DOB: Winter 2012 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVI  No. 4
Winter 2012

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


Maxcomusa Group Inc. and Christos Christoforou – Order to Cease and Desist and Notice of Intent to Fine Issued

On December 21, 2012, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-12-7881-S) against Maxcomusa Group Inc. (“Maxcom”) of 61 Fair Street, Norwalk, Connecticut and Christos Christoforou, president, director and control person of the company.  Maxcom sold electronics, such as cell phones and prepaid calling cards, to retail and wholesale consumers.


The action alleged that in October 2007, Maxcom entered into a business relationship with Euro Group of Companies, Inc. (“Euro”), an OTC Bulletin Board traded company (symbol:  EGCO), pursuant to which Maxcom would receive compensation for purportedly selling products of Euro and Euro’s subsidiaries to wholesalers.  The action also alleged that, at various times in 2008, respondent Christoforou purchased restricted shares of Euro in one or more private placements at a purchase price of $.12 and $.15 per share, and that, from approximately May 7, 2008 through approximately September 17, 2008, respondent Maxcom sold Euro restricted shares at a price of $.50 per share to at least six investors in Connecticut and other states.  In most instances, each individual investor allegedly sent the respondents a check made out to either Maxcom or Europhone USA, LLC (“Europhone”), a Euro subsidiary, and respondent Christoforou then either wrote a check to Europhone from Maxcom’s checking account for the same amount or forwarded the investor’s check to Euro and/or Europhone.  Euro then sent the restricted share certificate directly to the investor or to Christoforou for delivery to the investor.  The action also alleged that, at the time of the sales, unrestricted Euro shares were trading on the OTC Bulletin Board for between $.10 and $.35 per share; and that none of the investors purchasing Euro restricted shares through the respondents held a controlling interest in Euro, nor was there any demonstrated basis for their paying a premium over market value for the Euro securities.

The action further alleged that 1) the respondents failed to disclose to investors that Euro was  a public company trading on the OTC Bulletin Board for significantly less than $.50 per share;  2) the respondents misrepresented to investors that the respondents were the exclusive means by which investors could purchase Euro shares and that Euro was going to become a public company in the near future; and 3) the respondents failed to provide investors with a private placement memorandum or other offering document disclosing the risks associated with a purchase of Euro restricted shares or that the Euro restricted shares were not registered under the Connecticut Uniform Securities Act.


The action also alleged that 1) Maxcom transacted business as an unregistered broker-dealer in violation of Section 36b-6(a) of the Act; 2) respondent Christoforou transacted business as an unregistered broker-dealer agent in violation of Section 36b-6(a) of the Act; 3) respondent Christoforou transacted business as an unregistered agent of issuer in contravention of Section 36b-6(a) of the Act; 4) the respondents offered and sold unregistered securities in violation of Section 36b-16 of the Act; and 5) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act.


Since neither respondent requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to each respondent on January 8, 2013.  A hearing on the Notice of Intent to Fine remains pending.


Stead-Fast Custom Linings, LLC, Steadfast Holdings Group, Inc. (f/k/a Beere Financial Group, Inc.), John Calash, Susan Calash and Christopher Borgo (CRD # 2377439) – Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued

On December 17, 2012, 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-12-7892-S) against Stead-Fast Custom Linings, LLC (“Linings”) of 641 Main Street, East Haven, Connecticut; Steadfast Holdings Group, Inc. (“Holdings”) f/k/a Beere Financial Group, Inc., a Nevada corporation now known as Scorpex, Inc.; John Calash and Susan Calash of 33 Blueberry Hill Road, Madison, Connecticut, majority owners of Linings; and Christopher Borgo of 99 SE Mizner Boulevard #809, Boca Raton, Florida.

The action alleged that John Calash and Susan Calash devised a plan in January 2007 to convert Linings into a public company that traded on the Pink Sheets; that during the summer of 2007, John Calash, with the assistance of Christopher Borgo, sold unregistered membership interests in Linings to at least one investor; that John Calash merged Linings into Beere Financial Group, Inc., a Nevada shell corporation trading on the Pink Sheets; and that in September 2007, John Calash renamed the merged entity Steadfast Holdings Group Inc. and then sold $767,500 in unregistered Holdings shares to investors in a private placement.  The shares are currently worthless.  The action also alleged that 1) from February 2008 through April 2011, John Calash and Susan Calash, in their capacities as President and Secretary of Holdings, issued themselves thousands of shares of Holdings, which had the effect of diluting the value of the outstanding shares of Holdings; 2) John and Susan Calash eventually sold their controlling interest in Holdings in April 2011 for a profit of approximately $200,000.

