DOB: Fall 2008 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXII  No. 3
Fall 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

The third quarter of 2008 has been especially challenging for financial services industry professionals.  Whether you’re a small investment adviser advising a client on his retirement portfolio – a hedge fund manager trying to maximize returns – a broker-dealer witnessing historic changes in the markets – or a member of the general public:  The question remains.  What lies ahead?  As Banking Commissioner, I can say with some certainty that our community banks are well-capitalized and on a firm financial footing.  However, the securitization of subprime mortgage products, the fall of such giants as Lehman Brothers and the ensuing credit crisis all drive home the need for back to basics regulation.  More than ever, we at the Department of Banking will emphasize prudent lending practices that will ensure the safety and soundness of financial institutions under our oversight.  As we have done since 2001 – well before the current crisis occurred – we will protect borrowers from predatory lending.

But we must also be mindful of our responsibilities to the citizens of this state, especially borrowers who have been hit hardest by rising interest rates and who are facing the loss of their homes.  The department is providing input to the Commission on Nontraditional Loans and Home Equity Lines of Credit, created by the Connecticut General Assembly.  The Commission will be issuing findings and recommendations early next year on how the current crisis has affected Connecticut homeowners and how the State might ease their burden.  In addition, the department has taken more immediate measures to protect the public.  These include:  Stricter licensing requirements for mortgage brokers; a mortgage foreclosure hotline to field consumer complaints; a series of educational forums to teach consumers about safeguarding their financial holdings in the current economic environment; providing testimony before the Banks Committee on legislative initiatives to offer assistance to homeowners facing foreclosure; and reassigning agency staff to deal with the increasing number of complaints on mortgage scams.  As members of the securities industry, your special challenge is to manage your clients’ assets effectively, given today’s volatile conditions.  This is no easy task, and I respect the important work that you do.  Especially today, it is crucial that all members of the financial services sector remember their compliance obligations, and strive to adhere to the laws and regulations affecting their industries.  We have seen what a lack of due diligence did to the mortgage-backed securities markets and, ultimately, the economy.  Working together, we can ensure that it does not happen again.

I am pleased to report that the agency’s 20th annual Securities Forum on October 23, 2008 was very successful, with nearly 300 attendees.  Our keynote speaker, Professor Robert Shiller of Yale University, provided thought-provoking observations from his latest book, Subprime Solution:  How the Global Financial Crisis Happened and What to Do About It, and we are fortunate to have had him address the group.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


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 (ID #:  11024893), Greg Hunter (ID # 11024895), Ronald Folkinga (CRD # 2608001) and Mark Deaton (CRD ID. # 11022021) – Multiple Fines Ordered in Connection With Fraudulent Sales of Oil and Gas Interests

On September 29, 2008, the Banking Commissioner entered an Order Imposing Fine 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 (collectively, the “Respondents”).

The Respondents had been the subject of a December 10, 2007 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) alleging 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 Order to Cease and Desist and Notice of Intent to Fine had 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 Act.  The action also had 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.

Since respondents Duboise and Hunter had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist had become permanent as to each of them on January 22, 2008.   Since respondents KRG, Lucas, Kilgariff, McNaul, Bay, Phillips, Folkinga and Deaton likewise failed to request a hearing on the Order to Cease and Desist, the Order to Cease and Desist had become permanent as to each of them on January 31, 2008.

Following a hearing at which none of the Respondents appeared, the Commissioner imposed the following fines against the Respondents:  1) KRG was fined $425,000 for selling unregistered securities in violation of Section 36b-16 of the Act, $425,000 for violating the antifraud prohibition in Section 36b-4 of the Act and $425,000 for employing unregistered agents of issuer, for a total of $1,275,000; 2) Lucas was fined $425,000 for violating Section 36b-16 of the Act, $425,000 for violating Section 36b-4 of the Act and $425,000 for employing unregistered agents of issuer, for a total of $1,275,000; 3) Kilgariff was fined $425,000 for violating Section 36b-16 of the Act, $425,000 for violating Section 36b-4 of the Act and $425,000 for employing unregistered agents of issuer, for a total of $1,275,000; 4) McNaul was fined $425,000 for violating Section 36b-16 of the Act, $425,000 for violating Section 36b-4 of the Act and $425,000 for employing unregistered agents of issuer, for a total of $1,275,000; 5) Duboise was fined $20,000 for violating Section 36b-16 of the Act, $20,000 for violating Section 36b-4 of the Act and $20,000 for acting as an unregistered agent of issuer, for a total of $60,000; 6) Bay was fined $105,000 for violating Section 36b-16 of the Act, $105,000 for violating Section 36b-4 of the Act and $105,000 for acting as an unregistered agent of issuer, for a total of $315,000; 7) Phillips was fined $50,000 for violating Section 36b-16 of the Act, $50,000 for violating 36b-4 of the Act and $50,000 for acting as an unregistered agent of issuer, for a total of $150,000; 8) Hunter was fined $150,000 for violating Section 36b-16 of the Act, $150,000 for violating 36b-4 of the Act and $150,000 for acting as an unregistered agent of issuer, for a total of $450,000; 9) Folkinga was fined $100,000 for violating Section 36b-16 of the Act, $100,000 for violating Section 36b-4 of the Act and $100,000 for acting as an unregistered agent of issuer, for a total of $300,000; and 10) Deaton was fined $100,000 for violating Section 36b-16 of the Act, $100,000 for violating Section 36b-4 of the Act and $100,000 for acting as an unregistered agent of issuer, for a total of $300,000.

