DOB: Winter 2011 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXV  No. 4
Winter 2011

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


Hector Natera, Yvette Cuccaro and Point Stratford Development, LLC f/k/a Hollywood East/Area 51, LLC Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued 
 
On December 12, 2011, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-11-7743-S) against Point Stratford Development, LLC f/k/a Hollywood East/Area 51, LLC of 550 Main Street, Stratford, Connecticut; Hector Natera, its managing member; and Yvette Cuccaro.  Hollywood East/Area 51, LLC was a purported digital media and real estate development company that sought investment capital to acquire a former military aircraft assembly plant in Stratford, Connecticut that was being auctioned off by the U.S. General Services Administration.

The action alleged that during 2007 and 2008, the respondents sold unregistered Hollywood East securities to investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that respondents Natera and Cuccaro transacted business as unregistered agents of issuer in violation of Section 36b-6 of the Act.  The action also alleged that respondents Point Stratford Development, LLC and Natera violated the antifraud provisions in Section 36b-4(a) of the Act by failing to provide investors with any financial information concerning the respondents; failing to disclose the unregistered status of Hollywood East’s agents; failing to disclose that the Hollywood East securities would be sold to individuals who were not accredited investors; and failing to disclose the estimated cash proceeds of the securities offering.  The action further alleged that respondents Point Stratford Development, LLC and Natera failed to disclose specific risks to investors, including risks related to the investment and acquisition of the proposed site from the federal government, including remediation costs; the risk that an economic development bond to fund the project might not be procured; the risk that Hollywood East’s property bid and deposit would be submitted in the name of an unrelated entity; and the risk that Hollywood East, if successful on the bid, would be unable to secure funds for the full purchase price, leading to a default and the forfeiture of Hollywood East’s $1 million deposit.

The respondents were afforded an opportunity for a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Julius Blackwelder d/b/a Friend’s Investment Group Fined $300,000, Directed to Make Restitution to Connecticut Investors; Order to Cease and Desist Made Permanent

On December 5, 2011, the Banking Commissioner entered an Order to Cease and Desist, Order to Make Restitution and Order Imposing Fine (Docket No. CRF-11-7806-S) against Julius Blackwelder d/b/a Friend’s Investment Group of 1310 Jeff Davis Drive, Tyler, Texas.  The action had been preceded by a June 30, 2011 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-11-7806-S) alleging that from at least 2001 forward, respondent Blackwelder sold several unregistered promissory notes in violation of the Connecticut Uniform Securities Act, and represented to certain investors that he would manage and invest their funds to achieve a guaranteed return of 20 percent and 25 percent.  The June 30, 2011 action had also alleged that respondent Blackwelder engaged in fraudulent, dishonest or unethical practices by failing to disclose to investors that respondent Blackwelder would use investor funds to pay for his personal and household expenses; that investors might lose their entire investment; any risk factors related to the investment; any financial information on respondent Blackwelder; information substantiating how the represented rates of return could be achieved; and information on respondent Blackwelder’s ability to meet his obligations under the notes.

Although respondent Blackwelder requested a hearing on the matters alleged, he ultimately failed to appear at the hearing held on October 6, 2011, and a default order was entered.  Finding that respondent Blackwelder violated Sections 36b-16, 36b-4(a) and 36b-4(b) of the Act, the Commissioner rendered the June 30, 2011 Order to Cease and Desist and Order to Make Restitution permanent as of December 5, 2011, and directed the respondent to 1) within 30 days, provide an accounting of amounts received from and disbursed to Connecticut investors from January 1, 2001 to December 5, 2011; 2) within 45 days, reimburse previously identified Connecticut investors for amounts invested plus interest; and 3) within 45 days, pay a $300,000 fine to the department.

