DOB: Spring 2009 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXIII  No. 1
Spring 2009

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 economic challenges we encountered during the first quarter of 2009 linger.  Minimizing systemic risk in all sectors of the financial services industry has become increasingly important as institutions become dependent on one another for their financial health.  In reality, no institution is truly "too big to fail."  The question is whether we as responsible regulators should allow a significant market player's declining performance to have a disproportionate effect on the economy as a whole.  The answer is a resounding "no."  There has been a great deal of discussion locally, nationally and globally about how to formulate a consistent set of standards to ensure that market discipline and financial stability are maintained.  Some have even suggested that a Super Regulator be responsible for diverse financial industries.  However, the effectiveness of regulation has always rested on strong implementation and enforcement, including continuing communication and cooperation between regulators.  For that reason, there will always be a need for state financial services oversight in some form.

As the dialogue continues on an interdisciplinary approach to regulation, it has been suggested that all financial professionals be subject to the same conduct rules.  For example, the law now treats investment advisers as fiduciaries.  However, broker-dealer agents who advise their clients on securities matters are not held to an identical standard.  Regardless of the outcome, we believe that enhancing the accountability of financial services professionals is a boon to investor protection.

As reported in the last issue of the Securities Bulletin, the Securities Division has streamlined the filing requirements for securities private placements in light of SEC Release No. 33-8891 which mandates electronic filing at the federal level by March 15, 2009.  This has eliminated a great deal of paperwork.  Those filing electronically via the SEC's EDGAR system are reminded that they no longer need to file Regulation D amendments with the agency since those amendments are viewable online.  In addition, those registering securities by coordination via EDGAR need not file post-effective amendments and other documents that are available for online viewing.  Our registration by coordination instructions provide more information.

The department is also reminding Connecticut registered broker-dealers who are FINRA members and who are current in their federal financial reporting requirements that they do not have to file annual audited financial statements with the department.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


Press-A-Print International LLC – Business Opportunity Registration Applicant Fined $25,000 for Prior Unregistered Sales

On March 23, 2009, the Banking Commissioner entered a Consent Order (No. CO-2009-860-B) with respect to Press-A-Print International LLC of 1463 Commerce Way, Idaho Falls, Idaho.  The entity had filed for registration under the Connecticut Business Opportunity Investment Act.  The Consent Order alleged that 1) from 2000 forward, the company sold at least five unregistered business opportunities in Connecticut in contravention of Sections 36b-65(a) and 36b-67(1) of the Act; 2) the disclosure document filed by the company in connection with its business opportunity registration application contained deficiencies, including a failure to disclose the Commissioner’s January 29, 1996 Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-95-160-B) against the firm’s predecessor, Press-A-Print, Inc.; 3) the disclosure document was inconsistent with the seller’s promotional materials with respect to financing offered, the use of public figures to promote the business opportunity and the extent of training support; and 4) in violation of Section 36b-80 of the Act, the company filed with the Commissioner a document representing that purchaser-investors had a license to use the company’s registered trademark when that was not the case.

The Consent Order directed Press-A-Print International LLC to cease and desist from regulatory violations and to pay a $25,000 fine.  In addition, the Consent Order required that the company 1) consult with legal counsel periodically for three years regarding compliance with Connecticut’s business opportunity law; 2) notify those Connecticut residents who purchased a business opportunity from 2006 forward of their rights and remedies under the Connecticut Business Opportunity Investment Act and supply them with a copy of the Consent Order; 3) notify the Division Director for three years of any change in the seller’s executive officers, control persons or affiliated entities; 4) include a description of the March 23, 2009 Consent Order in the disclosure document; and 5) for three years, advise the department in writing each quarter of any complaints, actions or proceedings involving Connecticut residents.

Morgan Stanley & Co. Incorporated (CRD # 8209) Assessed $85,879 Following Allegations of Unregistered Securities Sales; $4.4 Million Rescission Offer Extended to Connecticut Investors

On March 9, 2009, the Banking Commissioner entered a Consent Order (No. CO-09-7319-S) with respect to Morgan Stanley & Co. Incorporated, a Connecticut-registered broker-dealer with its principal office at 1585 Broadway, New York, New York.  The agency investigation culminating in the entry of the Consent Order focused on the firm's sale of unregistered non-exempt securities from approximately 1995 to May 2005, and was part of a coordinated investigation conducted by a multi-state task force of the North American Securities Administrators Association, Inc. (“NASAA”).  Following discovery of the problem, Morgan Stanley & Co. Incorporated self-reported the unregistered sales to NASAA and to affected states.  The global resolution capping the investigations resulted in $8.5 million allocated to the states, $85,879 of which represented Connecticut’s proportionate share.

