DOB: Winter 2010 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXIV  No. 4
Winter 2010

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

On January 5, 2011, Dannel Patrick Malloy was sworn in as Connecticut’s 88th Governor, succeeding Governor M. Jodi Rell with whom the agency has had a rewarding and productive relationship.  As the former mayor of Stamford for fourteen years, Governor Malloy brings with him a wealth of public service experience, an open-minded approach to regulation and a results-driven outlook necessary to meet the economic challenges facing Connecticut.

I was particularly honored when Governor Malloy reappointed me to serve another term as Commissioner of the Department of Banking.  There is a tremendous amount of work to be done in addressing federal changes affecting the securities industry and how it is regulated at the state level.  I am grateful that Governor Malloy has shown confidence in me and in the agency to stay the course as we monitor those changes and implement required policy changes.  Our mission has been, and continues to be, protecting investors while simultaneously being sensitive to the impact of regulation on capital formation.

In particular, we are mindful that the effective date of the Dodd-Frank legislation is July 21, 2011, a mere seven months away.  The bill would shift registration responsibility over advisers having less than $100 million in assets under management from the Securities and Exchange Commission to the states.  Prior to July 21, 2011, only advisers having less than $25 million in assets under management were subject to state (versus federal) registration requirements. I have directed our staff to review the state’s current statutory scheme as well as myriad rule proposals advanced by the Securities and Exchange Commission to ensure that we are prepared for the transition when it arrives.  It is my hope that, in light of the current economic climate, we will have the resources to handle the larger registrant pool.  However, we pledge to the investment advisory community that we will strive to address their concerns efficiently and intelligently.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


Grove Electronics, LLC d/b/a Chip Partners LLC Fined $10,000 for Employing Unregistered Agent of Issuer; Order to Cease and Desist Made Permanent 
 
On December 22, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-10-7745-S) against Grove Electronics, LLC d/b/a Chip Partners LLC, an issuer of promissory notes located at 197 Main Street, Suite 206, North Reading, Massachusetts.  The Order Imposing Fine had been preceded by a November 23, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging that, in contravention of Section 36b-6(b) of the Connecticut Uniform Securities Act, the respondent sold securities through one James Fowler Hickman, an unregistered agent of issuer.  In fining the respondent $10,000, the Commissioner found that Grove Electronics, LLC committed one violation of Section 36b-6(b) of the Act.  The respondent did not appear or contest the imposition of the fine.  The Order to Cease and Desist, being uncontested, had become permanent on December 11, 2010.

Westrock Advisors, Inc. (CRD # 114338) – Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Broker-dealer Issued

On December 8, 2010, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. RCF-10-7887-S) against Westrock Advisors, Inc. of 230 Park Avenue, New York, New York.  The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act.  The action alleged that Westrock Advisors, Inc. violated a September 4, 2008 Consent Order (No. CO-2008-7530-S) to which it was subject by selling unregistered Pink Sheet securities, opening options accounts for Connecticut customers who did not qualify as “accredited investors”; and failing to reimburse the Division for the costs associated with an examination of the firm’s Melville, New York office.  The action also alleged that the firm failed to provide Division staff with material records; failed to comply with minimum net capital requirements; and failed to enforce and maintain adequate supervisory procedures with respect to the usage of sales scripts and with respect to compliance with the terms of the 2008 Consent Order.  Westrock Advisors, Inc. was afforded an opportunity to request a hearing on the Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Broker-dealer.  Since the firm failed to request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on January 6, 2011.

Meyers Associates, L.P. (CRD # 34171) – Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Broker-dealer Issued

On November 23, 2010, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine (Docket No. RCF-10-7817-S) against Meyers Associates, L.P., a Connecticut-registered broker-dealer located at 45 Broadway, Second Floor, New York, New York.  The action alleged that the firm violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing unregistered agents; and that the firm sold unregistered securities in contravention of Section 36b-16 of the Act.  In addition, the action alleged that the firm engaged in fraudulent, dishonest and unethical conduct by failing to disclose to Connecticut customers that a “handling fee” charged by the firm included a profit to the firm, that certain customers paid lower fees and that the fee was not based on the costs of handling a particular transaction.  The action also alleged that the firm failed to exercise adequate supervisory controls over its operations.  Meyers Associates, L.P. was afforded an opportunity to request a hearing on the Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Broker-dealer.

