DOB: Winter 2007 Securities Bulletin

 
Securities and Business Investments Division

Securities Bulletin

Vol. XXI  No. 4
Winter 2007

Features

Enforcement and Other Highlights
Contributors

Ralph Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric Wilder, Assistant Director


A WORD FROM THE BANKING COMMISSIONER

The Department hosted its 19th annual Securities Forum on October 25, 2007 at the Crowne Plaza Hotel in Cromwell, Connecticut.  Nearly 300 attendees from the securities industry, other regulatory agencies and the legal profession attended.  The theme of the program was Compliance Solutions.  The program opened with a lively General Session on current regulatory developments, moderated by Attorney Harold B. Finn, III, chair of the agency’s Securities Advisory Council.  Two concurrent panels followed:  Surviving a Broker-dealer Examination, moderated by Assistant Director Eric Wilder, and Conflict of Interest Management for Investment Advisers, moderated by Attorney and Advisory Council member Willard F. Pinney, Jr.  Mr. Pinney’s panel discussed the disparate treatment of broker-dealers and investment advisers performing advisory roles.  Karl Krapek, former president and Chief Operating Officer of United Technologies Corporation, delivered the luncheon keynote address and received a standing ovation.  In a down to earth style, Mr. Krapek urged industry attendees to observe high ethical standards in the conduct of their business operations.  The afternoon segment featured two additional panels:  Broker-dealer Enforcement Clinic, moderated by Attorney Michael Unger, former Securities Commissioner of the Commonwealth of Massachusetts, and Compliance Tools for Investment Advisers, moderated by Banking Department Manager Kevin Maher.  The Broker-dealer Enforcement Clinic tackled challenging issues concerning subpoenas and other enforcement related areas.  Compliance Tools for Investment Advisers provided practical tips on regulatory filings and responding to a books and records examination.  The event proved to be a worthwhile educational experience for all who attended.

On November 9, 2007, the Governor’s Sub-Prime Mortgage Task Force, which I co-chaired with Gary E. King, president of the Connecticut Housing Finance Authority, delivered its Final Report.  The report estimated that approximately 71,000 active sub-prime mortgages, with outstanding loan balances exceeding $15 billion, existed in Connecticut, and that over 8% of these were seriously delinquent.  Although these figures are lower than the national average and significantly less than several other states, they underscore the need to provide assistance to low and moderate income borrowers and consider more stringent regulation of the mortgage lending industry.  I also wish to remind those in the mortgage lending industry that the offering of related products for investment purposes may give rise to regulatory concerns under the state’s securities laws.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


Jason John Konior  (CRD  # 2818111) – Order to Cease and Desist and Notice of Intent to Fine Issued Following Allegations of Unregistered Agent Activity

On December 19, 2007, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket number CF-2007-7406-S) against Jason John Konior of 145 Spring Street, Second Floor, New York, New York.  The respondent purportedly had been associated with the securities brokerage firm Great Eastern Securities, Inc. (CRD number 2061).  The action alleged that on September 30, 2005, the respondent effected the purchase of American Oil & Gas, Inc. securities for a Connecticut investor at a time when the respondent was not registered as an agent of Great Eastern Securities, Inc. under the Connecticut Uniform Securities 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 January 29, 2008.

HGI Opportunity Fund I, LLC Assessed $750 for Delinquent Private Placement Notice Filing

On December 18, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7418-S) with HGI Opportunity Fund I, LLC, an issuer of securities located at 999 Waterside Drive, Suite 2300, Norfolk, Virginia.  The Stipulation and Agreement stated that HGI Opportunity Fund I, LLC had advised the department that, on March 13, 2006, it had sold limited liability company interests to a Connecticut resident under Rule 506 of federal Regulation D at a time when no notice filing had been made under Section 36b-21(e) of the Connecticut Uniform Securities Act.  The issuer made a curative state filing on May 25, 2007.  Pursuant to the Stipulation and Agreement, HGI Opportunity Fund I, LLC agreed to pay a $750 fine and to refrain from offering or selling securities in or from Connecticut absent compliance with Section 36b-16 of the Act, including timely compliance with any applicable filing requirements.

Snow Fund One, LLC Assessed $750 for Delinquent Private Placement Notice Filing

On December 18, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7452-S) with Snow Fund One, LLC, an issuer of securities located at 423 Jobs Lane, Water Mill, New York.  The Stipulation and Agreement stated that Snow Fund One, LLC had advised the department that, on February 14, 2006, it had sold limited liability company interests to a Connecticut resident under Rule 506 of federal Regulation D at a time when no notice filing had been made under Section 36b-21(e) of the Connecticut Uniform Securities Act.  The issuer made a curative state filing on July 23, 2007.  Pursuant to the Stipulation and Agreement, Snow Fund One, LLC agreed to pay a $750 fine and to refrain from offering or selling securities in or from Connecticut absent compliance with Section 36b-16 of the Act, including timely compliance with any applicable filing requirements.