The action further alleged that 1) Linings, Holdings, John Calash and Christopher Borgo offered and sold unregistered securities in violation of Section 36b-16 of the Act; 2) John Calash and Christopher Borgo violated Section 36b-6(a) of the Act by transacting business as unregistered agents of issuer; 3) Linings and Holdings violated Section 36b-6(b) of the Act by engaging unregistered agents of issuer; and 4) John Calash, Susan Calash, Linings and Holdings violated the antifraud provisions in Section 36b-4(a) of the Act by failing to make adequate risk disclosures to prospective investors and, in the case of John Calash and Susan Calash, failing to disclose the dilutive effect their actions had on investor securities holdings.

Since respondents Christopher Borgo, John Calash, Susan Calash and Stead-Fast Custom Linings, LLC did not request a hearing on the Order to Cease and Desist or the Order to Make Restitution, the Order to Cease and Desist and the Order to Make Restitution became permanent as to each of those respondents on February 1, 2013.  The Order to Cease and Desist and Order to Make Restitution, being similarly uncontested, had become permanent as to respondent Steadfast Holdings Group, Inc. on January 4, 2013.  A hearing on the Notice of Intent to Fine remains pending.

Eric Olojugba (CRD # 2925026) Fined $25,000; Order to Cease and Desist Made Permanent

On November 30, 2012, following a hearing, the Banking Commissioner entered an Order to Cease and Desist and Order Imposing Fine (Docket No. CF-12-7891-S) against Eric Olojugba a/k/a Olufemi Olojugba a/k/a Eric Oluwarotimi Olojugba, a previously registered broker-dealer agent and investment adviser agent in Connecticut.  Since the respondent did not appear at the hearing, the orders were entered by default.  The November 30, 2012 action had been preceded by a May 3, 2012 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-12-7891-S) alleging that, in contravention of Section 36b-31-14e(a) of the Regulations under the Connecticut Uniform Securities Act, the respondent failed to update his Form U-4 (Uniform Application for Securities Industry Registration or Transfer) filings to reflect his current residential address and his outside business activities with CRG Partners and Discoverpoint Holdings (Group) LLC.


Adopting the factual findings and conclusions of law set forth in the May 3, 2012 Order to Cease and Desist and Notice of Intent to Fine, the Commissioner fined the respondent $25,000 after concluding that the respondent violated Section 36b-31-14e(a) of the Regulations.  The Commissioner also rendered the May 3, 2012 Order to Cease and Desist permanent as of November 30, 2012.


Sky Watch Media, Inc. and Marie Meredith Duqesne Each Fined $50,000 and Directed to Make Restitution; Order to Cease and Desist Becomes Permanent

On November 15, 2012, the Banking Commissioner entered an Order Imposing Fine (Docket No. CRF-12-7989-S) against Sky Watch Media, a Connecticut corporation located at 21 Grand Street, Greenwich, Connecticut, and an Order Imposing Fine against Marie Meredith Duquesne, founder, president and director of the company.   The actions had been preceded by an October 9, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7989-S) alleging that, from at least December 10, 2009, the respondents offered and sold unregistered shares of Sky Watch Media, Inc. stock in violation of Section 36b-16 of the Connecticut Uniform Securities Act; that respondent Duquesne transacted business as an unregistered agent of issuer in contravention of Section 36b-6(a) of the Act; and that respondent Sky Watch Media, Inc. employed Duquesne in such capacity in violation of Section 36b-6(b) of the Act.  The October 9, 2012 action had also alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to disclose material information to prospective and actual purchasers of Sky Watch Media, Inc. stock and by including baseless business projections in investment presentations.

Since neither respondent had requested a hearing on the Order to Cease and Desist or the Order to Make Restitution, the Order to Cease and Desist and the Order to Make Restitution became permanent as to each respondent on October 31, 2012.

Similarly, the respondents did not appear or contest the imposition of their respective fines.  In fining each respondent $50,000, the Commissioner adopted as findings of fact and conclusions of law the allegations made in the original Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine.

