DOB: Spring 2013 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVII  No. 1
Spring 2013

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


                * Members of the Securities Advisory Council are appointed by the Banking Commissioner from the private sector and academia. The Council's aim is to provide non-binding advice, recommendations and suggested technical assistance to the agency on matters affecting the administration of Connecticut's securities laws, the promulgation of related agency regulations and policies, and agency-sponsored investor education programs.   Members serve voluntarily and receive no compensation.

The Banking Commissioner, in tandem with the agency’s Securities Advisory Council, is eliciting comments from members of the Connecticut bar regarding possible amendments to the Regulations under the Connecticut Uniform Securities Act.  The text of the Advisory Council’s invitational letter follows.  Individuals interested in participating may contact Council Chairman Harold B. Finn, III directly at Finn Dixon & Herling (phone: 203-325-5029).


             
Dear Commissioner Pitkin:
 
Eric Wilder, the Director of the Securities and Business Investments Division of the Department of Banking, has advised the members of the Securities Advisory Council of the plan to revise the regulations (the “Regulations”) that have been promulgated under the Connecticut Uniform Securities Act (the “Act”) with a view towards responding to the changes in the law and practice that have occurred since the last comprehensive revision of such regulations (which, as I recall, occurred about thirty years ago) and integrating within the revised Regulations the various orders that have subsequently been issued by you and your predecessors pursuant to the Act.
 
On behalf of the Securities Advisory Council, I am writing to confirm our offer to join with other members of the Bar in providing timely comments to you, Eric and the other members of the staff of the Department of Banking with respect to the proposed revision of the Regulations.  Our plan would be to create four task forces which would comment, respectively, upon proposed revised Regulations that are applicable to the provisions of the Act governing (1) investment adviser activities, (2) broker-dealer activities, (3) exempt securities, exempt securities transactions and regulated offers and sales of securities, and (4) enforcement and administration.  We recognize that the commentary with respect to the proposed revisions of the Regulations may be quite extensive and may require substantial research and analysis.
 
Accordingly, we intend to invite all members of the Bar to become leaders or members of one or more of the task forces in order best to ensure that you and the members of the staff of the Department of Banking will be well informed as to the views of the members of the Bar with respect to the various issues that may be raised by such revisions.
 
Harold B. Finn, III, Chairman
     

ADMINISTRATIVE ACTIONS

John Calash and Susan Calash  - Petition for Reconsideration Granted

On April 25, 2013, the Banking Commissioner rendered a Decision on a Petition filed by John Calash and Susan Calash to reconsider an Order to Cease and Desist, Order to Make Restitution and Order Imposing Fine entered by default against each of them. The Respondents argued that they did not receive actual notice of the administrative actions since their address of record had been subject to a bank foreclosure and that the home to which they then moved had been destroyed by Hurricane Sandy.  John Calash and Susan Calash had been the subject of a December 17, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7892-S).  The Order to Cease and Desist and the Order to Make Restitution had become permanent by default on February 1, 2013.  Similarly, on March 19, 2013, orders by default had been entered fining John Calash  $100,000 and Susan Calash $30,000.


In agreeing to reconsider the matter, the Commissioner rescinded the Certifications rendering the Order to Cease and Desist and the Order to Make Restitution
permanent.  In addition, the Commissioner vacated the March 19, 2013 Orders Imposing Fine against John Calash and Susan Calash.  The December 17, 2012 Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine was modified to reflect the respondents’ current address, and the respondents were given an additional opportunity to request a hearing and respond to the allegations in the December 17, 2012 action.


The December 17, 2012 action alleged that John Calash and Susan Calash devised a plan in January 2007 to convert Stead-Fast Custom Linings, LLC (“Linings”)
of 641 Main Street, East Haven, Connecticut 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 action had 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 had further alleged that 1) Linings, Holdings, John Calash and Christopher Borgo offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities 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) the respondents 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.


Stead-Fast Custom Linings, LLC and Christopher Borgo (CRD # 2377439) Fined for Securities Law Violations

On March 19, 2013, the Banking Commissioner issued Orders Imposing Fine against 1) Stead-Fast Custom Linings, LLC (“Linings”) of 641 Main Street, East Haven, Connecticut; and 2) Christopher Borgo of 99 SE Mizner Boulevard #809, Boca Raton, Florida.  Neither respondent appeared or contested the imposition of the fines.