Jason Alexander Lawson (CRD # 2712622) Fined $40,000

On November 19, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-10-7399-S) against Jason Alexander Lawson of 134-25 Franklin Avenue, #303, Flushing, New York.  The respondent had been the subject of an August 23, 2010 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-10-7399-S) alleging that he participated in a transaction involving procuring funds from a Connecticut investor for the purported purpose of investing in securities of Ionic Water Technologies Inc.  In reality, the investor’s monies were deposited into a J. Lawson & Associates, Inc. bank account established by Jason Alexander Lawson and Daniel Morris Porter who used the investor’s money for their personal use and not for the purchase of securities.  The August 23, 2010 action had also alleged that the investor did not receive either Ionic Water Technologies Inc. securities or a return of funds paid.  The August 23, 2010 action further alleged that Jason Alexander Lawson materially aided in a violation of both the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act and the registration provisions in Section 36b-6(a) of the Act.  Since respondent Jason Alexander Lawson did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to him on October 13, 2010.

In fining Jason Alexander Lawson $40,000, the Commissioner found that Jason Alexander Lawson violated Sections 36b-6(a) and 36b-4(a) of the Act.  Respondent Jason Alexander Lawson did not appear or contest the imposition of the fine.

Daniel Morris Porter d/b/a D.P. Holdings Inc. (CRD # 2032112) Fined $50,000

On November 19, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-10-7399-S) against Daniel Morris Porter d/b/a D.P. Holdings Inc. of 1390 Vespucci Avenue, Copiague, New York and 109 Maple Parkway, Staten Island, New York.  The respondent had been the subject of an August 23, 2010 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-10-7399-S) alleging that he participated in a transaction involving procuring funds from a Connecticut investor for the purported purpose of investing in securities of Ionic Water Technologies Inc.  In reality, the investor’s monies were deposited into a J. Lawson & Associates, Inc. bank account established by Daniel Morris Porter and Jason Alexander Lawson who used the investor’s money for their personal use and not for the purchase of securities.  The August 23, 2010 action had also alleged that the investor did not receive either Ionic Water Technologies Inc. securities or a return of funds paid.  The August 23, 2010 action had further alleged that 1) respondents Daniel Morris Porter and J. Lawson & Associates, Inc. transacted business as broker-dealers in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act and that respondent Jason Alexander Lawson materially aided in such violation; and 2) respondents Daniel Morris Porter and J. Lawson & Associates, Inc., with the material assistance of respondent Jason Lawson, violated the antifraud provisions in Section 36b-4(a) of the Act.  Since respondent Daniel Morris Porter did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to him on September 11, 2010.

In fining Daniel Morris Porter $50,000, the Commissioner found that Daniel Morris Porter violated Sections 36b-6(a) and 36b-4(a) of the Act.  Respondent Daniel Morris Porter did not appear or contest the imposition of the fine.

J. Lawson & Associates, Inc. Fined $50,000

On November 19, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-10-7399-S) against J. Lawson & Associates, Inc. of 134-25 Franklin Avenue, #303, Flushing, New York.  The respondent had been the subject of an August 23, 2010 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-10-7399-S) alleging that it, together with Jason Alexander Lawson and Daniel Morris Porter, participated in a transaction involving procuring funds from a Connecticut investor for the purported purpose of investing in securities of Ionic Water Technologies Inc.  In reality, the investor’s monies were deposited into a J. Lawson & Associates, Inc. bank account established by Daniel Morris Porter and Jason Alexander Lawson who used the investor’s money for their personal use and not for the purchase of securities.  The August 23, 2010 action had also alleged that the investor did not receive either Ionic Water Technologies Inc. securities or a return of funds paid.  The August 23, 2010 action had further alleged that 1) respondents J. Lawson & Associates, Inc. and Daniel Morris Porter transacted business as broker-dealers in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act and that respondent Jason Alexander Lawson materially aided in such violation; and 2) respondents J. Lawson & Associates, Inc. and Daniel Morris Porter, with the material assistance of respondent Jason Lawson, violated the antifraud provisions in Section 36b-4(a) of the Act.  Since respondent J. Lawson & Associates, 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 October 13, 2010.