DFS Capital Management, LP (CRD # 150836), John Vincent Greco (CRD # 1635380) and DFS Fund, Limited Partnership – Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Revoke Registration as an Investment Adviser and Notice of Intent to Fine Issued

On November 6, 2012, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Revoke Registration as an Investment Adviser and Notice of Intent to Fine (Docket No. CRF-12-8048-S) against DFS Capital Management, LP, an investment adviser located at 50 Old Kings Highway North, Darien, Connecticut; John Vincent Greco, president of the firm; and DFS Fund, Limited Partnership (the “Fund”), an investment fund sharing the same address as DFS Capital Management, LP.  Although DFS Capital Management, LP’s investment adviser registration had expired, Connecticut law authorizes the Commissioner to initiate revocation proceedings within one year following the registration expiration.  DFS Capital Management, LP was the Fund’s general partner and investment adviser, and respondent Greco was responsible for the day-to-day management and operation of the Fund.

The action alleged that respondent Greco violated Section 36b-6(c)(2) of the Connecticut Uniform Securities Act by transacting business as an unregistered investment adviser agent, and that DFS Capital Management, LP violated Section 36b-6(c)(3) of the Act by employing Greco as an unregistered investment adviser agent.

The action also alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act in connection with an offering of interests in the Fund.  In addition, respondents Greco and DFS Capital Management, LP allegedly violated Section 36b-4(b) of the Act by engaging in dishonest and unethical practices.  Specifically, respondents Greco and DFS Capital Management, LP recommended that at least two investors liquidate their brokerage and retirement accounts at other firms to invest in the Fund which they variously characterized as a “no-lose” investment and one that would generate a return of approximately 20%.  The action alleged that respondents Greco and DFS Capital Management, LP did not disclose to the affected investors, one of whom was 75 years old, any risks associated with the investment or that the Fund’s investment strategy was almost exclusively speculative options trading.  The two investors incurred $584,222 in trading losses due to their investment in the Fund.  The action alleged that in or about December, 2011, respondent Greco closed the Fund due to the Fund’s trading losses.

In addition, the action alleged that respondents Greco and DFS Capital Management, LP violated Section 36b-23 of the Act by making a materially false or misleading statement during a 2011 examination of DFS Capital Management, LP’s books and records.  Specifically, respondent Greco allegedly denied that he or DFS Capital Management, LP had issued any promissory notes.  The action alleged that, in reality, respondent Greco had induced an individual to invest in the Fund by agreeing to reimburse her for the deferred sales/surrender charge associated with her liquidating annuities held at another firm.  Subsequently, respondent Greco allegedly memorialized that agreement in a promissory note in favor of the investor.

The action also alleged that DFS Capital Management, LP, the Fund’s general partner and investment adviser, violated Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations by repeatedly failing to provide the Division with requested books and records.  Respondent Greco had been previously sanctioned by the Commissioner in a December 21, 2011 Consent Order for failing to cooperate with the agency’s Consumer Credit Division in conjunction with a rate lock investigation.

The respondents were afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Revoke Registration as an Investment Adviser and Notice of Intent to Fine.


William Alexis Cronin, Jr. (CRD # 872542) Barred from Securities Business Activity for Ten Years

On December 11, 2012, the Banking Commissioner entered a Consent Order (Docket No. CRF-12-7930-S) with respect to William Alexis Cronin, Jr.  Respondent Cronin, who did business under the name Madison Financial Services, had been the subject of a June 26, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7930-S).

The June 26, 2012 action had alleged that, at various times between 2006 and 2008, the respondent sold unregistered nonexempt securities issued by FundGuard, LLC and Aliki Foods, LLC to Connecticut and non-Connecticut investors in violation of Section 36b-16 of the Connecticut Uniform Securities Act; that respondent Cronin received $77,500 in compensation from FundGuard, LLC and $93,500 in compensation from Aliki Foods, LLC for introducing prospective investors to those issuers; and that respondent Cronin allegedly was not registered as an agent of issuer in Connecticut at the time.  In addition, the action had alleged that 1) in failing to disclose to investors and prospective investors that he was receiving compensation from FundGuard, LLC and Aliki Foods, LLC, respondent Cronin violated the antifraud provisions in Section 36b-4(a)(2) of the Act; and 2) in failing to provide his then employing broker-dealer with prior notice of his compensated involvement in the issuer transactions, respondent Cronin violated Section 36b-31-6e(c) of the Regulations under the Act.  The action had also alleged that respondent Cronin 1) transacted business as an investment adviser absent registration; and 2) improperly borrowed $10,000 from a former broker-dealer client without notifying the brokerage firm with whom he was then associated.