Movies for a Better World, LLC and Michael J. Martineau Ordered to Cease and Desist from Regulatory Violations; Order to Make Restitution and Notice of Intent to Fine Issued

On October 28, 2011, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-11-7852-S) against Movies for a Better World, LLC, a purported film, music and literary development company located at 1 Glenville Street, Greenwich, Connecticut.  Also named in the action was Michael J. Martineau of 24 Pemberwick Road, Greenwich, Connecticut, president of the firm.  The action alleged that, in 2009, the respondents offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that Michael J. Martineau transacted business as an unregistered agent of issuer.  In addition, the action alleged that the respondents violated the antifraud provisions of the Act by failing to disclose to investors any risk factors related to the investment; financial information relating to the issuer or the performance of its prior development projects; financial or background information on the issuer’s principals; compensation paid to the issuer’s principals and affiliates; the estimated cash proceeds of the offering; how the offering proceeds would be applied; and material litigation involving the principals of the issuer.

The respondents were afforded an opportunity to request a hearing on the matters alleged in the action.


Morgan Asset Management, Inc. (IARD # 111715) and Morgan Keegan & Company, Inc. (CRD # 4161) Settle Allegations Relating to Inadequate Disclosure in Fund Sales; $7,771 Fine Imposed

On December 13, 2011, the Banking Commissioner entered a Consent Order (Docket No. CO-11-7966-S) with respect to Morgan Asset Management, Inc., an investment adviser registered with the Securities and Exchange Commission, and Morgan Keegan & Company, Inc., a Connecticut-registered broker-dealer.  Morgan Asset Management, Inc. maintains its principal office at 1901 6th Avenue North, 4th Floor, Birmingham, Alabama.  Morgan Keegan & Company, Inc. is located at 50 Front Street, Morgan Keegan Tower, Memphis, Tennessee.  The Consent Order followed a multi-state investigation and related investigations conducted by the SEC and the Financial Industry Regulatory Authority (FINRA).  The investigations focused on seven proprietary mutual funds sold by Morgan Keegan to more than 30,000 account holders.  Approximately 55 investors were located in Connecticut.  Nationwide, the seven mutual funds lost approximately $1.5 billion dollars from March 31, 2007, to March 31, 2008.

In addition to citing the respondents for alleged supervisory failures, the Connecticut consent order, like those of other settling states, alleged that the respondents misled investors by failing to disclose risks regarding the affected funds and providing misleading information about securities products.  The consent order required the respondents to pay $200 million, split between an SEC Fair Fund and a States’ Fund, both for the benefit of investors.  Under the multi-state settlement, investors must file a claim with the Fund Administrator to recover damages.  The Fund Administrator (A.B. Data) may be contacted by phone (888-208-9083) or mail (Morgan Keegan Settlement Claims Administrator, c/o A.B. Data,  Ltd., PO Box 170500, Milwaukee, Wisconsin  53217-8091).  The Fund Administrator also maintains a website at www.abdataclassaction.com.

The Connecticut Consent Order also 1) directed the respondents to cease and desist from regulatory violations; 2) fined the respondents $7,771 (Connecticut's share of the $10 million multi-state settlement); 3) prohibited the respondents from creating, offering or selling to non-institutional investors any proprietary fund for two years; 4) required Morgan Keegan & Company, Inc. to reimburse the department for the costs of a books and records examination to be conducted within 24 months; 5) required the respondents to provide their agents and investment adviser agents with compliance training for three years; and 6) incorporated the requirement from the multi-state settlement that the respondents retain an independent consultant to evaluate their supervisory and compliance procedures.

Newbridge Securities Corporation (CRD # 104065) Fined $10,000, Ordered to Reimburse Connecticut Customers for Mischaracterized "Handling Fees"

On November 10, 2011, the Commissioner entered a Consent Order (Docket No. RCF-11-7794-S) resolving the matters alleged in an April 15, 2011 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Revoke Registration as a Broker-dealer and Notice of Intent to Fine (Docket No. RCF-11-7794-S) against Newbridge Securities Corporation, a Connecticut-registered broker-dealer having its main office at 1451 Cypress Creek Road, Suite 204, Fort Lauderdale, Florida.  The April 15, 2011 action had alleged that the firm charged its customers a transactional “Handling Fee” that was unrelated to actual transaction costs, and that the firm failed to inform customers that the fee included a profit to the firm, that certain customers paid lower fees and that the fee was not based on the actual cost of handling a particular transaction.  Such conduct allegedly violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act and constituted a dishonest and unethical practice.