The Consent Order acknowledged that, in furtherance of its desire to informally resolve the matter, the firm had extended a $4.4 million rescission offer to affected Connecticut residents.

The Consent Order directed the firm to cease and desist from regulatory violations and required that it pay $85,879 to the State of Connecticut.  Of that amount, $50,000 would be paid directly to the State of Connecticut Department of Social Services to promote financial literacy initiatives for the benefit of low-income and/or elderly persons in Connecticut; $25,000 would be paid to the Department of Banking as an administrative fine; and $10,879 would be applied to defray the Division’s investigative costs.

Euro Pacific Capital, Inc. (CRD # 8361) Assessed $7,500 For Alleged Sales of Unregistered Securities and Failing to Promptly Provide Records to Agency

On February 20, 2009, the Banking Commissioner entered a Consent Order (No. CO-08-7611-S) with respect to Euro Pacific Capital, Inc., a Connecticut-registered broker-dealer located at 10 Corbin Drive, Darien, Connecticut.   The Consent Order alleged that the firm 1) violated Section 36b-16 of the Connecticut Uniform Securities Act by effecting transactions in unregistered non-exempt securities; and 2) acted in contravention of Section 36b-14(d) of the Act and Section 36b-31-14f(b) of the Regulations under the Act by failing to promptly provide records to the Division when requested.  The Consent Order directed the firm to cease and desist from regulatory violations and required that it retain an independent consultant to review its internal supervisory and compliance procedures for conformity with legal requirements.  The Consent Order also required that the firm pay $7,500 to the department.  Of that amount, $6,500 constituted an administrative fine and $1,000 would be applied to reimburse the Division for agency examination costs.

Chapin, Davis, Inc. (CRD # 28116) Assessed $12,500 Following Allegations of Unregistered Broker-dealer and Agent Activity

On January 21, 2009, the Banking Commissioner entered a Consent Order (No. CO-08-7612-S) with respect to Chapin, Davis, Inc., an applicant for broker-dealer registration located at 2 Village Square, Suite 200, Baltimore, Maryland.  The Consent Order alleged that, from at least July, 2003 forward, the firm 1) violated Section 36b-6(a) of the Connecticut Uniform Securities Act by effecting securities transactions for multiple Connecticut customers at a time when the firm was not registered as a broker-dealer in Connecticut; and 2) employed multiple unregistered agents in contravention of Section 36b-6(b) of the Act.

The Consent Order required that the firm remit $12,500 to the department.  Of that amount, $9,500 constituted an administrative fine, $1,500 represented past due registration fees; and $1,500 represented reimbursement for agency investigative costs.  In addition, the Consent Order directed the firm to implement revised supervisory procedures to improve regulatory compliance and to refrain from regulatory violations.

Chapin, Davis, Inc. became registered as a broker-dealer in Connecticut on January 22, 2009.

Laidlaw & Company (UK) Ltd., f/k/a Sands Brothers International Ltd. (CRD # 119037) Assessed $60,000 for Allegedly Filing Misleading Reports With the Agency

On January 20, 2009, the Banking Commissioner entered a Consent Order (Docket No. RCF-2007-7093-S) with respect to Laidlaw & Company (UK) Ltd. f/k/a Sands Brothers International Ltd. of 41 Dover Street, London, England.  The firm had been a signatory to a November 29, 2004 Consent Order Conditioning Registration as an Investment Adviser Agent and Restricting Securities-Related Activities (No. CO-04-7093) (the “2004 Consent Order”) 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 2004 Consent Order obligated Laidlaw & Company (UK) Ltd. to file periodic reports with the agency concerning disciplinary matters involving Martin Scott Sands.

