DOB: Fall 2012 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVI  No. 3
Fall 2012

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


The Commissioner has announced the waiver of Investment Adviser Registration Depository (IARD) system fees for investment adviser firms and the reinstatement of substantially reduced initial set-up and annual system fees paid by investment adviser agents (IARs).  System fees for IAs and IARs had been waived since 2008.  The measure was implemented in conjunction with a recommendation recently approved by the Board of Directors of the North American Securities Administrators Association (NASAA), of which Connecticut is a member.  NASAA’s Board will continue to monitor the system’s revenues and make future adjustments, including waiving the system fees, if warranted.  The IARD system is a national online database created by federal and state regulators to permit investment advisers and their agents to electronically file their state and federal registrations and notice filings through a central source.

The Commissioner observed that setting substantially reduced IARD fees for individual investment adviser agents would ensure that the IARD system maintains a sufficient operating reserve without charging firms, many of whom operate small businesses in local communities.

For 2013, the initial IARD set-up and renewal fee will be $10 for investment adviser agents.  By contrast, when the system first became operational, this system fee was $45.

Connecticut registration and notice filing fees will remain unchanged, and the IARD system fee waiver will have no impact on state revenue.


In late 2010, the United States Attorney’s Office announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force to investigate securities fraud and related financial crimes.  Joining the United States Attorney’s Office on the Task Force were representatives from the State of Connecticut Department of Banking, the FBI, the IRS, the U.S. Secret Service, the U.S. Postal Inspection Service, the SEC, the CFTC and other law enforcement agencies.  Combining enforcement resources has strengthened investor protection in Connecticut.  Spearheaded by David B. Fein, United States Attorney for the District of Connecticut, the Task Force and its members have made great progress in bringing fraudsters to justice.  Following is a sampling of those cases pursued in 2012 alone that involved Securities and Business Investments Division participation. 

Ø October 4, 2012:  Orange, Connecticut resident Gregory Viola was sentenced in United States District Court in Hartford to 100 months of imprisonment, followed by three years of supervised release, for operating a Ponzi scheme that defrauded more than 50 investors of more than $6 million.

 

Ø September 14, 2012:  Branford, Connecticut resident Feisal Sharif was charged by criminal complaint filed in Bridgeport District Court with operating a scheme to defraud multiple investors of at least hundreds of thousands of dollars in a Ponzi scheme.  The defendant is entitled to have the matter presented to a grand jury and, in the event an indictment is returned, he is entitled to a trial at which it will be the government’s burden to prove guilt beyond a reasonable doubt.

 

Ø September 12, 2012:   New Fairfield, Connecticut resident Stephen B. Blankenship waived his right to indictment and pleaded guilty in Hartford District Court to mail fraud and securities fraud charges stemming from a long-running scheme to defraud investors of hundreds of thousands of dollars.  On August 31, 2012, Blankenship and his affiliated company, Deer Hill Financial Group, LLC had been permanently barred by the Banking Commissioner from engaging in securities brokerage or investment advisory services in or from Connecticut (Docket No. CO-12-7988-S).

 

Ø July 27, 2012:  Washington Depot, Connecticut resident Robin Bruhjell Brass was sentenced in Hartford District Court to 96 months of imprisonment (an upward departure over the advisory Sentencing Guidelines range), followed by three years of supervised release, for operating a long-running Ponzi scheme that defrauded investors of approximately $2 million.

 

Ø May 15, 2012:  Former broker-dealer agent and Newington, Connecticut resident Michael Aaron Brady was sentenced in New Haven District Court to 36 months of imprisonment, followed by three years of supervised release, for stealing more than $233,000 from clients of his investment business.


Stephen Burton Blankenship (CRD # 2234577) and Deer Hill Financial Group, LLC Permanently Barred from Connecticut Securities Activity Following Allegations of Misappropriation, Fraud

On August 31, 2012, the Banking Commissioner entered a Consent Order (No. CO-12-7988-S) with respect to Deer Hill Financial Group, LLC of 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut, and Stephen Burton Blankenship, the firm’s sole managing member and control person.  Stephen Blankenship was previously registered as a broker-dealer agent under the Connecticut Uniform Securities Act.

 

The Consent Order alleged that, at various times from April 2002 to November 2011, Stephen Blankenship and Deer Hill Financial Group, LLC transacted business as investment advisers while unregistered in violation of Section 36b-6(c) of the Act and that Stephen Blankenship transacted business as an unregistered investment adviser agent of Deer Hill Financial Group, LLC.  The Consent Order also alleged that Stephen Blankenship violated the antifraud provisions in Sections 36b-4(a) and 36b-5(a) of the Act by 1) convincing broker-dealer customers to transfer their funds to Deer Hill Financial Group, LLC with the promise that Deer Hill Financial Group, LLC would invest the monies in established securities and generate a higher rate of return; 2) later misappropriating at least $600,000 in customer and client funds; 3) misrepresenting to customers and clients that their money had been invested in established securities generating profits when, in reality, no such investments had been made; 4) making unauthorized withdrawals of customer and client funds which he then used for his personal purposes or to reimburse other customers and clients for unauthorized account withdrawals that he had made; and 5) creating and forwarding to customers and clients fictitious account statements reflecting incorrect account values, incorrect deposit sources and nonexistent investments.  In addition, the Consent Order alleged that Deer Hill Financial Group, LLC violated the antifraud provisions in Section 36b-5(a) of the Act through its role in the conduct described above.