The Consent Order directed the firm to 1) cease and desist from regulatory violations; and 2) with respect to transactions effected from January 1, 2008 forward, reimburse each Connecticut customer the difference between the "Handling Fee" paid per 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 fined Newbridge Securities Corporation $10,000.

Waterford Loan Fund, LLC Directed to Cease and Desist from Regulatory Violations

On November 10, 2011, the Commissioner entered a Consent Order (Docket No. CF-11-7719-S) with respect to Waterford Loan Fund, LLC, a securities issuer located at 215 South State Street, Suite 550, Salt Lake City, Utah. The Consent Order had been preceded by a March 4, 2011 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-11-7719-S) alleging that Waterford Loan Fund, LLC violated Sections 36b-16 and 36b-6(b) of the Connecticut Uniform Securities Act by selling unregistered securities and employing Daniel Quentin Humphrey (CRD # 2580858) as an unregistered agent of issuer.  The Consent Order acknowledged that Waterford Loan Fund, LLC and its affiliate, Waterford Funding, LLC, were currently under the supervision of a Chapter 11 trustee and that the assets of those entities were being liquidated for the benefit of creditors (In re: Waterford Funding LLC and Waterford Loan Fund, LLC, Case Number 09-22584 (D. Utah)).  In light of that fact, the Consent Order stated that no fine would be imposed against the respondent.

The Consent Order directed the respondent to cease and desist from regulatory violations.

Oasis Properties I, LLC and Scott L. Wilson Assessed $1,500 Jointly and Severally for Selling Unregistered Securities, Employing Unregistered Agent of Issuer

On November 10, 2011, the Commissioner entered a Consent Order (Docket No. CF-11-7719-S) with respect to Oasis Properties I, LLC, a securities issuer located at 1055 West Red Cliff Drive, C-517, Washington, Utah and its manager, Scott L. Wilson.  The Consent Order had been preceded by a March 4, 2011 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-11-7719-S) against the respondents.  The March 4, 2011 action had alleged that 1) Oasis Properties I, LLC violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing Daniel Quentin Humphrey (CRD # 2580858) as an unregistered agent of issuer in connection with an offering of Series C notes; and 2) Oasis Properties I, LLC and Scott L. Wilson violated Section 36b-16 of the Act by selling unregistered Series F secured promissory notes.

The Consent Order directed the respondents to cease and desist from regulatory violations and to jointly and severally remit $1,500 to the department.  Of that amount, $1,400 constituted an administrative fine and $100 represented reimbursement for past due agent of issuer registration fees.

Daniel Quentin Humphrey (CRD # 2580858) Barred from Transacting Securities Business in Connecticut for Five Years; Finity Financial Group, LLC and Daniel Quentin Humphrey Ordered to Cease and Desist from Regulatory Violations

On November 10, 2011, the Commissioner entered a Consent Order (Docket No. CF-11-7719-S) with respect to Daniel Quentin Humphrey, currently of 108 Bordeaux Lane, Alpine, Utah, and Finity Financial Group, LLC of 708 South Avenue, New Canaan, Connecticut, an entity of which Humphrey was a member.  The respondents had been the subject of a March 4, 2011 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-11-7719-S).  The March 2011 action had alleged that: 1) between 2002 and 2005, respondent Humphrey engaged in private securities transactions without notice to his employing broker-dealer by selling unregistered promissory notes issued by Waterford Loan Fund, LLC; 2) respondent Humphrey violated Section 36b-6(a) of the Connecticut Uniform Securities Act by acting as an unregistered agent of issuer of Waterford Loan Fund, LLC; 3) respondent Humphrey transacted business as an unregistered agent of issuer of Oasis Properties I, LLC in conjunction with an offering of that entity’s Series C notes; and 4) from at least 2006 forward, both Humphrey (alone and doing business as Finity Financial Group, sole proprietorship) as well as Finity Financial Group, LLC transacted business as an investment adviser in Connecticut absent registration.