In imposing the fines, which totaled $6,675,000, the Commissioner noted that the Respondents’ conduct was egregious inasmuch as the investments were sold to inexperienced investors; no risks were disclosed; the sales agents received as much as 50% of the investment as a commission; and all of the investors lost money.

Basic Investors Inc. (CRD # 1187) Fined $21,500 for Fee Disclosure Deficiency, Unregistered Agent Activity, Unregistered Security Sales

On September 22, 2008, the Banking Commissioner entered a Consent Order (No. CO-2008-7534-S) with respect to Basic Investors Inc., a Connecticut-registered broker-dealer located at 510 Broadhollow Road, Suite 306, Melville, New York.  The Consent Order alleged that 1) from at least October 2005, the firm improperly failed to disclose to customers information concerning a fee classified as “Other” on trade confirmations; 2) from at least January, 2007 to October 2007, the firm violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing at least one unregistered agent; 3) between November 1, 2005 and April 18, 2007, the firm sold unregistered, nonexempt securities in contravention of Section 36b-16 of the Act; and 4) in violation of Section 36b-31-6f(b) of the Regulations under the Act, the firm failed to establish, enforce and maintain an adequate supervisory system.  The Consent Order acknowledged that the firm had reimbursed Connecticut customers approximately $9,000 for the “Other” fee payment on approximately 400 transactions.

The Consent Order fined the firm $21,500 and directed it to cease and desist from regulatory violations.  In addition, the Consent Order required that the firm reimburse the agency for the costs, not to exceed $3,500 in the aggregate, of one or more future examinations of the firm’s offices to be conducted within twenty-four months.

Michael James Maiure (CRD # 4753836) Fined $500 Following Allegations of Unregistered Broker-dealer Agent Activity; Prior Order to Cease and Desist Rescinded

On August 28, 2008, the Banking Commissioner entered a Consent Order (No. CF-2008-7405-S) with respect to Michael James Maiure of Bethpage, New York.  The respondent, who was formerly associated with the securities brokerage firm Great Eastern Securities, Inc. (CRD number 2061), had been the subject of a February 6, 2008 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2008-7405-S).  The Order to Cease and Desist and Notice of Intent to Fine had 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.  The Order to Cease and Desist had become permanent on February 26, 2008 since the respondent had failed to request a hearing on its allegations.

In entering the Consent Order, the Commissioner ascertained that Maiure had not received the Order to Cease and Desist and Notice of Intent to Fine since he was away on active military training between January 7, 2008 and March 4, 2008.  Accordingly, the Consent Order rescinded the Order to Cease and Desist which had previously become permanent.  Pursuant to the Consent Order, the respondent also agreed to pay a $500 fine.

Digi-Pin, LLC f/k/a Digipin LLC Sanctioned for Unregistered Security Sales

On September 12, 2008, the Banking Commissioner entered a Consent Order (No. CO-08-7321-S) with respect to Digi-Pin, LLC f/k/a Digipin LLC, a securities issuer located at 2415 Boston Post Road, Guilford, Connecticut.  The Consent Order alleged that 1) at various times between 2004 and 2006, sales of Digi-Pin, LLC limited liability company interests were effected by the issuer and certain selling security holders absent registration under the Connecticut Uniform Securities Act; and 2) between 2003 and 2006, Digi-Pin, LLC sold unregistered promissory notes in contravention of Section 36b-16 of the Act.  According to the Consent Order, Digi-Pin, LLC represented to the agency that 1) since 2006, it had not made any additional sales of limited liability company interests or notes; 2) the sales of limited liability company interests and notes that did occur were confined to the families and friends of the issuer’s managing members; 3) there had been no investor complaints with respect to sales of the limited liability company interests or the notes; 4) the issuer had no future plans to raise capital through the offering of securities; 5) the majority of the issuer’s note holders elected to convert their notes to limited liability company interests of the issuer and the issuer had honored that election; and 6) Digi-Pin, LLC repurchased the securities of the one remaining non-converting note holder for $11,200.