The December 11, 2012 Consent Order stated that respondent Cronin had provided documentation evidencing his financial inability to pay the fine or restitutionary amount that otherwise might have been assessed against him.  In resolution of the pending matter, respondent Cronin agreed to cease and desist from regulatory violations.  In addition, the Consent Order barred respondent Cronin for ten years from transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent and from directly or indirectly soliciting or accepting funds for investment purposes from public or private investors.  The ten year bar would run from the November 7, 2011 effective date of a FINRA Acceptance, Waiver and Consent involving respondent Cronin (No. 20110258858).


The Magic Plunger, LLC, Jerold L. John and Dale N. Thorp Agree to Entry of Permanent Injunction, Asset Freeze and Appointment of Receiver

On October 23, 2012, the Superior Court for the Judicial District of Hartford entered an Order Regarding Stipulation in the matter of Pitkin v. The Magic Plunger, LLC, Jerold L. John and Dale N. Thorp (Docket No. HHD-CV-12-6035700-S).  The related September 25, 2012 Stipulated Order for Injunctive Relief and Appointment of Receiver 1) permanently enjoined the defendants, inter alia, from violating the Connecticut Uniform Securities Act and its Regulations, offering or selling securities issued by The Magic Plunger, LLC and communicating with investors or customers of Magic Plunger absent prior written approval from the receiver; 2) froze the assets of The Magic Plunger, LLC; and 3) appointed a Receiver to take control of and liquidate The Magic Plunger, LLC’s assets and provide each investor with an opportunity to file a claim to share in any distribution of proceeds made by the Receiver.  The Stipulated Order for Injunctive Relief and Appointment of Receiver also required defendants John and Thorp to deposit $100,000 into an escrow account to be controlled by the Receiver.  The $200,000 so deposited would benefit Magic Plunger investors and reimburse the Receiver for such reasonable expenses as might be approved by the court.

The court’s action had been preceded by a September 25, 2012 Verified Complaint against The Magic Plunger, LLC of 12 Beaverbrook Road, West Simsbury, Connecticut; Jerold L. John, its managing member and executive vice president; and Dale N. Thorn, its chief executive officer.  The Magic Plunger, LLC was in the business of manufacturing and marketing toilet plungers.  The Verified Complaint alleged that, commencing in December 2005, the defendants violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered Magic Plunger debentures, notes and certificates of “limited membership interests” to at least 77 investors who invested approximately $1.9 million.  The Verified Complaint also alleged that the defendants violated the antifraud provisions in Section 36b-4(a)(2) of the Act by not telling investors about 1) defendants’ inability to make interest payments to debenture holders; 2) an arrangement by which defendants John and Thorp would receive $400,000 of investor funds for coming up with the Magic Plunger idea and bringing the final product to market; 3) the registration status of the securities; 4) the risks associated with the investments; 5) the background of, or financial information concerning, Magic Plunger’s directors, officers and/or principals, including remuneration paid to them; 6) payments made or owed to affiliates of Magic Plunger; 7) the estimated cash proceeds of the securities offering and how the offering proceeds would be used; 8) Magic Plunger’s financial statements; and 9) material litigation involving Magic Plunger’s directors, officers and/or principals.  In addition, the Verified Complaint alleged that the defendants violated the antifraud provisions in Section 36b-4(a)(3) of the Act by not applying investor funds to product development and marketing but rather to personally benefit defendants John and Thorp, resulting in investor monies being dissipated.

The Magic Plunger, LLC, Jerold L. John and Dale N. Thorp had been the subject of a July 14, 2011 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-11-7667-S) issued by the Commissioner based on similar violations of Sections 36b-16 and 36b-4 of the Connecticut Uniform Securities Act.  In light of the entry of the permanent injunction and the appointment of a receiver, the July 14, 2011 action was withdrawn effective October 23, 2012.