Each of the respondents was the subject of a December 17, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7892-S). The December 17, 2012 action had 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 action had 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 had further alleged that 1) Linings, Holdings, John Calash and Christopher Borgo offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities 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) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to make adequate risk disclosures to prospective investors.

In imposing a $50,000 fine against Stead-Fast Custom Linings, LLC, the Commissioner found that Stead-Fast Custom Linings, LLC committed one violation of Section 36b-16 of the Act, one violation of Section 36b-6(b) of the Act and one violation of Section 36b-4(a) of the Act.

Christopher Borgo was directed to pay a fine of $20,000 after the Commissioner found that Christopher Borgo committed one violation of Section 36b-16 of the Act, one violation of Section 36b-6(a) of the Act and one violation of Section 36b-4(a) of the Act.

Since respondents Christopher Borgo 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.

Accelerated Mentoring LLC f/k/a Internet Sales Institute LLC, Clancey Braxton Yohman and Josh Jensen – Order to Cease and Desist and Notice of Intent to Fine Issued

On March 18, 2013, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-8051-B) against Accelerated Mentoring LLC, now or formerly of 3910 Hill Road, Suite 102-103, Boise, Idaho.  Also named in the order were Clancey Braxton Yohman, managing member of Accelerated Mentoring LLC, and Josh Jensen, a representative of the company.  Accelerated Mentoring LLC, previously known as Internet Sales Institute LLC, was in the business of selling Internet-based training, personal coaching and software to enable purchasers to start their own “work at home” e-commerce business.


The action alleged that the program offered and sold by the respondents was a “business opportunity” under the Connecticut Business Opportunity Investment Act; that the respondents violated Section 36b-67(1) of the Act by offering and selling unregistered business opportunities; that respondents Accelerated Mentoring LLC and Yohman violated Section 36b-67(2) of the Act by making unsubstantiated earnings or income claims; and that respondents Accelerated Mentoring LLC and Yohman violated the antifraud provisions in Section 36b-67(6) of the Act by failing to provide critical disclosures to prospective purchasers.  Each of the respondents was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.


J. Capital Advisors, LLC d/b/a J. Capital Advisors Wealth Management (CRD # 151176) and Aaron Jousan Johnson (CRD # 4402048) – Registrations as Investment Adviser and as Investment Adviser Agent Summarily Suspended; Notice of Intent to Suspend or Revoke Registration Issued

On March 18, 2013, the Banking Commissioner issued an Order (Docket No. RS-13-8063-S) summarily suspending the investment adviser registration of J. Capital Advisors, LLC.  The firm, which does business under the name J. Capital Advisors Wealth Management, is located at 1610 Saybrook Road, Haddam, Connecticut.  On the same day, the Commissioner summarily suspended the investment adviser agent registration of Aaron Jousan Johnson, president and control person of the firm.  Accompanying the summary suspension was a Notice of Intent to Suspend or Revoke the investment adviser and the investment adviser agent registrations of the respondents.

The action alleged that, in violation of Section 36b-14(d) of the Connecticut Uniform Securities Act and Section 36b-31-14f(b) of the Regulations thereunder, the respondents, despite repeated requests by Division staff, failed to open the firm’s records to examination by the agency.  The action also alleged that the respondents engaged in dishonest or unethical practices by deducting excessive, undisclosed client advisory fees from client accounts.  In addition, the action alleged that the respondents violated Section 36b-31-14e(a) of the Regulations by failing to update the firm’s Form ADV to disclose the status of its business operations, when it was open for business and the scope of its client activity.

The summary suspension would remain in effect pending the final determination of proceedings to revoke the respondents’ registrations.   Each of the respondents was afforded an opportunity to request a hearing on the summary suspension and on the Notice of Intent to Suspend or Revoke Registration.

Mohr & Moore, LLC and William Elmer Moore – Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued

On March 18, 2013, 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-13-7971-S) against Mohr & Moore, LLC of 9720 Coit Road, Suite 220-211, Plano Texas 75025 and William Elmer Moore of 3524 Flat Creek Drive, Plano, Texas 75025.  Respondent Moore was the president and control person of Mohr & Moore, LLC.  The action alleged that from at least June 2010 forward, the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered commodity investment contracts and/or investment contracts related to trading in foreign currency exchange investments.

The action also alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to disclose to purchasers and prospective purchasers any risk factors related to the investment; any financial information on Mohr & Moore, LLC; that Robert Mihailovich, principal and founder of Trade Star Incorporated and the trading software platform that Mohr & Moore, LLC utilized, was a convicted felon; that Mohr & Moore, LLC subsequently executed a Limited Power of Attorney with Parthenon Capital as sub-trading agent; that Parthenon’s owner and operator had a criminal history; and that the investment contracts offered and sold by the respondents were not registered under the Act.