The Consent Order precluded the issuer and its successors in interest from soliciting or accepting funds for investment purposes from public or private investors within or from Connecticut without first consulting with experienced securities legal counsel and notifying the Division of the proposed activities at least 30 days prior to the solicitation or acceptance of funds, whichever occurred first.  The Consent Order also prohibited the issuer and its successors in interest from engaging in violative conduct.

Westrock Advisors, Inc. (CRD # 114338) Fined $25,000 for Improper Commission Splitting, Registration and Other Violations

On September 4, 2008, the Banking Commissioner entered a Consent Order (No. CO-2008-7530-S) with respect to Westrock Advisors, Inc., a Connecticut-registered broker-dealer located at 230 Park Avenue, New York, New York.   The Consent Order alleged that 1) from January 11, 2006 to February 16, 2007, the firm violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing unregistered agents; 2) between September 22, 2005 and February 16, 2007, the firm violated Section 36b-16 of the Act by selling unregistered securities; 3) from October 14, 2005 to October 23, 2006, the firm engaged in dishonest or unethical business practices in the securities business by paying commissions to an entity that was not a FINRA member; 4) from October 14, 2005 to July 2006, the firm engaged in dishonest or unethical business practices in the securities business by permitting unregistered sales assistants to be compensated with a percentage of commissions earned by registered representatives of the firm; and 5) the firm failed to establish and implement an adequate system of supervisory controls over its agents.

The Consent Order fined the firm $25,000 and directed it to cease and desist from regulatory violations.  In addition, the Consent Order restricted the firm’s Connecticut securities activities for three years to transactions in investment company securities, government securities, exchange-listed options and securities listed on the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market and the NASDAQ Capital Market.  The Consent Order also prohibited the firm for three years from 1) opening any new account approved for options trading for any non-accredited investor in Connecticut; 2) opening or maintaining any Connecticut discretionary accounts; 3) selling to any non-accredited investor in Connecticut any private placement or initial public offering of the securities of Westrock Advisors, Inc.; and 4) opening any new margin accounts for non-accredited investors in Connecticut.  The Consent Order also required that the firm reimburse the agency for the costs, not to exceed $3,500 in total, of one or more future examinations to be conducted within 24 months following the entry of the Consent Order.

Raymond Wyllins d/b/a Finishmasters Refinishing Directed to Cease and Desist from Unregistered Business Opportunity Sales; Notice of Intent to Fine Issued

On August 25, 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-2008-850-B) against Raymond Wyllins d/b/a Finishmasters Refinishing of 24 Meadowrue Drive, Glastonbury, Connecticut.  The action alleged that in August 2006, the respondent sold an unregistered refinishing business opportunity in violation of Section 36b-67 of the Connecticut Business Opportunity Investment Act.  The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist.  A hearing on the Notice of Intent to Fine is pending.

New Castle Financial Services LLC (CRD # 102380) Fined $50,000 for Regulatory Violations

On August 18, 2008, the Banking Commissioner entered a Consent Order (No. CO-2008-7486-S) with respect to New Castle Financial Services LLC, a Connecticut-registered broker-dealer located at 535 Broad Hollow Road, Suite A-2, Melville, New York.  The Consent Order alleged that 1) from September 1, 2006 to March 1, 2007, the firm violated Section 36b-6 of the Connecticut Uniform Securities Act by employing at least four unregistered agents and by transacting business from an unregistered branch office at 4 Old Mill Plain Road, Danbury, Connecticut; 2) between February 1, 2005 and April 30, 2006, the firm violated Section 36b-16 of the Act by selling unregistered, non-exempt securities to four Connecticut residents; 3) the firm improperly had at least one Connecticut client pre-sign incomplete forms; 4) the firm utilized research materials, sales presentations and/or sales scripts in a deceptive or misleading manner; and 5) the firm failed to establish, enforce and maintain an adequate supervisory system.

