DOB: Spring 2008 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXII  No. 1
Spring 2008

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

In March, 2008, Treasury Secretary Henry M. Paulson, Jr. released that agency's Blueprint for a Modernized Financial Regulatory Structure.  The proposal, whose implementation would span a number of years, called for the consolidation of federal banking agencies, a merger of the Securities and Exchange Commission and the Commodity Futures Trading Commission, the creation of a federal insurance regulator and a new Mortgage Origination Commission to license mortgage lenders.   The report also advocated an objectives-based regulatory approach similar to that adopted in Australia.  Over the long term, the financial services industry would be restructured to include a Prudential Financial Regulator with responsibility for depository and insurance firms, a Market Stability Regulator and a Business Conduct Regulator.  The proposal underscores the need for regulatory bodies to be responsive to changes in the financial services industry wrought by increasingly complex financial products, globalization and technological advances.  However, a centralized regulatory structure is not without its critics, and the role of state government in addressing local concerns should not be discounted.  For example, one can only question whether the current mortgage crisis might have been minimized if the states had not been preempted from fighting predatory lending and abusive subprime mortgage practices involving national banks and their subsidiaries.

To ensure quality regulation over those mortgage industry participants remaining under the state umbrella, the department recently shifted examiner personnel from various divisions to meet the increased workload faced by our consumer credit staff.  Securities Division manager Sidney Igdalsky as well as examiners Paola Barry and Marcelle Groves were among the personnel reassigned to our Consumer Credit Division.

We have started planning for our annual Securities Forum which will be held on Thursday, October 23, 2008 at the Sheraton Hotel in Stamford, Connecticut.  This year's program will focus on the economy, on factors contributing to the current economic climate and on the prognosis for the year ahead.  Further details will follow as the event nears.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


TrapTek, LLC (n/k/a Cocona, Inc.) Assessed $750 for Delinquent Private Placement Notice Filing

On March 25, 2008, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-08-7472-S) with TrapTek, LLC, a securities issuer located at 1831 Lefthand Circle, Suite G, Longmont, Colorado.  TrapTek, LLC merged with Cocona, Inc. on August 30, 2007, with Cocona, Inc. being the surviving entity.  The Stipulation and Agreement recited that TrapTek, LLC had advised the department that, in 2002 and 2004, it had sold limited liability company interests to Connecticut residents under Rule 506 of federal Regulation D at a time when no notice filings had been made under Section 36b-21(e) of the Connecticut Uniform Securities Act.  The issuer made a curative state filing in September 2007.  Pursuant to the Stipulation and Agreement, TrapTek, 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.

Kevin Patrick Brennan (CRD # 3009014) – Agent Registration Revoked, Bar Imposed for Alleged Supervisory Deficiencies

On March 24, 2008, the Banking Commissioner entered a Consent Order (No. CO-07-7428-S) with respect to Kevin Patrick Brennan, a broker-dealer agent of New Castle Financial Services LLC (CRD No. 102380).  The Consent Order alleged that Kevin Brennan failed to reasonably supervise agents of New Castle Financial Services LLC working from the firm’s unregistered branch office at 4 Old Mill Plain Road in Danbury, Connecticut, and that such conduct would support the initiation of proceedings to revoke Kevin Brennan’s agent registration under the Connecticut Uniform Securities Act.  The Consent Order 1) revoked Kevin Brennan’s registration as an agent in Connecticut effective March 24, 2008; 2) barred Kevin Brennan for seven years from transacting business in Connecticut as a broker-dealer, agent, investment adviser, investment adviser agent or agent of issuer; 3) prohibited Kevin Brennan from supervising any Connecticut-registered broker-dealer agents of New Castle Financial Services LLC; and 4) directed Kevin Brennan to cease and desist from regulatory violations.

Kenneth Henry Grove (CRD # 5115225) – Order to Cease and Desist Issued

On March 18, 2008, the Banking Commissioner issued an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-2008-7429-S) with respect to Kenneth Henry Grove of New Fairfield, Connecticut.  The respondent was previously associated with New Castle Financial Services LLC (CRD number 102380), a broker-dealer registered under the Connecticut Uniform Securities Act.  The Order to Cease and Desist alleged that the respondent, while associated with New Castle Financial Services LLC, engaged in unethical practices by improperly “cold calling” prospective customers in contravention of FINRA Rule 1031.  Since the respondent did not request a hearing on the Order to Cease and Desist within the prescribed time period, the Order to Cease and Desist became permanent on April 5, 2008.