The Consent Order recited that respondent Humphrey had provided documentation to the department evidencing his financial inability to pay the fine that otherwise would have been imposed against him.

The Consent Order barred Humphrey for five years from transacting securities business in Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent.  In addition, the Consent Order directed Humphrey and Finity Financial Group, LLC to cease and desist from regulatory violations.

John Thomas Financial (CRD # 40982) Fined $20,000 for Supervisory Lapse in Connection With Fee Disclosures

On October 18, 2011, the Banking Commissioner entered a Consent Order (No. CO-11-7904-S) with respect to John Thomas Financial, a Connecticut-registered broker-dealer located at 14 Wall Street, 23rd Floor, New York, New York.  The Consent Order alleged that the firm failed to establish, enforce and maintain a supervisory system reasonably designed to oversee agents engaging in inaccurate disclosure practices with respect to “Handling Fees” charged to certain Connecticut customers between July 2007 and July 2009.  The agents allegedly represented that the “Handling Fee” was a ticket charge assessed by the clearing firm, rather than revenue to John Thomas Financial.

The Consent Order fined John Thomas Financial $20,000 and directed that the firm cease and desist from regulatory violations.  In addition, the Consent Order required that the firm reimburse affected Connecticut customers the difference between the per transaction “Handling Fee” and the actual amount of the firm’s ticket and clearing charge and the postage fee assessed by the clearing firm.

Alexander Hamilton Britnell  (CRD # 1519011) Barred From Transacting Securities Business in Connecticut for Seven Years

On October 14, 2011, the Banking Commissioner entered a Consent Order (No. CO-11-7944-S) with respect to Alexander Hamilton Britnell.  The Consent Order alleged that, in steering prospective investors to Michael S. Goldberg, LLC d/b/a Acquisitions Unlimited Group, Alexander Britnell transacted business as an unregistered agent and offered and sold unregistered securities in violation of Sections 36b-6(a) and 36b-16 of the Connecticut Uniform Securities Act.  The Consent Order acknowledged that Alexander Britnell had also invested his own funds in the venture.  Acquisitions Unlimited Group purportedly liquidated distressed assets obtained from JP Morgan Chase Bank and promised investors a 20% return on capital.  Michael S. Goldberg ultimately pleaded guilty to wire fraud and was sentenced to a ten year prison sentence on May 16, 2011 (United States v. Michael S. Goldberg, D. Conn., Criminal No. 3:10 CR192 (JCH)).

The Consent Order directed Alexander Britnell to cease and desist from regulatory violations, and barred him for seven years from transacting business in Connecticut as a broker-dealer, agent, investment adviser, investment adviser agent or compensated finder.  The Consent Order also required that Alexander Britnell consult with experienced securities legal counsel regarding any future securities-related activities in which he might engage.

EKN Financial Services, Inc. (CRD # 113525) Fined $3,000 for Inadequate Fee Disclosure

On October 14, 2011, the Banking Commissioner entered a Consent Order (No. CO-11-7909-S) with respect to EKN Financial Services, Inc., a registered broker-dealer having its principal office at 201 Old Country Road, Suite 101, Melville, New York.  The Consent Order alleged that from at least April 1, 2010 through December 30, 2010, the firm charged its Connecticut customers a per transaction fee in addition to a commission and/or markup or markdown; that the fee was categorized as a “Handling Fee” on customer trade confirmations sent from the firm’s clearing broker; and that the fee was the same for each customer, regardless of trading activity.  The Consent Order also alleged that, although the “Handling Fee” included the ticket charge assessed by the clearing firm for trade execution and postage expense, EKN Financial Services, Inc. failed to clearly disclose that the remainder of the fee would be credited as revenue to the firm and used to pay other expenses not specifically identified on either the pre-confirmation or the clearing firm confirmation.

The Consent Order fined EKN Financial Services, Inc. $3,000; directed it to cease and desist from regulatory violations; and required that it provide additional fee disclosures to customers.  The Consent Order also required that the firm reimburse affected Connecticut customers the difference between the amount of the per transaction “Handling Fee” paid by each customer and the actual amount of the firm’s ticket and clearing charge and the postage fee assessed by the clearing firm.