In fining J. Lawson & Associates, Inc. $50,000, the Commissioner found that the respondent violated Sections 36b-6(a) and 36b-4(a) of the Act.  Respondent J. Lawson & Associates, Inc. did not appear or contest the imposition of the fine.

ACAE, L.L.C., Michael George Sean Kondracki (CRD # 2179786) and Judy Bao-Shan Liu (CRD # 1702583) – Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Investment Adviser Agent Issued

On November 9, 2010, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-10-7334-S) against ACAE, L.L.C., Michael George Sean Kondracki and Judy Bao-Shan Liu, all of 535 Hunting Ridge Road, Stamford, Connecticut.  Respondents Kondracki and Liu were the owners and managers of ACAE, L.L.C.  Respondents Kondracki and Liu were also the sole directors of Asset Consulting, Allocation and Evaluation Offshore Fund of Funds, Ltd., an entity based in the Cayman Islands.  In the same proceeding, the Commissioner issued a Notice of Intent to Revoke the registration of Michael Kondracki as an investment adviser agent of Fairport Advisors, Inc. (CRD No. 117177) under the Connecticut Uniform Securities Act.

The action alleged that Respondents rendered investment advice from Connecticut to the Cayman Islands fund and its investors at a time when ACAE, L.L.C. was not registered as an investment adviser under the Act and while Respondents Kondracki and Liu were not registered as investment adviser agents of ACAE, L.L.C. in Connecticut.  The action also alleged that respondents Kondracki and Liu failed to initially honor a redemption request by a widowed investor in the Cayman Islands fund, instead offering the investor alternative investments managed by Kondracki and Liu.  When the investment was ultimately redeemed, it purportedly was at a reduced rate and did not include earned interest that Respondents Kondracki and Liu retained, claiming that the investor had not asked them to return those monies.  The action also stated that no legitimate accounting of the Cayman Islands fund’s holdings and expenses had been provided to the investor.   The action alleged that Respondents’ conduct involved fraudulent, dishonest or unethical practices within the meaning of Section 36b-5 of the Act.

The Respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist, Notice of Intent to Fine and Notice of Intent to Revoke Registration as Investment Adviser Agent.


Wachovia Securities, LLC n/k/a Wells Fargo Advisors, LLC (CRD # 19616) Fined $75,000 for Failing to Adequately Supervise Former Agent

On December 29, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7710-S) with respect to Wachovia Securities, LLC, now known as Wells Fargo Advisors, LLC, a Connecticut-registered broker-dealer having its principal office at One North Jefferson Avenue, St. Louis, Missouri.  The Consent Order alleged that the firm failed to establish, enforce and maintain an adequate supervisory system in overseeing the activities of Daniel Charles Allegrini (CRD No. 2962754), an ex-broker-dealer agent of the firm.  According to the Consent Order, Allegrini issued, and recommended to a certain Wachovia Securities, LLC client, unregistered promissory notes that were not suitable for the client based on the client’s financial situation and needs.  The Consent Order added that Allegrini acted outside the regular course or scope of his employment with the firm in selling the notes and in receiving compensation for referring brokerage and bank clients to an associate for the purpose of investing in other interest-paying promissory notes.  Allegrini allegedly did not provide the firm with prior written notice of such activities, nor were the transactions recorded on the firm’s books and records.

The Consent Order fined the firm $75,000 and directed it to cease and desist from regulatory violations.