Key Resource Group, LLC (CRD ID. # 77973), Dale C. Lucas (CRD ID. # 11023802), Russell Kilgariff (CRD ID. # 11023801), Michael J. McNaul (CRD ID. # 11023803), Mark T. Duboise (CRD ID. # 11018123), Mike Bay (CRD ID. # 11022884), George Phillips, Greg Hunter, Ronald Folkinga (CRD # 2608001) and Mark Deaton (CRD ID. # 11022021) – Order to Cease and Desist and Notice of Intent to Fine Issued in Connection With Sales of Oil and Gas Interests

On December 10, 2007, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket numbers CF-2007-7073-S and CF-2007-7297-S) against 1) Key Resource Group, LLC (“KRG”) of 155 North Market, Suite 900, Wichita, Kansas; 2) Dale C. Lucas, Russell Kilgariff and Michael J. McNaul, managing members and control persons of KRG; and 3) KRG agents Mark T. Duboise of 4676 Lakeview Avenue, Suite 113, Yorba Linda, California; Mike Bay of 39201 Ingraham Street, Building 11, Apartment 111, San Diego, California; George Phillips  of 17555 Ventura Boulevard, Suite 200, Encino, California; Greg Hunter of 4676 Lakeview Avenue, Suite 113, Yorba Linda, California; Ronald Folkinga of 2514 East 3810 North, Town Falls, Idaho; and Mark Deaton of 1025 Shoshone Street North, Twin Falls, Idaho.  Duboise had purportedly been the subject of a May 8, 2002 Summary Order to Cease and Desist issued by the Pennsylvania Securities Commission and a January 22, 2003 Summary Order to Cease and Desist entered by the Washington Department of Financial Institutions.

The action alleged that KRG issued securities consisting of fractional, undivided interests in oil and gas rights (the “KRG Interests”) as well as joint venture interests in individual gas and oil development projects (the “Joint Venture Interests”).  The KRG Joint Venture Interests included Pawnee Barber II Joint Venture; Cheyenne 6 Joint Venture #2; Cheyenne 6 Joint Venture #3. Tri-County Joint Venture; Rush County 6 Joint Venture; Heartland Joint Venture; and Heartland #2 Joint Venture.  According to the Order to Cease and Desist and Notice of Intent to Fine, commencing in 2001, the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by effecting sales of the KRG Interests and the Joint Venture Interests at a time when no securities registration was in effect.  In addition, the action alleged that KRG, Lucas, Kilgariff and McNaul employed, and Duboise, Bay, Phillips, Hunter, Folkinga and Deaton transacted business as, unregistered agents of issuer in contravention of Section 36b-6 of the Connecticut Uniform Securities Act.  The action also alleged that the respondents violated the antifraud prohibition in Section 36b-4(a) of the Act by failing to disclose, in connection with sales of the KRG Interests and the Joint Venture Interests, any financial information about the performance of prior interests in oil and gas rights where KRG was the operator; any risk factors; that none of the agents were registered to sell securities in Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor's investment that actually could be used for operational purposes.

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 February 4, 2008.

Andesa Strategies, Inc. (CRD # 116137) Assessed $2,500 for Unregistered Investment Advisory Activity

On December 5, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7468-S) with Andesa Strategies, Inc., an applicant for investment adviser registration located at 3435 Winchester Road, Suite 402, Allentown, Pennsylvania.  The Stipulation and Agreement alleged that, from 2003 forward, the firm transacted business as an investment adviser in Connecticut while unregistered and employed unregistered investment adviser agents in contravention of Section 36b-6(c) of the Connecticut Uniform Securities Act.  The investment advisory services rendered were to a Connecticut corporation and to designated employees of the corporation pursuant to a Service Agreement administered as an employee benefit.  Andesa Strategies, Inc. had brought the unregistered activity to the agency’s attention.   Pursuant to the Stipulation and Agreement, the firm agreed to pay $2,500 to the department.  Of that amount, $1,500 constituted an administrative penalty and $1,000 represented reimbursement for past due registration fees.  The firm also agreed to review, revise and implement such supervisory procedures as would be necessary to ensure regulatory compliance.

Andesa Strategies, Inc. became registered as an investment adviser in Connecticut on December 5, 2007.

SMH Capital, Inc. (CRD # 20580) Assessed $3,000 for Employing Unregistered Broker-dealer Agents

On November 21, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7458-S) with SMH Capital, Inc., a Connecticut-registered broker-dealer located at 600 Travis, Suite 3100, Houston, Texas.  The Stipulation and Agreement alleged that at various times commencing in May, 2007, the firm employed four unregistered agents in contravention of Section 36b-6(a) of the Connecticut Uniform Securities Act.   Pursuant to the Stipulation and Agreement, the firm agreed to remit $3,000 to the department.  Of that amount, $2,000 constituted an administrative fine and $1,000 represented reimbursement for the agency’s examination costs.  In addition, the firm agreed to comply with all statutory requirements governing 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.