Louis John Liberatore, Sr. (CRD # 2267036) – Order to Cease and Desist Made Permanent; $1,500 Fine Imposed for Unregistered Agent Activity

On February 20, 2008, the Banking Commissioner entered a Consent Order (Docket No. CF-2007-7410-S) with respect to Louis John Liberatore, Sr. of Bluepoint, New York.  The respondent had been the subject of an October 23, 2007 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7410-S) alleging 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 Consent Order rendered the October 23, 2007 Order to Cease and Desist permanent and fined the respondent $1,500.

Axiom International Investors LLC (IARD # 109605) Assessed $2,100 for Delinquent Investment Advisory Notice Filing

On February 19, 2008, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-08-7474-S) with Axiom International Investors LLC, an investment adviser registered with the Securities and Exchange Commission and located at 55 Railroad Avenue, Third Floor, Greenwich, Connecticut.  The Stipulation and Agreement alleged that, from approximately January 2003 forward, the firm transacted business as an investment adviser in Connecticut without making the requisite notice filing under Section 36b-6(e) of the Connecticut Uniform Securities Act.  The firm ultimately filed a notice on November 7, 2007.  Pursuant to the Stipulation and Agreement, Axiom International Investors LLC agreed to comply with state filing requirements, including those governing renewals, and to remit $2,100 to the agency.  Of that amount, $1,500 constituted an administrative fine and $600 represented reimbursement for past due investment advisory notice filing fees.

Michael James Maiure (CRD # 4753836) – Order to Cease and Desist, Notice of Intent to Fine Issued Following Allegations of Unregistered Broker-dealer Agent Activity

On February 6, 2008, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2008-7405-S)  against Michael James Maiure of Bethpage, New York.  The respondent was formerly associated with the securities brokerage firm Great Eastern Securities, Inc. (CRD number 2061) whose registration had been revoked by the Commissioner on March 22, 2007.  The action alleged that, on or about May 17, 2006, and while associated with Great Eastern Securities, Inc., the respondent sold shares of Document Security Systems Inc. to at least one Connecticut investor at a time when the respondent was not registered as an agent of the firm under the Connecticut Uniform Securities Act.  Since respondent Maiure did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on February 26, 2008.  A hearing on the Notice of Intent to Fine is pending.

Steven G. Morton and Oxford Micro Devices, Inc. Each Fined $20,000 for Fraudulent Securities Sales; Order to Cease and Desist Made Permanent

On January 30, 2008, following a hearing, the Banking Commissioner issued Findings of Fact, Conclusions of Law and an Order in the matter of Oxford Micro Devices, Inc. f/k/a Oxford Computer, Inc. of Lantern Ridge Office Park, 731 Main Street, Building 2, B3, Monroe, Connecticut, and its president, Steven G. Morton (Docket No. CF-2006-6859-S).  The action had been preceded by a November 22, 2006 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging that the respondents had violated the securities registration and antifraud provisions in Sections 36b-16 and 36b-4 of the Connecticut Uniform Securities Act in connection with sales of Oxford Micro Devices, Inc. stock.

The January 30, 2008 Order rendered the November 22, 2006 Order to Cease and Desist permanent and fined each of the respondents $20,000.  The Commissioner found, among other things, that between August 1999 and October 2000, the respondents violated Section 36b-4(a) of the Act by failing to disclose to prospective investors the market risks associated with investing in Oxford Micro Devices, Inc.; the impact on the company were desired financing not secured; the risks associated with the investment, including losses experienced by the company; the financial condition of Oxford Micro Devices, Inc.; factors affecting the company’s claims that it would shortly go public; and the details surrounding Oxford Micro Devices, Inc.’s compensation arrangement with the supplier of video compression boards to casinos.  The Commissioner also found that, from August 1999 through October 2000, the respondents sold unregistered securities in violation of Section 36b-16 of the Act, and that the respondents’ 2001 filing of a Rule 504 exemptive claim and a Rule 506 claim of covered security status rendered those provisions inapplicable due to the delinquency of the filings.