Goldman, Sachs & Co. (CRD # 361) Fined $1,014,903 in Connection With Auction Rate Securities Activity

On December 17, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7842-S) with respect to Goldman, Sachs & Co., a broker-dealer registered under the Connecticut Uniform Securities Act.  The firm maintains its principal office at 200 West Street, New York, New York.  The settlement followed a coordinated multi-state investigation into the firm’s activities in connection with the sale of auction rate securities (ARS).  The Consent Order acknowledged that the firm had repurchased at par, and on the same terms and conditions, all Eligible ARS from Eligible Investors nationally who accepted and complied with the terms and conditions of the firm’s ARS repurchase offer.  The Consent Order alleged that, in connection with the marketing of ARS 1) the firm failed to reasonably supervise its agents to ensure that all of the firm’s clients would be sufficiently apprised of ARS, the mechanics of the auction process and the potential  illiquidity of ARS; and 2) the firm engaged in unethical practices within the meaning of Section 36b-4(b) of the Act.   The Consent Order fined the firm $1,014,903.35, and required that it cease and desist from regulatory violations.

Wells Fargo Investments, LLC (CRD # 10582) Fined $6,501 in Connection With Auction Rate Securities Activity

On December 14, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7810-S) with respect to Wells Fargo Investments, LLC, a Connecticut-registered broker-dealer located at 420 Montgomery Street, 12th Floor, San Francisco, California.  The settlement, which recited that the firm had agreed to purchase certain auction rate securities (ARS) from customers as a remedial measure, followed a multi-state task force investigation into the firm’s ARS activities.  The Consent Order alleged that the firm failed to reasonably supervise its registered agents in connection with the marketing of ARS to its customers.  The Consent Order fined the firm $6,501.09, and required that it cease and desist from regulatory violations.

Digital In-Motion, LLC and Paul H. Couture Barred from Selling Business Opportunities in Connecticut for Five Years

On December 9, 2010, the Banking Commissioner entered a Consent Order (Docket No. CF-2010-874-B) with respect to Digital In-Motion, LLC, a Connecticut limited liability company located at 25 Third Street, Stamford, Connecticut, and Paul H. Couture, its managing member.  Digital In-Motion, LLC and Paul H. Couture had been the subject of an October 22, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2010-874-B) alleging that, from at least June 2007 forward, the respondents offered and sold unregistered digital signage system business opportunities to purchaser-investors in violation of the Connecticut Business Opportunity Investment Act.  In resolution of the matter, the December 9, 2010 Consent Order rendered the October 22, 2010 Order to Cease and Desist permanent effective December 9, 2010.

Acknowledging that the respondents had submitted evidence demonstrating their inability to pay the fine that otherwise would have been imposed, the Consent Order fined the respondents $250.  In addition, the Consent Order barred the respondents from offering or selling business opportunities in Connecticut for five years.

JHS Capital Advisors, Inc. f/k/a Pointe Capital, Inc. (CRD # 112097) Fined $10,000 for Inadequate Disclosure of “Postage and Handling” Fees

On October 26, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7780-S) with respect to JHS Capital Advisors, Inc., a Connecticut-registered broker-dealer located at 400 North Ashley Drive, Suite 2150, Tampa, Florida.  The Consent Order alleged that , from at least January 1, 2008 through March 31, 2010, the firm charged its Connecticut customers a “postage and handling” fee which it failed to itemize and disclose on trade confirmations supplied to those customers.  The Consent Order also alleged that such conduct would support proceedings under Section 36b-15(a)(2)(H) of the Connecticut Uniform Securities Act to suspend or revoke the firm’s Connecticut registration or to restrict the firm’s Connecticut securities activities.

The Consent Order fined the firm $10,000.  With respect to transactions effected between January 1, 2008 and March 31, 2010, the Consent Order also directed JHS Capital Advisors, Inc. to reimburse affected Connecticut customers the difference between the “postage and handling” fee paid for each transaction and the actual amount of the firm’s ticket and clearing charge and the postage fee assessed by the clearing firm.  The Consent Order also required that the firm cease and desist from regulatory violations.