 

Although Stephen Blankenship’s broker-dealer agent registration had been withdrawn in late 2011, Connecticut law preserves the Commissioner’s ability to institute revocation or suspension proceedings within one year after the withdrawal becomes effective.

 

The Consent Order revoked Stephen Blankenship’s broker-dealer agent registration and permanently barred him from 1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; and 2) directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut.  The Consent Order also permanently barred Deer Hill Financial Group, LLC, and its existing and future representatives, agents, employees, affiliates, subsidiaries and successors in interest from transacting securities or investment advisory business in or from the state.

 

On September 7, 2012, the Securities and Exchange Commission filed a Complaint for Injunctive and Other Relief in U.S. District Court for the District of Connecticut against Deer Hill Financial Group, LLC and Stephen Blankenship.  The SEC action was based on allegations of securities fraud and unregistered activity.  On September 12, 2012, in a parallel criminal proceeding brought by the U.S. Attorney for the District of Connecticut, Stephen Blankenship waived his right to indictment and pleaded guilty to charges of mail fraud and wire fraud.

Raymond Michael Mullaney (CRD # 731174) and Mullaney Management & Trust, LLC (CRD # 136501) Fined $10,000, Jointly and Severally, for Regulatory Violations

On August 22, 2012, the Banking Commissioner entered a Consent Order (No. CO-12-7952-S) with respect to Mullaney Management & Trust, LLC, a Connecticut-registered investment adviser located at 1177 High Ridge Road, Stamford, Connecticut, and Raymond Michael Mullaney, President and Chief Investment Officer of the firm.  The Consent Order alleged that  1) the firm transacted business as a broker-dealer in Connecticut while unregistered by pooling investor funds to purchase shares in Auex Ventures, Inc., a Canadian gold exploration company, which shares were then fractionalized and distributed to the investors; 2) the firm sold unregistered securities of AMI Resources Inc., Midasco Capital Corp. and Redstar Resources Corp., all of which were gold exploration companies, in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 3) the firm engaged in a fraudulent, deceptive or misleading act, practice or course of business within the meaning of Section 36b-31-5b(a)(2) of the Regulations under the Act by failing to adhere to the segregation requirements applicable to investment advisers having custody of client funds or securities; and 4) in effecting or attempting to effect sales of a private placement involving AMI Resources Inc. securities, Raymond Michael Mullaney transacted business as an unregistered agent of issuer in violation of Section 36b-6(a) of the Act.

The Consent Order fined both respondents $10,000, jointly and severally, and required that they cease and desist from regulatory violations.  In addition, the Consent Order directed the firm to retain a regulatory consultant to perform on-site compliance reviews according to a prescribed schedule and file sworn affidavits, on a periodic basis, verifying its compliance with the terms of the Consent Order and the regulatory consultant’s recommendations.

Paul Anthony Mozicato (CRD # 4134819) Permanently Barred from Connecticut Securities Business Following Alleged Conversion of Funds from Elderly Investor

On August 21, 2012, the Banking Commissioner entered a Consent Order (No. CO-12-8026-S) with respect to Paul Anthony Mozicato, a former broker-dealer agent and investment adviser agent of Equity Services, Inc. (CRD number 265).  The Consent Order alleged that, while associated with Equity Services, Inc., Paul Mozicato violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act and engaged in dishonest or unethical practices within the meaning of Section 36b-4(b) of the Act.  Specifically, Paul Mozicato allegedly 1) procured $15,000 from an elderly Connecticut resident for the purported purpose of investing in a higher yielding investment for which the individual was not suitable; 2) failed to ensure that the investor’s name and transactional information were recorded on the books and records of Equity Services, Inc.; and 3) converted the investor’s money to his own use rather than investing it as represented.

 

The Consent Order acknowledged that the Connecticut investor had since been made whole by Equity Services, Inc., and that Paul Mozicato had repaid Equity Services, Inc. the $15,000 that Paul Mozicato had obtained from the investor.

 

The Consent Order permanently barred Paul Mozicato from transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent, notwithstanding any otherwise available definitional exclusions, and from soliciting or accepting funds for investment purposes from public or private investors in or from the state.