Quintin Geoffrey Marshall (CRD # 4337208) and Argyle Capital, LLC  Each Fined $20,000 for Unregistered Security Sales, Antifraud Violations

On October 24, 2007, the Banking Commissioner entered an Order Imposing Fine (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 had been preceded by a June 22, 2007 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7130-S) alleging 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.  Since neither respondent requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on August 15, 2007.  In fining respondent Quintin Geoffrey Marshall $20,000 and respondent Argyle Capital, LLC an additional $20,000, the Commissioner found that each respondent had violated Sections 36b-16 and 36b-4(a) of the Connecticut Uniform Securities Act.  The respondents did not appear or contest the imposition of the fines.

Kenneth Von Kohorn (CRD # 1163037) Agrees to Entry of Permanent Injunction Following Claims of Unregistered Investment Advisory Activity

On October 15, 2007, the Superior Court for the Judicial District of Hartford entered a Judgment in Accordance With Stipulation in the matter of Pitkin v. Kenneth Von Kohorn (Docket No. HHD-CV-07-4027611 S).

The Motion for Judgment in Accordance With Stipulation filed by the Banking Commissioner had claimed that Kenneth Von Kohorn 1) violated Section 36b-6 of the Connecticut Uniform Securities Act as well as two consent orders entered against Von Kohorn in 1996 and 1998 by transacting business as an investment adviser while unregistered; and 2) sold limited partnership interests in Value Investors, LP without having made the requisite filing under Section 36b-21(e) of the Connecticut Uniform Securities Act.

Without admitting or denying the Commissioner’s allegations, Von Kohorn stipulated and agreed to the entry of a permanent injunction enjoining him from violating the Connecticut Uniform Securities Act, its regulations and the 1996 and 1998 consent orders.  In addition, Von Kohorn agreed to pay a $35,000 fine and, for five years, to retain a compliance consultant other than himself to ensure that he was abiding by all applicable securities laws and regulations.

Roger J. Giordano (CRD # 2816853) Assessed $2,500 for Unregistered Investment Advisory Activity

On October 23, 2007, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-07-7274-S) with Roger J. Giordano, principal of RJ Giordano & Associates of 450 Heritage Road, Southbury, Connecticut.  The Stipulation and Agreement claimed that from approximately September 2004, Roger J. Giordano transacted business as an investment adviser while unregistered in contravention of Section 36b-6(c) of the Connecticut Uniform Securities Act.  The Stipulation and Agreement acknowledged Roger J. Giordano’s representation that he had ceased offering investment advice to clients.  The Stipulation and Agreement required that Roger J. Giordano pay $2,500 to the department.  Of that amount, $750 constituted an administrative fine and $1,750 represented past due registration fees.

Albert Robert Puccerella III a/k/a John Higgins (CRD # 4312521) – Order to Cease and Desist and Notice of Intent to Fine Issued

On October 23, 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-2007-7407-S) with respect to Albert Robert Puccerella III a/k/a John Higgins of Staten Island, New York.  The action alleged that the respondent, while associated with Great Eastern Securities, Inc., a Connecticut registered broker-dealer, effected transactions in the securities of American Oil & Gas Inc. and ChipMOS Technologies (Bermuda) Ltd. while not registered as an agent under the Connecticut Uniform Securities 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 is pending.

Louis John Liberatore, Sr. (CRD # 2267036) – Order to Cease and Desist and Notice of Intent to Fine Issued

On October 23, 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-2007-7410-S) with respect to Louis John Liberatore, Sr. of Bluepoint, New York.  The action alleged that the respondent, while associated with Great Eastern Securities, Inc., a Connecticut registered broker-dealer, effected transactions in the securities of Galaxy Energy Corp. while not registered as an agent under the Connecticut Uniform Securities 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 is pending.

Brian M. Thornton (CRD # 2570743) Fined $1,000 for Unregistered Agent Activity

On October 17, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7401-S) with respect to Brian M. Thornton, a former registered broker-dealer agent of Great Eastern Securities, Inc. (CRD number 2061).  The Consent Order alleged that from April 27, 2006 through May 3, 2006, Brian Thornton violated Section 36b-6(a) of the Connecticut Uniform Securities Act by transacting business as an agent of Great Eastern Securities, Inc. while not registered as an agent of the firm in Connecticut.  Brian Thornton had represented to the Securities and Business Investments Division that he had requested to be registered in Connecticut and was informed by the firm’s compliance department that he was so registered.  The Consent Order directed Brian M. Thornton to cease and desist from regulatory violations and fined him $1,000.