On May 18, 2007, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to revoke Laidlaw & Company (UK) Ltd.’s Connecticut broker-dealer registration (Docket No. RCF-2007-7093-S).  The May 18, 2007 action alleged that Laidlaw & Company (UK) Ltd. violated the 2004 Consent Order as well as Section 36b-23 of the Connecticut Uniform Securities Act by filing incomplete or inaccurate reports with the department regarding Martin Sands’ disciplinary background.

The January 20, 2009 Consent Order resolved the matters alleged in the May 18, 2007 Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to revoke the firm’s broker-dealer registration.  The 2009 Consent Order fined the firm $50,000 and required that it reimburse the department an additional $10,000 for investigative costs for a total of $60,000.  In addition, the 2009 Consent Order required that the firm retain an independent consultant to conduct semi-annual reviews of the firm’s supervisory procedures for two years.  The 2009 Consent Order also directed the firm to cease and desist from regulatory violations.

Casimir Capital L.P. (CRD # 105061) Assessed $15,000 for Registration, Recordkeeping and Supervisory Violations

On January 15, 2009, the Banking Commissioner entered a Consent Order (No. CO-2008-7606-S) with respect to Casimir Capital L.P., a Connecticut-registered broker-dealer located at 546 Fifth Avenue, Fifth Floor, New York, New York.  The Consent Order acknowledged Casimir Capital L.P.’s representation that the firm had decided in the summer of 2008 to cease retail securities brokerage operations, and that such operations had, in fact, ceased.

The Consent Order alleged that the firm 1) violated Section 36b-6 of the Connecticut Uniform Securities Act by employing at least one unregistered agent; 2) violated Section 36b-16 of the Act by selling non-exempt, unregistered securities in the state; 3) in contravention of FINRA Rule 1031, employed unregistered “cold callers” who pre-qualified customers; 4)  failed to exercise adequate supervisory controls over its agents; and 5) failed to keep accurate books and records.

The Consent Order directed the firm to cease and desist from regulatory violations and required that it pay $15,000 to the department.  Of that amount, $12,500 constituted an administrative fine and $2,500 represented reimbursement for the Division’s investigative costs.  The Consent Order also required that the firm provide the department with at least thirty days advance written notice before the firm reestablished retail brokerage operations and conducted solicited, retail brokerage business in the accounts of Connecticut customers.

Williams Trading, LLC (CRD # 43678) Assessed $2,500 for Agent Registration Lapse

On March 19, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-09-7625-S) with Williams Trading, LLC, a Connecticut-registered broker-dealer located at 860 Canal Street, Third Floor, Stamford, Connecticut.   The Stipulation and Agreement alleged that, from at least May 2007 to June 2008, the firm employed two agents at a time when their Connecticut registrations were not effective.  Williams Trading, LLC maintained that the prior registrations for the two agents had been terminated in error.  The agents in question have since been re-registered under the Connecticut Uniform Securities Act.

Pursuant to the Stipulation and Agreement, the firm agreed to pay $2,000 to the department.  Of that amount, $1,500 constituted an administrative fine and $500 represented reimbursement for past due agent registration fees as well as for agency investigative costs.  The firm also agreed to comply with all statutory requirements governing the registration of affected personnel as broker-dealer agents, and to implement revised supervisory procedures.

New Stream Securities, LLC (CRD # 46970) Assessed $1,500 For Employing an Unregistered Agent

On March 6, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-08-7620-S) with New Stream Securities, LLC, a Connecticut-registered broker-dealer located at 38C Grove Street, Ridgefield, Connecticut.  The Stipulation and Agreement alleged that, from March 2005 forward, the firm employed an unregistered agent in contravention of Section 36b-6(a) of the Connecticut Uniform Securities Act.  The firm represented to the Division that the agent, who subsequently became registered under the Act, serviced only institutional and accredited investors.  Pursuant to the Stipulation and Agreement, New Stream Securities, LLC agreed to pay $1,500 to the department.  Of that amount, $1,000 constituted an administrative fine and $500 represented reimbursement for past due agent registration fees as well as the costs associated with the Division’s investigation of the matter.  The Stipulation and Agreement also required that the firm comply with all statutory requirements governing the registration of affected personnel as broker-dealer agents and implement such supervisory procedures as would be necessary to ensure such compliance.