Since respondents Mohr & Moore, LLC and William Elmer Moore did not request a hearing on the Order to Cease and Desist and Order to Make Restitution, those orders became permanent as to each of them on April 6, 2013 and April 30, 2013, respectively.  The Notice of Intent to Fine remains pending.

Method Films, Inc., Thierry Thelemaque, Stilas Financial Services, S.A. and Matthew Bennett Greene Ordered to Cease and Desist from Regulatory Violations and to Pay Restitution; Notice of Intent to Fine Issued

On March 11, 2013, 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-13-7997-S) against 1) Method Films, Inc. a/k/a Method Films, LLC a/k/a Method Film, LLC (“Method Films”) of 250 181st Drive, Sunny Isles Beach, Florida 33160 and 8939 Marks Street, Unit B, El Paso, Texas 79904; 2) Thierry Thelemaque, of 8939 Marks Street, Unit B, El Paso, Texas 79904, president of Method Films; 3) Stilas Financial Services, S.A. of 40 Wall Street, 28th Floor, New York, New York 10005; and 4) Matthew Bennett Greene of Portland House, 16th Floor, Stag Place, London, United Kingdom.  Respondent Greene was the founder, president and chief legal counsel of Stilas Financial Services, S.A.

The action alleged that, in September 2008 and October 2008, respondents Method Films and/or Thelemaque offered and sold Method Films securities to one or more Connecticut investors.  The offering proceeds would be used to finance the production of one or more films, including a movie entitled “Enigma.”  The securities that were offered consisted of (a) an Investor Agreement pursuant to which Method Films, through its agent Thelemaque, agreed to split Enigma gross revenues in excess of $20,000 with investors in return for a $100,000 investment; and (b) a related Promissory Note pursuant to which obligors Method Films and Thelemaque promised to pay one or more investors $1.1 million on or before September 30, 2009 – a return of one thousand percent on a $100,000 investment.  The action further alleged that respondents Method Films and Thelemaque violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered securities.  In addition, the action alleged that respondents Stilas Financial Services, S.A. and Greene materially aided Method Films’ and Thelemaque’s violation of Section 36b-16 of the Act, in part by accepting investor monies remitted for the purpose of investing in the Method Films offering.  In addition, the action alleged that, in violation of Section 36b-6 of the Act, respondent Method Films employed respondent Thelemaque as an unregistered agent of issuer, and that respondent Thelemaque transacted business in that unregistered capacity.

According to the action, respondent Thelemaque allegedly forwarded to one or more prospective investors a purported agreement by Stilas Financial Services, S.A. to finance the Enigma film project, leading investors to believe that the film project would proceed with the support of Stilas Financial Services, S.A.  The action alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by failing to disclose, among other things, any financial information concerning the respondents; the estimated cash proceeds of the offering; any risk factors related to the investment in general or the film industry in particular; the remuneration to be paid to the principals of Method Films; the basis upon which a $100,000 investment in a $1.1 million Promissory Note could yield a rate of return of 1,000 percent; or the fact that respondent Thelemaque was not registered as an agent of issuer or in any other capacity to sell securities in Connecticut.

The action stated that, to date, the respondents had not paid at least one Connecticut the promised rate of return and had failed to return any investor monies.

Since respondents Thelemaque and Stilas Financial Services, S.A. did not request a hearing on the Order to Cease and Desist and Order to Make Restitution, those orders became permanent as to each of them on April 30, 2013.  Similarly, the Order to Cease and Desist and Order to Make Restitution, being uncontested by respondents Method Films, Inc. and Matthew Bennett Greene, became permanent as to those respondents on March 28, 2013 and April 3, 2013, respectively.  The Notice of Intent to Fine remains pending.