Charles Evan Giaimo a/k/a Charles Joseph Stressler a/k/a Charles Evan Giamo  (CRD # 2131244) Barred from Securities Business for Seven Years Following Claims of Unregistered Activity

On October 2, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7402-S) with respect to Charles Evan Giaimo, a former registered broker-dealer agent of Great Eastern Securities, Inc. (CRD number 2061).  The Consent Order alleged that from approximately October 26, 2005 through February 1, 2006, Charles Giaimo violated Section 36b-6(a) of the Connecticut Uniform Securities Act by transacting business as an agent of Great Eastern Securities, Inc. at a time when Charles Giaimo was not registered as an agent of the firm in Connecticut.  The Consent Order barred Charles Giaimo from transacting business in Connecticut as a broker-dealer, agent, investment adviser, investment adviser agent or agent of issuer for seven years.  In addition, the Consent Order directed Charles Giaimo to cease and desist from regulatory violations.

Andrew Austin Sirvis  (CRD # 4970459) Fined $500 for Alleged Unregistered Agent Activity

On October 2, 2007, the Banking Commissioner entered a Consent Order (No. CO-07-7404-S) with respect to Andrew Austin Sirvis.  The Consent Order alleged that in or about March 2006, Andrew Sirvis violated Section 36b-6(a) of the Connecticut Uniform Securities Act by transacting business as a broker-dealer agent of Great Eastern Securities, Inc. (CRD number 2061) at a time when Sirvis was not registered as an agent of the firm in Connecticut.  The Consent Order fined Andrew Sirvis $500 and directed him to cease and desist from regulatory violations.


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  2,631 2,586
Broker-dealer Agents Registered 129,648 132,853  136,704 129,715
Broker-dealer Branch Offices Registered 3,001 3,001  2,948 2,787
Investment Advisers Registered 442 447  455 441
SEC Registered Advisers Filing Notice 1,736 1,778  1,804 1,728
Investment Adviser Agents Registered 8,370 8,608 8,832 8,687
Investment Advisory Branch Offices Registered 140 141 143 45**
Agents of Issuer Registered 45 38 38 33
 
** Data incomplete

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 53 55
47
35 190
Investment Company Notice Filings 478 
420
392
7,090 8,380
Exemptions and Exemptive Notices 842
945
832 891 3,510
 
 
Examinations
     
Broker-dealers 23 19
24
28 94
Investment Advisers 3 8
2
2 15
 
 
Securities Investigations
 
Opened 22
44
40 22 128
Closed 28
22
44 19 113
Ongoing as of End of Quarter 76
98
100 98
Subpoenas issued 12
9
12 7 40
Matters referred from Attorney General 1
1
4 2 8
Matters referred from Other Agencies 0
4
4 3 11
 
 
Business Opportunity Investigations
Investigations Opened 5
2
2 4 13
Investigations Closed 2
1
3 0 6
Ongoing as of End of Quarter 8
9
7 11
 
 
Securities Enforcement: Remedies and Sanctions
Notices of Intent to Deny (Licensing)
2
0
0
0
2
Notices of Intent to Suspend (Licensing)
0
0
0
0
0
Notices of Intent to Revoke (Licensing)
1
1
0
0
2
Denial Orders (Licensing) 0
0
2
0 2
Suspension Orders (Licensing) 1
0
0
0 1
Revocation Orders (Licensing) 1
0
1
0 2
Notices of Intent to Fine 3
4
0
4 11
Orders Imposing Fine 1
2
3
1 7
Cease and Desist Orders 5
7
3
7 22
Notices of Intent to Issue Stop Order 0
1
0
0 1
Activity Restrictions/Bars 1
3
2 1 7
Stop Orders 0
0
0 0 0
Vacating/Withdrawal Orders 0
2
0 0 2
Censures 0
0
0
0 0
Restitutionary Orders 0
0
0
0 0
Cancellation Orders 0
0
0 0 0
Notices of Intent to Cancel Registration
0
0
0
0
0
Injunctive Relief Obtained 0
0
0
1 1
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
6
6
4
5 21
Consent Orders
5
5
7
3 20
Stipulation and Agreements
1
3
0
5
9
 
 

Monetary Relief

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$1,110,250
$2,489,440
$1,772,400
$86,000
$5,458,090
Other (Financial Literacy)
$250,000
$4,031,488
0
0
$4,281,488
Restitution or Other Monetary Relief ( includes rescission offer amounts) $490,513
$17,522,500
$5,163,579
$15,706 $23,192,298
 
 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
1
1
1
2
5
Civil (Attorney General)
0
0
0
0
0
Other Agency Referrals
0
1
1
1
3