Asset & Financial Planning, Ltd. (CRD # 110709) Sanctioned for Continuing to Engage Unregistered Investment Adviser Agents Despite Prior Stipulation and Agreement

On October 15, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7823-S) with respect to Asset & Financial Planning, Ltd., an SEC-registered adviser located at 11 Raymond Avenue, Poughkeepsie, New York.  The firm had been the subject of a July 14, 2006 Stipulation and Agreement (No. ST-06-7289-S) alleging that the firm had violated Section 36b-6(c) of the Connecticut Uniform Securities Act by engaging two unregistered investment adviser agents from January 1, 2001 through December 31, 2005.  The October 15, 2010 Consent Order alleged that, in violation of Section 36b-6(c) of the Act, the firm continued to employ the same two individuals in an unregistered capacity notwithstanding the prior Stipulation and Agreement and that the firm engaged two additional unregistered investment adviser agents from January 1, 2006 through at least May 31, 2010.  The Consent Order directed Asset & Financial Planning, Ltd. to cease and desist from regulatory violations and to pay $11,150 to the department.  Of that amount, $10,000 constituted an administrative fine and $1,150 constituted reimbursement for past due investment adviser agent registration fees.

Prosper Marketplace, Inc. Fined $5,000 for Selling Unregistered Securities After Securities Registration Expired

On October 13, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7859-S) with respect to Prosper Marketplace, Inc., a California-based issuer of securities.  The company provides an online marketplace for peer to peer lending.  Prosper Marketplace, Inc. had been the subject of a July 27, 2009 Consent Order (No. CO-09-7705-S) focusing on the firm’s sale of unregistered securities.  Following the 2009 settlement, Prosper Marketplace, Inc. registered the securities in question under the Connecticut Uniform Securities Act.  That registration was effective until July 27, 2010.  The October 13, 2010 Consent Order alleged that, after its prior securities registration lapsed and before  its renewal registration was declared effective by the Commissioner, Prosper Marketplace, Inc. sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act.

The October 13, 2010 Consent Order fined Prosper Marketplace, Inc. $5,000 and directed it to cease and desist from regulatory violations.  In addition, the Consent Order required that the company retain Connecticut legal counsel to advise it concerning Connecticut securities law compliance, and consult with such legal counsel for a three year period.

Andrew Garrett Inc. Fined $20,000 for Supervisory Lapse Resulting in Improper Commission Splitting

On October 5, 2010, the Banking Commissioner entered a Consent Order (No. CO-2010-7838-S) with respect to Andrew Garrett Inc., a Connecticut-registered broker-dealer located at 140 East 45th Street, 11th Floor, New York, New York.  The Consent Order alleged that, from at least September 2008 through July 2009, the firm failed to establish and maintain an adequate supervisory system and that, as a result, the firm allowed its securities representatives to split commissions earned from Connecticut trading activity with an unregistered firm representative who had been the subject of a 2008 Consent Order entered by the Commissioner barring him from transacting securities business as an agent in Connecticut for seven years.

The Consent Order directed the firm to cease and desist from violative conduct, and required that it retain an independent consultant to review the firm’s internal supervisory and compliance procedures.  The Consent Order also fined the firm $20,000.


Kjaya, LLC Fined $1,800 in Connection With Unregistered Security Sales, Unregistered Agent of Issuer Activity

On November 23, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7696-S) with Kjaya, LLC, a Connecticut limited liability company located at 35 Maple Tree Avenue, Unit 6, Stamford, Connecticut.  The Stipulation and Agreement alleged that 1) from 2007 to 2009 and prior to its filing of a notice under Rule 506 of Regulation D, Kjaya, LLC sold unregistered securities; and 2) Kjaya, LLC employed one James McMahon as an unregistered agent of issuer in contravention of Section 36b-6(b) of the Connecticut Uniform Securities Act.  James McMahon has since filed for agent of issuer registration under the Act.  Pursuant to the Stipulation and Agreement, Kjaya, LLC agreed to pay a $1,800 fine and, if it planned future securities offers or sales in or from Connecticut, to retain experienced securities legal counsel to advise it on compliance with the securities laws of Connecticut and other jurisdictions.   The obligation to retain securities legal counsel would run for three years following the Commissioner’s execution of the Stipulation and Agreement.