Connecticut Foreclosure Division Corp. and Alfred R. Beauchamp Directed to Cease and Desist from Regulatory Violations, Pay Restitution to Affected Investors Following Administrative Hearing

On February 20, 2013, following an administrative hearing, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order (Docket No. CRF-12-7754-S) against Connecticut Foreclosure Division Corp. of 41-C New London Turnpike, Glastonbury, Connecticut and Alfred R. Beauchamp of 77 Ballard Drive, West Hartford, Connecticut and 18 Camp Street, Basement Apartment, Meriden, Connecticut.  Alfred R. Beauchamp was the sole officer of Connecticut Foreclosure Division Corp.  The matter had been preceded by a May 29, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7754-S) alleging that from approximately February, 2007 forward, the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered promissory note investments bearing a minimum return of ten percent to at least three investors.  The respondents allegedly represented to investors that investor funds would be used for company operating expenses, to buy leads and to purchase a property if one were located.  In addition, the respondents allegedly represented to investors that their principal would be guaranteed against loss.  In reality, investor funds were purportedly used in part to pay the personal expenses of respondent Beauchamp and his family.  The action had also alleged that the respondents violated the antifraud provisions of the Act by failing to disclose any risk factors related to the investment, any financial information on the respondents or that the respondents would use part of the investors’ funds to pay for the personal, medical and household expenses of respondent Beauchamp and his family as well as the business expenses of respondent Beauchamp’s spouse.

In the February 20, 2013 Findings of Fact, the Commissioner noted that Connecticut Foreclosure Division Corp. was no longer in business and that respondent Beauchamp had represented that his assets were limited.

The Commissioner concluded that, based on the evidence presented at the hearing, 1) both respondents violated Section 36b-16 of the Act by offering and selling unregistered promissory note investments; and 2) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act by omitting to disclose material risk factors, including factors bearing on repayment, as well as financial information on Connecticut Foreclosure Division Corp. and respondent Beauchamp.  Counterpoised against such nondisclosure were respondents’ statements that the investments were practically guaranteed.

The February 20, 2013 action rendered permanent the May 29, 2012 Order to Cease and Desist issued against Connecticut Foreclosure Division Corp. and Alfred R. Beauchamp.  However, the Commissioner declined to fine the respondents, observing that any available monies should more appropriately be directed back to affected investors; that Connecticut Foreclosure Division Corp. was no longer in business; and that respondent Beauchamp had represented that his financial resources were limited.  The February 20, 2013 action also rendered permanent the May 29, 2012 Order to Make Restitution.  In so doing, the action obligated the respondents to 1) provide a repayment affidavit to the department no later than March 15, 2013; 2) continue to repay two affected investors the sum of $33,000 and $50,000, respectively, in accordance with separate agreements introduced as exhibits during the hearing; and 3) repay the third affected investor $60,000 according to a prescribed schedule set forth in the Order.

Steadfast Holdings Group, Inc. (f/k/a Beere Financial Group, Inc.) Fined $50,000

On January 18, 2013, the Banking Commissioner entered an Order Imposing Fine (Docket No. CRF-12-7892-S) against Steadfast Holdings Group, Inc. f/k/a Beere Financial Group, Inc. of 641 Main Street, East Haven, Connecticut and 10300 West Charleston Boulevard 13-160, Las Vegas, Nevada.  The action had been preceded by a December 17, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-12-7892-S) alleging that 1) Steadfast Holdings Group, Inc., together with correspondents Stead-Fast Custom Linings, LLC, John Calash and Christopher Borgo, offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 2) Steadfast Holdings Group, Inc. violated Section 36b-6(b) of the Act by engaging unregistered agents of issuer; and 3) Steadfast Holdings Group, Inc., together with respondents John Calash, Susan Calash and Stead-Fast Custom Linings, LLC, violated the antifraud provisions in Section 36b-4(a) of the Act.

In fining Steadfast Holdings Group, Inc. $50,000, the Commissioner adopted as Findings of Fact and Conclusions of Law the allegations in the December 17, 2012 Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine.  Steadfast Holdings Group, Inc. did not appear or contest the imposition of the fine.  Similarly uncontested by the respondent were the Order to Cease and Desist and the Order to Make Restitution, each of which became permanent as to Steadfast Holdings Group, Inc. on January 4, 2013.

PowerWater Systems, Inc., Duncan Cleworth and PowerWater USA Ltd. – Order to Cease and Desist and Notice of Intent to Fine Issued

On January 11, 2013, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-7869-S) against PowerWater Systems, Inc. (“PSI”), a Canadian corporation located at 159 Main Street, Markham, Ontario, Canada L3P 1Y2; Duncan Cleworth, chairman of PSI; and PowerWater USA Ltd. (“PUL”), a Connecticut corporation located at One Pond Place, Avon, Connecticut 06001.  Respondent Cleworth was also the president of PUL.