LGAUS LLC d/b/a Landmark Global Advisors LLC (CRD # 156330) and Michael James Byl (CRD # 1204677)

On December 27, 2011, the Banking Commissioner entered a Stipulated Agreement conditioning the investment adviser registration of LGAUS LLC d/b/a Landmark Global Advisors LLC of 14 Greenbriar Lane, Wilton, Connecticut.  The Stipulated Agreement also conditioned the investment adviser agent registration of Michael James Byl, managing director of Landmark Global Advisors LLC.  The Stipulated Agreement recited that Michael Byl had been the president and operating principal of Southridge Investment Group, LLC (CRD number 45531), an entity subject to a pending 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-2009-7741-S) issued on October 20, 2009.

As a precondition to registration, the Stipulated Agreement required that Landmark Global Advisors LLC and Michael Byl 1) retain an independent consultant for two years to evaluate the firm’s supervisory and compliance procedures; 2) limit their investment advice for two years to exchange listed securities, commercial paper, certificates of deposit, corporate debt, government securities, investment company securities and state-regulated insurance products; 3) refrain from exercising discretionary trading authority  for two years; 4) refrain from having custody of client funds or securities for two years; and 5) for two years, provide quarterly reports to the Division regarding any complaints, actions or proceedings initiated against them.

LGAUS LLC became registered as an investment adviser in Connecticut on January 3, 2012, and Michael James Byl became registered as an investment adviser agent of the firm on the same day.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,397 2,444 2,455 2,385 
Broker-dealer Agents Registered 145,618 149,085 151,925 152,071 
Broker-dealer Branch Offices Registered 2,688 2,671 2,703  2,699
Investment Advisers Registered 485 491 501  472
SEC Registered Advisers Filing Notice 1,861 1,886 1,898 1,900 
Investment Adviser Agents Registered 10,377 10,560 10,713  10,835
Agents of Issuer Registered 24 24  25  25
Conditional Registrations
0
0
0
1
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 34 42
42
27 145
Investment Company Notice Filings 538 539
479
7,213 8,769
Exemptions and Exemptive Notices 776 744 655 638 2,813
 
 
Examinations
     
Broker-dealers 15 18
28
19 80
Investment Advisers 11 13
38
35 97
 
 
Securities Investigations
 
Opened 31 22 19
15
87
Closed 38 32  24
37
131
Ongoing as of End of Quarter 119 108  102
131
 
Subpoenas issued 8 15  26 25 74
Matters referred from Attorney General 5 1  3 0 9
Matters referred from Other Agencies 1 0  0 2 3
 
 
Business Opportunity Investigations
 
Investigations Opened 1 3 1 1 6
Investigations Closed 0 3
3
0 6
Ongoing as of End of Quarter 3 3  1 2   
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
1
0
0
1
Notices of Intent to Suspend (Licensing)
0
0
0
0
0
Notices of Intent to Revoke (Licensing)
0
3
0
0
3
Denial Orders (Licensing) 0 1
0
0 1
Suspension Orders (Licensing) 0 0
0
0
0
Revocation Orders (Licensing) 1 1
0
0 2
Notices of Intent to Fine 4 3
1
2 10
Orders Imposing Fine 2 1
6
1 10
Cease and Desist Orders 4 3
1
3 11
Notices of Intent to Issue Stop Order 0 0
0
0
0
Activity Restrictions/Bars 2 3
2
2
9
Stop Orders 0 0 0 0 0
Vacating/Withdrawal/ Modification Orders 0 0 0 0 0
Restitutionary Orders 0 2
1
2 5
Injunctive Relief Obtained 0 0 0 0 0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
5
6
7
3
21
Consent Orders
5
7
7
8
27
Stipulation and Agreements
3
0
0
0
3
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$668,550
$491,600
$655,180
$342,271 $2,157,601
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$18,049,151
$574,950
$48,137
$1,386,773
$20,048,874

*Cents eliminated

 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
1
5
1
0
7
Civil (Attorney General)
2
0
0
0
2
Other Agency Referrals
1
1
1
0
3



Securities Division