The Consent Order fined the firm $50,000 and directed that it cease and desist from regulatory violations.  The Consent Order also required that the firm pay $50,000 to the National White Collar Crime Center for the purpose of training Connecticut regulatory and law enforcement personnel in the investigation, prevention and prosecution of financial fraud perpetrated on Connecticut senior citizens.  The Consent Order also restricted the firm’s Connecticut business activities as follows:  1) For three years, securities products sold by the firm would be limited to investment company, governmental and exchange-listed securities; 2) for three years, the firm would not maintain any discretionary accounts for Connecticut clients; 3) for three years, the firm would refrain from selling to any Connecticut customer any private placement or initial public offering of New Castle Financial Services LLC unless the Connecticut customer was an “accredited investor” as defined in federal Regulation D; and 4) for two years, the firm would not open any new margin accounts or accounts approved for options trading for Connecticut customers who were not accredited investors.

Markland Technologies, Inc. and Chad A. Verdi – Order to Cease and Desist and Notice of Intent to Fine Issued

On August 15, 2008, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket Nos. CF-2008-7550-S and CF-2008-7549-S) against Markland Technologies, Inc. of 222 Metro Center Boulevard, Warwick, Rhode Island and its representative Chad Verdi of 100 Pheasant Drive, East Greenwich, Rhode Island.  The corporation previously maintained an address at 90 Grove Street, Ridgefield, Connecticut.  The action alleged that in September 2004, respondent Verdi sold $4 million of Markland Technologies, Inc. convertible debentures to at least one Connecticut investor at a time when respondent Verdi was not registered as an agent of issuer under the Connecticut Uniform Securities Act.  Markland Technologies, Inc. was also charged with employing an unregistered agent of issuer.  In addition, the action alleged that respondent Verdi made a materially false or misleading statement in an agency investigation by testifying that his only role was to verify the personal information of investors who had previously contacted the corporation.  According to the Order to Cease and Desist and Notice of Intent to Fine, in reality, respondent Verdi actively solicited investments from new investors, regularly sent out and received documents regarding the solicitation and actively participated in investment-related negotiations.  The respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist.  Since respondent Markland Technologies, Inc. did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to it on September 23, 2008.  A hearing on the Notice of Intent to Fine is pending.

Multivend, LLC d/b/a Vendstar (CRD # 47442) – Order to Cease and Desist and Notice of Intent to Fine Issued

On August 15, 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-2008-852-B) against Multivend, LLC d/b/a Vendstar of 880 Grand Boulevard, Deer Park, New York.  The action alleged that, from at least October 31, 2002 to August 9, 2007, the respondent sold unregistered candy vending distributorship business opportunities to at least eight Connecticut purchasers in violation of the Connecticut Business Opportunity Investment Act.  The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist.  A hearing on the Notice of Intent to Fine is pending.

Vision Travel, Inc. a/k/a Global Vision Travel – Order to Cease and Desist and Notice of Intent to Fine Issued

On August 15, 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-2008-844-B) against Vision Travel, Inc. a/k/a Global Vision Travel of First Street, Suite 304, Metro Office Park #7, Guaynabo, Puerto Rico.  The action alleged that, from at least August 16, 2006 to November 3, 2006, the respondent sold unregistered multi-level marketing virtual travel agency business opportunities to at least eight Connecticut purchasers in violation of the Connecticut Business Opportunity Investment Act.  Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on September 23, 2008.  A hearing on the Notice of Intent to Fine is pending.

Managers Distributors, Inc. (CRD # 27314), Peter Michael Lebovitz (CRD # 858855) and Thomas Grant Hoffman (CRD # 1490707) Sanctioned for Supervisory and Recordkeeping Lapses Related to Frequent Trading in Securities of The Managers Funds

On August 11, 2008, the Banking Commissioner entered into a Stipulation and Agreement (Docket No. ST-2008-6959-S) with Managers Distributors, Inc., a Connecticut-registered broker-dealer located at 800 Connecticut Avenue, 4th Floor, Norwalk, Connecticut; Peter Michael Lebovitz, president of Managers Distributors, Inc.; and Thomas Grant Hoffman, Director of Investment Research for Managers Investment Group LLC, an affiliated investment adviser.  The Stipulation and Agreement alleged that, from approximately October 2000 to September 2002, Lebovitz and Hoffman failed to take appropriate managerial action reasonably designed to achieve compliance with firm directives concerning frequent trading in the securities of The Managers Funds and to ensure that related books and records were maintained by Managers Distributors, Inc., in violation of Section 36b-31-6f(e) of the Regulations under the Connecticut Uniform Securities Act.  The Stipulation and Agreement also alleged that, during the same time frame, Managers Distributors, Inc. failed to enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations and to keep written records concerning frequent trading in fund securities with clients, including instructions relating to the frequency of those trades, in violation of Section 36b-14(a) of the Act and Section 36b-31-6f(b) of the Regulations.