The action alleged that respondents PSI and Cleworth violated Section 36b-16 of the Connecticut Uniform Securities Act, and that respondent PUL materially aided in that violation, by offering and selling unregistered PSI common stock to investors.  The action further alleged that 1) the investors, at respondent Cleworth’s direction, paid PUL for the PSI securities, which payments were deposited in a bank account controlled by Cleworth; and 2) Cleworth withdrew some of the investors' funds from the PUL bank account and used the money for his personal use.  The action also alleged that respondent Cleworth violated Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer, and that respondent PSI violated Section 36b-6(b) of the Act by employing respondent Cleworth in that capacity.

The Order to Cease and Desist and Notice of Intent to Fine further alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Act in that they failed to make key disclosures to investors, including 1) any financial information concerning the respondents, 2) the registration status of the PSI securities, 3) respondent Cleworth's unregistered status as an agent of issuer in Connecticut; 4) the estimated cash proceeds of the PSI stock offering, 5) any specific risk factors related to the investment, and 6) that Cleworth would use some investor monies for his personal use.

Each of the respondents was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Maxcomusa Group Inc. Fined $50,000 for Securities Violations

On January 10, 2013, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-12-7881-S) with respect to Maxcomusa Group Inc. (“Maxcom”) of 61 Fair Street, Norwalk, Connecticut.  Respondent Maxcom had been the subject of a December 21, 2012 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-12-7881-S) alleging violations of Sections 36b-6(a), 36b-16 and 36b-4(a) of the Connecticut Uniform Securities Act.  In fining the respondent $50,000, the Commissioner adopted as findings of fact and conclusions of law the allegations in the December 21, 2012 Order to Cease and Desist and Notice of Intent to Fine.  Maxcom did not appear or contest the imposition of the fine.  Likewise, Maxcom did not contest the Order to Cease and Desist which, as a result, became permanent on January 8, 2013.

The December 21, 2012 action had 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, from approximately May 7, 2008 through approximately September 17, 2008, Maxcom sold Euro restricted shares at a price of $.50 per share to at least six investors in Connecticut and other states, and that, at the time of the sales, unrestricted Euro shares were trading on the OTC Bulletin Board for between $.10 and $.35 per share.  The action added that none of the investors purchasing Euro restricted shares through respondent Maxcom 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 had further alleged that respondents Maxcom and its president, Christos Christoforou, 1) 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) 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) 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 had also alleged that 1) Maxcom transacted business as an unregistered broker-dealer in violation of Section 36b-6(a) of the Act; 2) respondents Maxcom and Christoforou offered and sold unregistered securities in violation of Section 36b-16 of the Act; and 3) respondents Maxcom and Christoforou violated the antifraud provisions in Section 36b-4(a) of the Act.

Christos Christoforou Fined $50,000 for Securities Violations

On January 10, 2013, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-12-7881-S) with respect to Christos Christoforou, president, director and control person of Maxcomusa Group Inc. (“Maxcom”), a corporation located at 61 Fair Street, Norwalk, Connecticut.  Respondent Christoforou had been the subject of a December 21, 2012 Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-12-7881-S) alleging violations of Sections 36b-6(a), 36b-16 and 36b-4(a) of the Connecticut Uniform Securities Act.  In fining respondent Christoforou $50,000, the Commissioner adopted as findings of fact and conclusions of law the allegations in the December 21, 2012 Order to Cease and Desist and Notice of Intent to Fine.  Respondent Christoforou did not appear or contest the imposition of the fine.  Likewise, Christoforou did not contest the Order to Cease and Desist which, as a result, became permanent on January 8, 2013.

The December 21, 2012 action had 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 had 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 had 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 had further alleged that respondents Christoforou and Maxcom 1) 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) 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) 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 had also alleged that respondent Christoforou 1) transacted business as an unregistered broker-dealer agent in violation of Section 36b-6(a) of the Act; 2) transacted business as an unregistered agent of issuer in contravention of Section 36b-6(a) of the Act; 3) offered and sold unregistered securities in violation of Section 36b-16 of the Act; and 4) violated the antifraud provisions in Section 36b-4(a) of the Act.

First Financial LLC and Feisal Sharif – Order to Cease and Desist and Notice of Intent to Fine Issued

On January 3, 2013, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-13-7985-S) against First Financial LLC (“FFL”) of 49 Rose Street #309, Branford, Connecticut and 25 Lorenz Drive, Wolcott, Connecticut.  Also named in the action was Feisal Sharif, managing member of FFL.