Steven Lloyd Cronin (CRD # 2146467) – Securities Activity Restrictions Imposed

On November 4, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7828-S) with Steven Lloyd Cronin, a former applicant for broker-dealer agent registration under the Connecticut Uniform Securities Act.  The Stipulation and Agreement alleged that, since Steven Cronin had been sanctioned on more than one occasion by the New York Stock Exchange, a basis existed to deny his registration in Connecticut.  Steven Cronin’s Connecticut application for agent registration was ultimately withdrawn.  Pursuant to the Stipulation and Agreement, Steven Cronin agreed, for a period of thirty-six months, to refrain from 1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; 2) supervising any broker-dealer agents with respect to securities business transacted in or from Connecticut or with respect to Connecticut-based securities brokerage accounts; and 3) acting as a finder for compensation, receiving or splitting commissions and/or receiving referral fees in conjunction with the offer, sale or purchase of securities in  or from Connecticut.  After the expiration of thirty-six months, Steven Cronin could reapply for Connecticut registration if he demonstrated that he had not been the subject of any securities-related complaints, actions or proceedings since the date of the Stipulation and Agreement.

Andrew Glen Satell (CRD # 1435605) Assessed $3,000 for Unregistered Investment Advisory Activity

On October 15, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7730-S) with Andrew Glen Satell, a former broker-dealer agent.  On July 12, 2010, Andrew G. Satell d/b/a Portfolio Consulting Group (IARD number 153848) filed an application for registration as an investment adviser under the Connecticut Uniform Securities Act.  The Stipulation and Agreement alleged that, from January 2001 to August 2009, Andrew Satell transacted business as an investment adviser absent registration in contravention of Section 36b-6(c) of the Act.  Pursuant to the Stipulation and Agreement, Andrew Satell agreed to refrain from violative conduct and to pay $3,000 to the department.  Of that amount, $1,500 constituted an administrative fine and $1,500 represented reimbursement for past due investment adviser registration fees.  Andrew G. Satell d/b/a Portfolio Consulting Group became registered as an investment adviser in Connecticut on October 15, 2010.

Embassy Loans, Inc. Fined $500 for Late Rule 506 Notice Filing

On October 8, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7827-S) with Embassy Loans, Inc., an issuer of securities located at 6335 Stirling Road, Davie, Florida.  The Stipulation and Agreement alleged that the company had been delinquent in making a Regulation D Rule 506 notice filing under Section 36b-21(e) of the Connecticut Uniform Securities Act with respect to an offering of Secured Redeemable Credit line Promissory Notes.  In addition to making the requisite filing, Embassy Loans, Inc. agreed to pay a $500 fine and to refrain from offering or selling securities in or from Connecticut absent compliance with Section 36b-16 of the Act.

Zephyr Aurora Fund, L.P. Fined $650 for Late Rule 506 Notice Filing

On October 1, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7825-S) with Zephyr Aurora Fund, L.P., an issuer of securities located at 320 Park Avenue, New York, New York.  The Stipulation and Agreement alleged that the company had been delinquent in making a Regulation D Rule 506 notice filing under Section 36b-21(e) of the Connecticut Uniform Securities Act with respect to a limited partnership interest offering occurring in 2007.  After making the requisite filing, Zephyr Aurora Fund, L.P. agreed to pay a $650 fine and to refrain from offering or selling securities in or from Connecticut absent compliance with Section 36b-16 of the Act.


Connecticut United States Attorney Announces Guilty Plea of Carlos Garcia to Fraud and Tax Evasion Charges Stemming from $2 Million Investment Scheme 
 