Pursuant to the Stipulation and Agreement, Managers Distributors, Inc., Lebovitz and Hoffman agreed to refrain from regulatory violations.  In addition, Managers Distributors, Inc. agreed to 1) pay a $25,000 fine and remit an additional $25,000 to the department as reimbursement for investigative costs, for a total of $50,000; 2) contribute $300,000 to the State of Connecticut Department of Education to promote financial literacy in Connecticut public middle schools; 3) implement revised supervisory and compliance procedures; 4) retain an experienced independent compliance consultant to conduct at least three annual risk assessments and compliance reviews of the firm’s internal procedures; and 5) provide an annual written certification for two years to the Board of Trustees of The Managers Funds and to the department stating that the firm’s supervisory and compliance procedures were reasonably designed to prevent and detect regulatory violations.

George Lemuel Divel, III (CRD # 3102446) Barred from Connecticut Securities Business as a Condition to Application Withdrawal

On August 5, 2008, the Banking Commissioner entered a Consent Order Conditioning Effectiveness of Withdrawal of Application for Registration as Agent (No. CO-08-7504-S) with respect to George Lemuel Divel, III, a broker-dealer agent of Capitol Securities Management, Inc. (CRD number 14169).  On May 19, 2008, Divel’s employing firm had filed a Form U-5 (Uniform Termination Notice for Securities Industry Registration) to withdraw Divel’s Connecticut application for registration as a broker-dealer agent.  The Consent Order alleged that, on November 21, 2007, the State of Maryland suspended Divel for three months from acting as a broker-dealer agent and investment adviser representative in Maryland and directed that he permanently cease and desist from regulatory violations (Case No. 2005-0299) based on findings that Divel engaged in dishonest or unethical practices by effecting unauthorized securities transactions in the trust accounts of two elderly clients following their deaths and accepting commissions for such unauthorized transactions.  The Consent Order rendered Divel’s application to withdraw his pending agent registration effective as of August 5, 2008 subject to certain conditions.  Pursuant to the Consent Order, Divel was barred from applying for registration or transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, with leave to reapply for registration after seven years had elapsed since the entry of the Consent Order.  The Consent Order also required that Divel cease and desist from regulatory violations.

Excel Securities & Associates, Inc.  (CRD  # 16629) Assessed $3,600 for Prior Unregistered Broker-dealer Activity

On July 22, 2008, the Banking Commissioner entered a Consent Order (No. CO-08-7497-S) with respect to Excel Securities & Associates, an applicant for broker-dealer registration under the Connecticut Uniform Securities Act.  The firm is located at 200 Canal View Boulevard, Suite 204, Rochester, New York.  The Consent Order alleged that from February 2004 forward, the form effected securities transactions for at least three Connecticut customers at a time when the firm was not registered as a broker-dealer under the Act, and that the firm employed one or more unregistered agents in contravention of Section 36b-6(b) of the Act.  The Consent Order directed the firm to refrain from violative conduct and to implement revised supervisory procedures designed to improve regulatory compliance.  In addition, the Consent Order required that the firm remit $3,600 to the department.  Of that amount, $2,500 constituted an administrative fine, $600 represented reimbursement for past due broker-dealer and agent registration fees and $500 would be applied to defray agency investigative costs.

Excel Securities & Associates, Inc. became registered as a broker-dealer in Connecticut on July 22, 2008.

Jason John Konior  (CRD  # 2818111)  Fined $10,000 for Unregistered Agent Activity

On July 11, 2008, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2007-7406-S) against Jason John Konior of 145 Spring Street, Second Floor, New York, New York.  Respondent Konior was formerly associated with the securities brokerage firm Great Eastern Securities, Inc. (CRD number 2061).  The Order Imposing Fine had been preceded by a December 19, 2007 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging 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.  Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist had become permanent on January 28, 2008.  In fining the respondent $10,000, the Commissioner found that Jason John Konior violated Section 36b-6(a) of the Act by transacting business as an agent while unregistered.  Respondent Konior did not appear or contest the imposition of the fine.