The action alleged that, from at least January 2007 forward, respondent Sharif, alone and under the auspices of FFL, pooled the funds of at least 80 investors for the purported purpose of investing those funds in an account managed by FFL and Sharif, and that Sharif guaranteed monthly and yearly returns of 1 percent to 15 percent.  The action also alleged that, in reality, Sharif commingled investor funds, paid off earlier investors with later investors' money and diverted investor funds for his personal use.  According to the action, to hide his conduct, Sharif allegedly created and provided some investors with fictitious account statements reflecting false and inflated account balances.  In addition, the respondents allegedly failed to disclose to investors any risk factors related to the investment, any financial information concerning the respondents and that investor funds would be applied to pay for the respondents' personal expenses and to pay off earlier investors.

The action further alleged that 1) the respondents offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; and 2) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act.

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


Vista Investment Advisors LLC (IARD # 125777) Assessed $2,500 for Engaging Unregistered Investment Adviser Agents

On March 26, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-8073-S) with respect to Vista Investment Advisors LLC, a registered investment adviser located at 191 Post Road West, Westport, Connecticut.  The Consent Order alleged that, at various specified times between April 2004 and December 2012, both the firm’s Chief Investment Officer and its Chief Compliance Officer transacted business as investment adviser agents of the firm without being registered.  The Consent Order also alleged that the firm, by engaging unregistered investment adviser agents, violated Section 36b-6(c)(3) of the Connecticut Uniform Securities Act.

In resolution of the matter, the firm agreed to refrain from violative conduct and to pay $2,500 to the agency.  Of that amount, $1,500 constituted an administrative fine and $1,000 would be applied to reimburse the department for past due registration fees.

Obsidian Financial Group, LLC (CRD # 104255) Fined $7,500

On January 11, 2013, the Banking Commissioner entered a Consent Order (No. CO-12-8053-S) with respect to Obsidian Financial Group, LLC, a Connecticut-registered broker-dealer having its main office at 1000 Woodbury Road, Suite 110, Woodbury, New York.  The Consent Order alleged that the firm 1) violated Section 36b-31-6f(b) of the Regulations under the Connecticut Uniform Securities Act by failing to implement an adequate supervisory system with respect to agents who engaged in inaccurate disclosure practices concerning the characterization of certain “handling fees” charged to customers; 2) violated Section 36b-31-9b of the Regulations by failing to abide by requirements concerning the maintenance of minimum net capital; and 3) violated Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations by failing to provide Division staff with requested records in a timely manner.  The Consent Order fined the firm $7,500 and directed it to cease and desist from regulatory violations.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,318    
Broker-dealer Agents Registered 151,390     
 
Broker-dealer Branch Offices Registered 2,675    
 
Investment Advisers Registered 555    
 
SEC Registered Advisers Filing Notice 1,916    
 
Investment Adviser Agents Registered 11,197    
 
Exempt Reporting Advisers
68
 
 
Agents of Issuer Registered 21    
 
Conditional Registrations
0
 
 
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 35  
  35
Investment Company Notice Filings 605  
       605
Exemptions and Exemptive Notices 767       767
 
 
Examinations
     
Broker-dealers 32  
  32
Investment Advisers 30  
  30
 
 
Securities Investigations
 
Opened 20    
 
20
Closed 14    
 
14
Ongoing as of End of Quarter 89    
           
Subpoenas issued 11       11
Matters referred from Attorney General 0       0
Matters referred from Other Agencies 4       4
 
 
Business Opportunity Investigations
 
Investigations Opened 1       1
Investigations Closed 1  
  1
Ongoing as of End of Quarter 3         
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
 
0
Notices of Intent to Suspend (Licensing)
1
1
Notices of Intent to Revoke (Licensing)
1
1
Denial Orders (Licensing) 0  
  0
Suspension Orders (Licensing) 1  
1
Revocation Orders (Licensing) 0  
  0
Notices of Intent to Fine 7  
  7
Orders Imposing Fine 5  
  5
Cease and Desist Orders 6  
  6
Notices of Intent to Issue Stop Order 0  
0
Activity Restrictions/Bars 0  
0
Stop Orders 0       0
Vacating/Withdrawal/ Modification Orders 0       0
Restitutionary Orders 4  
  4
Injunctive Relief Obtained 0       0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
13
 
13
Consent Orders
2
 
2
Stipulation and Agreements
0
 
0
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$360,000
  $360,000
Portion attributable to settlements
$10,000
   
  
$10,000
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$178,000
  $178,000

*Cents eliminated

 

Securities Referrals

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



Securities Division