On November 4, 2010, David B. Fein, United States Attorney for the District of Connecticut, announced that Carlos Garcia of Guilford, Connecticut had waived his right to indictment and pleaded guilty before United States Magistrate Judge Thomas P. Smith in Hartford to mail fraud, wire fraud and tax evasion charges stemming from a $2 million investment scheme.  From at least 2002 until 2009, Garcia purported to be an investment adviser/hedge fund manager, selling shares in “Paramount Equity Partners, LLC”, an investment vehicle that he represented would be used to invest client funds.  Garcia directed certain clients to cash out their stock holdings or other investments, obtain surrender checks by mail, and endorse the checks over to “Garcia Capital Management, LLC”, an entity controlled by Garcia.  Garcia then deposited the surrender checks into the Garcia Capital Management, LLC bank account.  Garcia directed other clients to wire transfer money directly into the bank account for Paramount Equity Partners, LLC, and he then transferred those funds into the Garcia Capital Management, LLC bank account.  Instead of investing the funds as promised, Garcia used clients’ money to pay personal expenses for himself and his family, and to make “lulling” payments to clients.  At least 10 people fell victim to the scheme, with losses exceeding $2 million.

Garcia pleaded guilty to one count of mail fraud, one count of wire fraud and four counts of tax evasion.  Sentencing is scheduled for January 25, 2011, at which time Garcia faces a maximum imprisonment term of 60 years and a fine of up to approximately $4 million.  Garcia will also be ordered to pay restitution to his victims and to resolve his outstanding federal tax liabilities.

On November 16, 2009, the Banking Commissioner had fined Garcia $900,000 for transacting business as an unregistered investment adviser agent (Docket No. CF-2009-7333-S).  Garcia was also the subject of a July 23, 2009 Amended Order to Cease and Desist which, being uncontested, became permanent on August 12, 2009.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,465  2,509  2,521  2,430
Broker-dealer Agents Registered 136,757 140,300   143,332 144,376
Broker-dealer Branch Offices Registered 2,741  2,715  2,708  2,713
Investment Advisers Registered 483  496  503 474
SEC Registered Advisers Filing Notice 1,839  1,871  1,892  1,880
Investment Adviser Agents Registered 9,824 9,947   10,189  10,332
Agents of Issuer Registered 25 25   26  26
Conditional Registrations
0
0
0
0
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 45 44 
38
41 168
Investment Company Notice Filings 781  511
488
 6,969 8,749
Exemptions and Exemptive Notices 666  658  545 679 2,548
 
 
Examinations
     
Broker-dealers 21 22 
14
21 78
Investment Advisers 4 16 
11
9 40
 
 
Securities Investigations
 
Opened 48 29  31
36
144
Closed 63 36  33
41
173
Ongoing as of End of Quarter 141 134  131
126
 
Subpoenas issued 6 10  25  16 57
Matters referred from Attorney General 2  3  0 10
Matters referred from Other Agencies 7  0  1 9
 
 
Business Opportunity Investigations
 
Investigations Opened 3 2 2  1 8
Investigations Closed 4 2 1  3 10
Ongoing as of End of Quarter 3 3 4  2
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 1
0
0
0
1
Notices of Intent to Suspend (Licensing)
0
0
0
0
0
Notices of Intent to Revoke (Licensing)
0
1
2
3
6
Denial Orders (Licensing) 0 0
0
0 0
Suspension Orders (Licensing) 0 0
0
0 0
Revocation Orders (Licensing) 0 0
1
0 1
Notices of Intent to Fine 2 4
4
5 15
Orders Imposing Fine 4 3
5
4 16
Cease and Desist Orders 3 4
4
5 16
Notices of Intent to Issue Stop Order 0 0
0
0 0
Activity Restrictions/Bars 2 3 1 2 8
Stop Orders 0 0 0 0 0
Vacating/Withdrawal/ Modification Orders 1 0 1 0 2
Restitutionary Orders 0 0
0
0 0
Injunctive Relief Obtained 1 0 1 0 2
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
7
7
8
7
29
Consent Orders
5
5
13
8
31
Stipulation and Agreements
1
2
3
5
11
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$571,630
$2,273,592
$8,325,007
$1,298,754
$12,468,983
Financial Literacy
0
0
0
 
0
Law enforcement protecting public
(voluntary contribution
acknowledged)
0
$300,000
0
 
$300,000
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$34,265
$575,204,111
$2,157,490,709
$679,855,305
$3,412,584,390

*Cents eliminated

 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
0
0
1
0
1
Civil (Attorney General)
0
0
1
3
4
Other Agency Referrals
1
3
4
1
9



Securities Division