Chief State's Attorney Announces Sentencing of Ernest P. Lamonica (CRD # 1277052) for Theft from Westport, Connecticut Resident

Ernest P. Lamonica, formerly of Columbiana, Alabama, was sentenced on Friday, August 14, 2008, in Norwalk Superior Court.   On April 24, 2008, Lamonica had pled guilty to one count of Larceny in the First Degree, a felony carrying a maximum prison term of twenty years.  According to the arrest warrant affidavit, Lamonica had contacted a Westport resident in 1996 and claimed to be the President and Chief Executive Officer of Digital Entertainment Corporation (DEC), a business venture involving the purchase of television stations to convert them into digital broadcasting stations.  Later, according to the warrant, Lamonica purported to head a second venture entitled Pacific Rim Investment Partners (PRIP) and claimed that he was raising funds for the discovery and organization of a theme park in China.  The warrant stated that, between 1996 and 2005, after receiving paperwork detailing the businesses, the victim paid $51,500 to Lamonica to invest in these ventures.  After repeated attempts to contact Lamonica, the victim filed a complaint with the Connecticut Department of Banking. An investigation revealed that both DEFC and PRIP were non-existent companies and there were no legitimate investments affiliated with either venture, according to the warrant.  The Honorable Burton A. Kaplan sentenced Mr. Lamonica to a total effective sentence of 6 years, execution suspended after 33 months and 5 years probation.  While on probation, Lamonica was required to make full restitution.  On May 19, 2006, the Banking Commissioner had fined Lamonica $230,000 after finding that respondent Lamonica engaged in fraudulent conduct; acted in an unregistered capacity and sold unregistered securities (Docket Nos. CF-2006-7111-S; CF-2006-7186-S).  Lamonica was also the subject of a February 9, 2006 Order to Cease and Desist which, being uncontested, had become permanent on March 28, 2006.


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  2,607 2,630   
Broker-dealer Agents Registered 137,282  139,383  141,003  
Broker-dealer Branch Offices Registered  2,815 2,804  2,773   
Investment Advisers Registered 452  462  453  
SEC Registered Advisers Filing Notice 1,818   1,874  1,900  
Investment Adviser Agents Registered 9,187 9,357  9,518   
Agents of Issuer Registered  32  32  32  
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed  57 59
27
  143
Investment Company Notice Filings 529 458
476
  1,463
Exemptions and Exemptive Notices 949 813 838   2,600
 
 
Examinations
     
Broker-dealers  19 35 
40
  94
stment Advisers 3 17 
20
  40
 
 
Securities Investigations
 
Opened 29 28 53   110
Closed 19  16  25   60
Ongoing as of End of Quarter 110 102 130  
Subpoenas issued 13 17  8   38
Matters referred from Attorney General 1 5 6   12
Matters referred from Other Agencies 0  0  3   3
 
 
Business Opportunity Investigations
 
Investigations Opened 1  2 0   3
Investigations Closed 0  5 1   6
Ongoing as of End of Quarter 12  8 7  
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
0
0
 
0
Notices of Intent to Suspend (Licensing)
0
0
0
 
0
Notices of Intent to Revoke (Licensing)
0
0
0
 
0
Denial Orders (Licensing) 0  0
0
  0
Suspension Orders (Licensing) 0 0
0
  0
Revocation Orders (Licensing) 1  0
0
  1
Notices of Intent to Fine 1  1
4
  6
Orders Imposing Fine 1  0
2
  3
Cease and Desist Orders 3  3
8
  14
Notices of Intent to Issue Stop Order 0  0
0
  0
Activity Restrictions/Bars 1  1  4   6
Stop Orders 0  1  0   1
Vacating/Withdrawal/ Modification Orders 0  0  2   2
Restitutionary Orders 0  0
 0
  0
Injunctive Relief Obtained 0  0  0   0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
3
2
6
 
11
Consent Orders
3
4
6
 
13
Stipulation and Agreements
2
3
1
 
6
 
 

Monetary Relief

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$46,850
$34,650
$6,835,600
 
$6,917,100
Other (Financial Literacy)
0
0
$300,000
 
$300,000
Other (Law enforcement protecting Seniors)
0
0
$50,000
 
$50,000
Restitution or Other Monetary Relief (includes rescission offer amounts) $37,030
$14,573
$23,476
 
$75,079
 
 

Securities Referrals

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



Securities Division