s managing members.  The prospectus represented that investors would receive a guaranteed 20 percent return if the real estate project, purportedly financed by commercial lenders, did not move forward to loan settlement and a guaranteed 100 percent return if loan settlement occurred.  Since respondent Crystal Sky Enterprises, LLC did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to it on January 18, 2007.  On March 21, 2007, the Commissioner fined respondent Crystal Sky Enterprises, LLC $300,000 after finding that the entity had violated Sections 36b-16, 36b-6(b) and 36b-4(a) of the Act.  Crystal Sky Enterprises, LLC did not appear or contest the imposition of the fine.

Wachovia Capital Markets, LLC (CRD # 126292) Fined $227,240 Following Conflict of Interest Claims Involving Research Analysts

On April 4, 2007, the Banking Commissioner entered a Consent Order (Docket No. CO-2006-6932-S) with respect to Wachovia Capital Markets, LLC, a broker-dealer registered under the Connecticut Uniform Securities Act and having its principal office at 301 South College Street, TW-8, Mail Code NC0602, Charlotte, North Carolina.  The Consent Order followed a coordinated investigation into the firm’s research and investment banking activities between January 1, 1999 and December 31, 2002 conducted by a multi-state task force.  According to the Consent Order, the firm failed to implement controls to manage conflicts of interest involving its research analysts and investment banking personnel and, in so doing, violated Section 36b-31-6f of the Regulations under the Act.  The Consent Order also concluded that the firm violated Section 36b-14(a)(2) of the Act and Section 36b-31-14a(a) of the Regulations thereunder by failing to preserve the records required by law.

The Consent Order directed the firm to cease and desist from violating Section 36b-31-6f of the Regulations.  In addition, the Consent Order fined the firm $227,240, and required that the firm remit an additional $31,488 to the department to promote the agency’s investor education efforts.


David M. Faubert (CRD # 2150188) Sentenced to 7 Years in Federal Prison for $4.5 Million Scam

Kevin J. O’Connor, United States Attorney for the District of Connecticut, announced the May 3, 2007 sentencing of former broker-dealer agent David M. Faubert in New Haven federal court to seven years in prison followed by three years of supervised release for stealing millions from clients, many of whom were elderly.  On November 14, 2006, Faubert had waived indictment and pled guilty to 10 counts of mail fraud, one count of embezzlement from an employee benefit plan, and four counts of filing false tax returns.  Faubert purportedly owned and controlled a company called Faubert Investment Group, Inc. (FFG), of Avon, Connecticut. Through FFG, Faubert provided insurance and other financial services to approximately 225 clients.  Between approximately January 2000 and April 2005, Faubert represented to certain existing clients that he would guarantee them an 8% rate of return if the clients invested money in a fixed investment account controlled by him.  As a result of Faubert's promises, 21 clients provided Faubert with approximately $5,497,918. However, the fixed investment account did not exist, and Faubert deposited the monies directly into his business and personal accounts.  As part of the scheme, Faubert spent approximately $4.5 million for his own personal use, which included gambling, lavish vacations, and expensive cars.  To lull investors into believing that the investments were earning the promised rate of return, Faubert mailed false monthly financial statements to his clients.  In addition, Faubert embezzled $27,079 from FFG’s retirement plan by falsely representing to two employees that the money had been withheld from their paychecks and invested in the retirement plan.  Faubert used the $27,079 to cover personal expenses.  Faubert also filed false income tax returns for the years 2000 through 2003 by failing to report the funds he embezzled from investment clients, resulting in a government tax loss of $946,155.

The Securities and Business Investments Division of the State of Connecticut Department of Banking provided assistance in the federal prosecution of the matter.  Faubert's broker-dealer agent registration had been revoked by the department on May 19, 2005 (Docket No. SS-2005-7159-S).


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,596 2,619    
Broker-dealer Agents Registered 129,648 132,853     
Broker-dealer Branch Offices Registered  3,001 3,001     
Investment Advisers Registered  442 447     
SEC Registered Advisers Filing Notice  1,736 1,778     
Investment Adviser Agents Registered  8,370 8,608     
Investment Advisory Branch Offices Registered  140 141     
Agents of Issuer Registered  45 38     
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed  53
55 
 
  108
Investment Company Notice Filings 478 
420
 
  898
Exemptions and Exemptive Notices 842
945 
  1,787
 
 
Examinations
     
Broker-dealers 23  19 
 
  42
Investment Advisers  8
 
  11
 
 
Securities Investigations
 
Opened 22
44
    66
Closed 28
22
    50
Ongoing as of End of Quarter 76
98
   
Subpoenas issued 12
9
    21
Matters referred from Attorney General 1
1
    2
Matters referred from Other Agencies 0
    4
 
 
Business Opportunity Investigations
 
Investigations Opened 5
2
    7
Investigations Closed 2
1
    3
Ongoing as of End of Quarter 8
9
    8
 
 
Securities Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing)
2
0
 
 
2
Notices of Intent to Suspend (Licensing)
0
0
 
 
0
Notices of Intent to Revoke (Licensing)
1
1
 
 
2
Denial Orders (Licensing) 0
0
 
  0
Suspension Orders (Licensing) 1
0
 
  1
Revocation Orders (Licensing) 1
0
 
  1
Notices of Intent to Fine 3
4
 
  7
Orders Imposing Fine 1
2
 
  3
Cease and Desist Orders 5
7
 
  12
Notices of Intent to Issue Stop Order 0
1
 
  1
Activity Restrictions/Bars 1
3
    4
Stop Orders 0
0
    0
Vacating/Withdrawal Orders 0
2
    2
Censures 0
0
 
  0
Restitutionary Orders 0
0
 
  0
Cancellation Orders 0
0
    0
Notices of Intent to Cancel Registration 0
0
 
  0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
6
6
 
 
12
Consent Orders
5
5
 
 
10
Stipulation and Agreements
1
3
 
 
4
 
 

Monetary Relief

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$1,110,250
$2,489,440
 
 
$3,599,690
Other (Financial Literacy)
$250,000
$4,031,488
 
 
$4,281,488
Restitution or Other Monetary Relief (includes rescission offer amounts) $490,513
$17,522,500
 
 
$18,013,013
 
 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
1
1
 
 
2
Civil (Attorney General)
0
0
 
 
0
Other Agency Referrals
0
1
 
 
1



Securities Division