UVEST Financial Services Group, Inc. Assessed $14,150.94 As Part of Multistate Settlement for Aiding in Registration Violations by Bankers Life and Casualty Company and BLC Financial Services, Inc. (CRD # 126638)

On July 5, 2012, the Banking Commissioner entered a Consent Order (No. CO-12-8021-S) with respect to UVEST Financial Services Group, Inc. of 5 Coliseum Centre, 2810 Coliseum Centre Drive, Charlotte, North Carolina.  The firm was formerly registered as a broker-dealer under the Connecticut Uniform Securities Act.  The Consent Order followed a multistate investigation, capped by a global settlement, into unregistered broker-dealer and investment advisory activity by Bankers Life and Casualty Company and BLC Financial Services, Inc. (together, “Bankers”).  UVEST Financial Services Group, Inc. had entered into an agreement with Bankers to provide brokerage and investment advisory services out of Bankers Life branch locations using the services of dual insurance and securities agents.  The involvement of Bankers in securities-related roles led to confusion in the reporting and responsibility hierarchies between Bankers and the broker-dealers with whom it contracted.  The Consent Order alleged that UVEST Financial Services Group aided in Bankers’ unregistered activity.

The Consent Order directed UVEST Financial Services Group, Inc. to cease and desist from materially aiding in violations of the Act and fined the firm $14,150.94 which represented Connecticut’s proportionate share of the $750,000 global settlement amount involving UVEST Financial Services Group, Inc.


Brookville Capital Partners (CRD # 102380) Fined $5,000 for Recordkeeping Deficiencies

On August 9, 2012, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-8017-S) with Brookville Capital Partners LLC, a Connecticut-registered broker-dealer with its main office at 383 RXR Plaza, Uniondale, New York.  The Stipulation and Agreement alleged that the firm failed to keep and maintain certain books and records required by law.  In resolution of the matter, the firm agreed to pay a $5,000 fine.

EQA Currency Fund LP and EQA Global Macro Fund LP Assessed $1,500 in the Aggregate for Late Rule 506 Notice Filing

On July 17, 2012, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-12-8034-S) with EQA Currency Fund LP and EQA Global Macro Fund LP, affiliated issuers of securities located at 305 Bedford Street, 3rd Floor, Stamford, Connecticut.  The Stipulation and Agreement alleged that the issuers had commenced an offering of limited partnership interests in 2007 and not made the notice filing required by Section 36b-21(e) of the Connecticut Uniform Securities Act.  The issuers have since made the required filing and paid the associated fee.  In resolution of the matter, the issuers agreed to comply with Section 36b-16 of the Act and to each remit $750 to the department as an administrative fine.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,365  2,376 2,379         
Broker-dealer Agents Registered 149,943  151,446 153,220          
Broker-dealer Branch Offices Registered 2,711    2,728 2,727          
Investment Advisers Registered 482    540 561            
SEC Registered Advisers Filing Notice 1,963 1,937 1,926             
Investment Adviser Agents Registered 10,847 11,038 11,213            
Exempt Reporting Advisers
40
51
59
        
Agents of Issuer Registered 25 25 20          
Conditional Registrations
0
2
0
  
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 45 37
35
            117
Investment Company Notice Filings 552 536
487
           1,575
Exemptions and Exemptive Notices 696 744 648           2,088
 
 
Examinations
     
Broker-dealers 20 24
7
           51
Investment Advisers 21 17
23
           61
 
 
Securities Investigations
 
Opened 19 26 22
  
67
Closed 15 28 20
  
63
Ongoing as of End of Quarter 84 81 83
       
        
Subpoenas issued 5 9 4        18
Matters referred from Attorney General 1 1 3         5
Matters referred from Other Agencies 4 0 0        4
 
 
Business Opportunity Investigations
 
Investigations Opened 0 1 1        2
Investigations Closed 1 0
0
       1
Ongoing as of End of Quarter 1 1 3               
 
 
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) 2 0
1
          3
Notices of Intent to Fine 1 4
0
       5
Orders Imposing Fine 7 1
0
       8
Cease and Desist Orders 2 4
0
       6
Notices of Intent to Issue Stop Order 0 0
0
  
0
Activity Restrictions/Bars 1 1
2
  
4
Stop Orders 0 0 0         0
Vacating/Withdrawal/ Modification Orders 0 1 0        1
Restitutionary Orders 2 2
0
       4
Injunctive Relief Obtained 0 0 0        0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
8
6
0
       
14
Consent Orders
3
5
4
       
12
Stipulation and Agreements
1
3
2
       
6
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$1,024,550
$1,111,281
$30,650
            $2,166,481
Portion attributable to settlements
$14,550
$1,086,281
$30,650
       
$1,131,481
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$27,721
$6,410,636
$114,177
            $6,552,534

*Cents eliminated

 

Securities Referrals

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



Securities Division