William F. Wadsworth, Sr. (CRD # 456251) – Consent Order Conditioning Registration as an Agent and Imposing Interim Suspension Issued

On November 13, 2012, the Banking Commissioner issued a Consent Order (No. CO-12-8038-S) conditioning the registration of William F. Wadsworth, Sr. (“Wadsworth, Sr.”) as a broker-dealer agent of Wadsworth Investment Co., Inc. (CRD No. 5844) and imposing an interim registration suspension.  Wadsworth, Sr. had been registered as a broker-dealer agent in Connecticut from approximately January 1, 1986 to February 7, 2012 when, following an administrative hearing, the Commissioner entered Findings of Fact, Conclusions of Law and an Order revoking that registration (In the Matter of Wadsworth Investment Co., Inc. et al., Docket No. CFNR-10-7779-S).   On April 10, 2012, the Commissioner entered an Order Modifying Remedial Restrictions and Conditions with respect to Wadsworth, Sr.  Among other things, that order provided that Wadsworth, Sr. would not be precluded from reapplying for agent registration in Connecticut, subject to the Commissioner’s authority to restrict or condition the registration, impose an interim suspension and/or require heightened supervision.

Wadsworth, Sr. reapplied for registration as a broker-dealer agent of Wadsworth Investment Co., Inc. on June 18, 2012.

The Consent Order provided that Wadsworth, Sr.’s broker-dealer agent registration would be made effective on June 18, 2012, but that it would be immediately suspended for 120 days. Once the suspension expired, the agent registration would be reinstated if both Wadsworth, Sr. and his employing firm filed a written Affidavit attesting that, during the suspension period, Wadsworth, Sr. had not transacted business as a broker-dealer agent or in any other capacity requiring registration.  The Consent Order also required that, for a two year period, 1) Wadsworth Investment Co., Inc. would implement heightened supervisory controls with respect to Wadsworth, Sr.; 2) Wadsworth, Sr. would be limited to servicing accounts of those Wadsworth Investment Co., Inc. clients with whom he maintained a broker-dealer agent relationship prior to February 7, 2012; and 3) Wadsworth, Sr. would not sell or promote any private placements of securities or any securities that were not listed on a United State exchange or issued by an investment company.


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
  2,294
Broker-dealer Agents Registered 149,943  151,446 153,220
 145,877
Broker-dealer Branch Offices Registered 2,711    2,728 2,727
2,690
Investment Advisers Registered 482    540 561
545
SEC Registered Advisers Filing Notice 1,963 1,937 1,926
1,865
Investment Adviser Agents Registered 10,847 11,038 11,213
10,863
Exempt Reporting Advisers
40
51
59
64
Agents of Issuer Registered 25 25 20
21
Conditional Registrations
0
2
0
1
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 45 37
35
34 151
Investment Company Notice Filings 552 536
487
7,304 8,879
Exemptions and Exemptive Notices 696 744 648 615 2,703
 
 
Examinations
     
Broker-dealers 20 24
7
13 64
Investment Advisers 21 17
23
30 91
 
 
Securities Investigations
 
Opened 19 26 22
9
76
Closed 15 28 20
9
72
Ongoing as of End of Quarter 84 81 83
83
         
Subpoenas issued 5 9 4 25 43
Matters referred from Attorney General 1 1 3 0 5
Matters referred from Other Agencies 4 0 0 1 5
 
 
Business Opportunity Investigations
 
Investigations Opened 0 1 1 1 3
Investigations Closed 1 0
0
1 2
Ongoing as of End of Quarter 1 1 3 3         
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
0
0
0
0
Notices of Intent to Suspend (Licensing)
0
0
0
0
0
Notices of Intent to Revoke (Licensing)
0
0
0
1
1
Denial Orders (Licensing) 0 0
0
0 0
Suspension Orders (Licensing) 0 0
0
1
1
Revocation Orders (Licensing) 2 0
1
0 3
Notices of Intent to Fine 1 4
0
4 9
Orders Imposing Fine 7 1
0
3 11
Cease and Desist Orders 2 4
0
5 11
Notices of Intent to Issue Stop Order 0 0
0
0
0
Activity Restrictions/Bars 1 1
2
1
5
Stop Orders 0 0 0 0 0
Vacating/Withdrawal/ Modification Orders 0 1 0 1 2
Restitutionary Orders 2 2
0
3 7
Injunctive Relief Obtained 0 0 0 1 1
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
8
6
0
5
19
Consent Orders
3
5
4
1
13
Stipulation and Agreements
1
3
2
0
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
$125,000 $2,291,481
Portion attributable to settlements
$14,550
$1,086,281
$30,650
0
$1,131,481
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$27,721
$6,410,636
$114,177
$664,400 $7,216,934

*Cents eliminated

 

Securities Referrals

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



Securities Division