Albert Robert Puccerella III a/k/a John Higgins (CRD # 4312521) – Order to Cease and Desist Made Permanent; $2,500 Fine Imposed for Unregistered Agent Activity

On January 29, 2008, the Banking Commissioner entered a Consent Order (Docket No. CF-2007-7407-S) with respect to Albert Robert Puccerella III a/k/a John Higgins of Staten Island, New York.  The respondent had been the subject of an October 23, 2007 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2007-7407-S) alleging 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 Consent Order rendered the October 23, 2007 Order to Cease and Desist permanent and fined the respondent $2,500.


Karl Ramonas (CRD ID # 11018993) Pleads Guilty to Mail Fraud

Kevin J. O’Connor, United States Attorney for the District of Connecticut, announced that on February 27, 2008, Karl Ramonas, formerly of Waterbury, Connecticut and now of Fort Lauderdale, Florida, pled guilty in Bridgeport federal court to one count of mail fraud related to a fraudulent investment scheme that he operated.  Between January 2001 and January 2002, defendant Ramonas purportedly induced individuals to give him money by falsely representing that he would invest the money in an investment account on their behalf.  Instead, the defendant converted the funds to his own use.  In furtherance of the scheme, the defendant misrepresented the value of the investment account and the value of each investor’s per share interest in that account.  In addition, the defendant tricked investors into believing that their money had been and would be used as promised by returning some money to certain investors and falsely representing that it was a profit resulting from an increase in the value of the investment account.  The returns to investors, however, were not profits but monies received from new and current investors.  Sentencing has been scheduled for May 16, 2008.  Defendant Ramonas faces a maximum imprisonment term of 20 years. 

According to the United States Attorney’s office, the defendant brought a $230,030 bank check to court on the day of his guilty plea in order to pay full restitution to the victims of his crime.

The Securities and Business Investments Division of the State of Connecticut Department of Banking provided assistance in the federal prosecution of the matter.  On June 26, 2003, the Banking Commissioner had fined defendant Ramonas $30,000 following allegations of fraud in connection with Ramonas’ operation of The Marketrack Investment Club (Docket No. CF-2003-6511-S).  Ramonas had also been the subject of a March 18, 2003 Order to Cease and Desist which became permanent on April 9, 2003.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,588      
Broker-dealer Agents Registered 137,282      
Broker-dealer Branch Offices Registered  2,815      
Investment Advisers Registered 452      
SEC Registered Advisers Filing Notice 1,818       
Investment Adviser Agents Registered 9,187      
Agents of Issuer Registered  32      
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed  57  
 
  57
Investment Company Notice Filings 529  
 
  529
Exemptions and Exemptive Notices 949        949
 
 
Examinations
     
Broker-dealers  19  
 
  19
Investment Advisers 3  
 
  3
 
 
Securities Investigations
 
Opened 29       29
Closed 19       19
Ongoing as of End of Quarter 110      
Subpoenas issued 13       13
Matters referred from Attorney General 1       1
Matters referred from Other Agencies 0       0
 
 
Business Opportunity Investigations
 
Investigations Opened 1       1
Investigations Closed 0       0
Ongoing as of End of Quarter 12      
 
 
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) 1  
 
  1
Notices of Intent to Fine 1  
 
  1
Orders Imposing Fine 1  
 
  1
Cease and Desist Orders 3  
 
  3
Notices of Intent to Issue Stop Order 0  
 
  0
Activity Restrictions/Bars 1       1
Stop Orders 0       0
Vacating/Withdrawal/ Modification Orders 0       0
Restitutionary Orders 0  
 
  0
Injunctive Relief Obtained 0       0
 
 

Proceedings and Settlements

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

Monetary Relief

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$46,850
 
 
 
$46,850
Other (Financial Literacy)
0
 
 
 
0
Restitution or Other Monetary Relief (includes rescission offer amounts) $37,030
 
 
 
$37,030
 
 

Securities Referrals

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



Securities Division