Jeffrey Alan Cohan (CRD # 872568) - Order Modifying June 3, 2008 Consent Order Entered

On March 6, 2009, the Commissioner entered an Order modifying a June 3, 2008 Consent Order (No. CO-2008-7308-S) against Jeffrey Alan Cohan, a registered broker-dealer agent.  The June 3, 2008 Consent Order had alleged that Jeffrey Cohan violated Section 36b-16 of the Connecticut Uniform Securities Act and Section 36b-31-6e of the Regulations thereunder.  Among other things, the June 3, 2008 Consent Order restricted Jeffrey Cohan's securities sales activities to investment company securities and exchange-listed securities for a three year period.

The March 6, 2009 Order modified the three year activity restriction to permit Jeffrey Cohan, in his capacity as a registered broker-dealer agent, to effect transactions in the securities of issuers comprising the Financial Times Stock Exchange (“FTSE”) 100 Index.

In modifying the earlier Consent Order, the Commissioner noted that Cohan had not been the subject of any regulatory actions, complaints or arbitrations reported since the entry of the Consent Order.

Continental Five Investment Group, LLC (CRD # 148261) and Pasquale Joseph Sacchetta (CRD # 1264356) – Stipulated Agreement Conditioning Registration as an Investment Adviser and as an Investment Adviser Agent Issued

On February 11, 2009, the Banking Commissioner entered into a Stipulated Agreement conditioning the registration of Continental Five Investment Group, LLC as an investment adviser and the registration of Pasquale Joseph Sacchetta as an investment adviser agent of the firm.  Continental Five Investment Group, LLC is located at One Gorham Island, Suite 303, Westport, Connecticut.  The Stipulated Agreement resulted from concerns raised by the Division regarding representations about the applicants’ services and qualifications made to prospective clients on the firm’s website.

The Stipulated Agreement required that the firm and Pasquale Sacchetta consult with legal counsel on a periodic basis for two years concerning their compliance with Connecticut’s securities laws.  In addition, the Stipulated Agreement required that Pasquale Sacchetta and the firm provide the Division with quarterly reports for two years addressing any complaints, actions or proceedings initiated against either or both of them.  The Stipulated Agreement also acknowledged that, within four months, the investment advisory books and records of Continental Five Investment Group, LLC would be subject to an examination conducted by the Division under the Connecticut Uniform Securities Act.

Continental Five Investment Group, LLC became registered as an investment adviser under the Act on February 11, 2009.  Also on February 11, 2009, Pasquale Sacchetta became registered as an investment adviser agent of Continental Five Investment Group, LLC in Connecticut.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,537  
Broker-dealer Agents Registered 134,610      
Broker-dealer Branch Offices Registered 2,805
Investment Advisers Registered 445
SEC Registered Advisers Filing Notice 1,838
Investment Adviser Agents Registered 9,329
Agents of Issuer Registered 30
Conditional Registrations
1
 
 
 
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 33
 
  33
Investment Company Notice Filings 382
 
382
Exemptions and Exemptive Notices 715 715
 
 
Examinations
     
Broker-dealers 37  
 
  37
Investment Advisers 20  
 
20
 
 
Securities Investigations
 
Opened 49
 
49
Closed 23
 
23
Ongoing as of End of Quarter 153
 
Subpoenas issued 8 8
Matters referred from Attorney General 8 8
Matters referred from Other Agencies 1 1
 
 
Business Opportunity Investigations
 
Investigations Opened 3 3
Investigations Closed 3 3
Ongoing as of End of Quarter 5
 
 
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) 0
 
0
Notices of Intent to Fine 0
 
0
Orders Imposing Fine 0
 
0
Cease and Desist Orders 5
 
5
Notices of Intent to Issue Stop Order 0
 
0
Activity Restrictions/Bars 0 0
Stop Orders 0 0
Vacating/Withdrawal/ Modification Orders 1 1
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
0
 
 
0
Consent Orders
6
 
 
6
Stipulation and Agreements
2
 
 
2
 
 

Monetary Relief

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$159,879
 
 
$159,879
Other (Financial Literacy)
$50,000
 
 
 
$50,000
Other (Law enforcement protecting Seniors)
0
 
 
 
0
Restitution or Other Monetary Relief (includes rescission offer amounts) $4,412,921
 
 
$4,412,921
 
 

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
0
 
 
 
0



Securities Division