DOB: Fall 2013 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVII  No. 3
Fall 2013

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


During the 2013 legislative session, the Connecticut legislature made the following amendments to the Connecticut Uniform Securities Act and the Connecticut Business Opportunity Investment Act.  All of the changes are effective October 1, 2013.

An Act Concerning the Connecticut Uniform Securities Act (Public Act No. 13-106)

Section 36b-21(a)(8)(A) Updated

Formerly, Section 36b-21(a)(8)(A) exempted from securities registration any security “appearing on the list of over-the-counter and foreign securities approved for margin by the Board of Governors of the Federal Reserve System” that was not otherwise a covered security.  Since the Board of Governors had not published a list of marginable securities in years, however, P.A. 13-106 amended Section 36b-21(a)(8)(A) to cross-reference the rules and regulations of the Board of Governors of the Federal Reserve System in determining margin status and added a reference to American depositary receipts.  Section 36b-21(a)(8) was also amended to add a general reference to successors of the various listed U.S. stock exchanges.

Technical Change to Section 36b-21(b)(14)

Since Section 4(6) of the federal Securities Act of 1933 was renumbered to Section 4(a)(5) by Section 944(a) of Pub. L. 111-203, the reference to Section 4(6) in Section 36b-21(b)(14) of the Connecticut Uniform Securities Act was updated to conform to the federal legislation.

Effective Date for Notice Filings by Closed-End Management Companies Clarified

The federal National Securities Markets Improvement Act of 1996, P.L. 104-290 (“NSMIA”), preempted the states from registering investment company securities, but preserved the states’ ability to require the filing of a notice rather than a registration.  Section 18(b)(2) of the Securities Act of 1933, as amended by NSMIA, provided that:  “a security is a covered security if such security is a security issued by an investment company that is registered, or that has filed a registration statement, under the Investment Company Act of 1940.”  Section 4 of the Investment Company Act of 1940 divides investment companies into three types:  management companies, face-amount certificate companies; and unit investment trusts.  Section 5 of the Investment Company Act of 1940, in turn, divides management companies into open-end companies (i.e. mutual funds) and closed-end companies.

When the Division amended Section 36b-21 (P.A. 97-220) in late 1997 to add a new subsection (c) [governing investment company notice filings] the amendment did not expressly mention the treatment of closed end companies.  However, closed-end companies did file a Uniform Investment Company Notice Filing (Form NF) which had been developed by the states through the North American Securities Administrators Association for investment company notices.  In addition, closed-end companies continued to remit the fee required by Section 36b-19(b) of the Connecticut General Statutes.

P.A. 13-106 codified existing practice by amending Section 36b-21(c) to expressly include closed-end funds and to cross-reference the fee provision in Section 36b-19(b).  In addition, the legislation provided clarity on when the notice filing is effective and the renewal mechanism (if applicable).  Setting the effectiveness date to the later of agency receipt or SEC effectiveness is consistent with the approach taken by other jurisdictions and is in conformity with past agency practice and industry expectations.

An Act Concerning the Recommendations of the Connecticut Sentencing Commission Regarding Unclassified Felonies (Public Act No. 13-258)

Impact on Criminal Penalties Provisions in the Connecticut Uniform Securities Act

For wilful violations of the Connecticut Uniform Securities Act (other than violations of Sections 36b-4(a), 36b-5(a) and 36b-5(f) for which more stringent penalties are prescribed), P.A. 13-258 increased the monetary penalty from $2,000 to $3,500.  The term of imprisonment remained unchanged at two years.

Effect on Criminal Penalties Provisions in the Connecticut Business Opportunity Investment Act

For wilful violations of the Connecticut Business Opportunity Investment Act (other than violations of Section 36b-67(6) for which more stringent penalties are prescribed), P.A. 13-258 increased the monetary penalty from $2,000 to $3,500.  The term of imprisonment remained unchanged at two years.


  * 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.

In keeping with the spirit of Governor Malloy’s Executive Order No. 37, the Banking Commissioner, in tandem with the agency’s Securities Advisory Council, is continuing to elicit comments and active participation from members of the Connecticut bar regarding possible amendments to the Regulations under the Connecticut Uniform Securities Act.  Commissioner Pitkin made a similar announcement in the Spring 2013 issue of the Securities Bulletin.

Individuals interested in participating may contact Securities Advisory Council Chairman Harold B. Finn, III directly at Finn Dixon & Herling (phone:  203-325-5029).

In the previously published Securities Bulletin announcement, Attorney Finn described the project (and time commitment) as follows:

     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. 
    


Christian Meissenn (CRD # 2212929), Gabriel Abensur, John Morgan, Speed of Thought Trading Corporation, Rescon Technology Corporation, Northeast Development Corporation, The African Diamond Company, Inc., Hybrid Automotive Technologies, Inc., Ironclad Investments, LLC and Damian Seth Delgado (CRD # 2678371) Ordered to Cease and Desist from Regulatory Violations; Notice of Intent to Fine Issued

On September 16, 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-13-7839-S) against multiple respondents, including Christian Meissenn of 2618 Corbyton Court, Orlando, Florida.  Meissenn, who was also known as Christian Nigohossian, Christian Mason, Christopher Mason and Christian Levon Nigohossian, also resided at 453 North Main Street, Suffield, Connecticut.  From 2001 to 2003, Meissenn headed GIT Securities Corporation (CRD # 103735), a brokerage firm that was controlled by respondent Rescon Technology Corporation (“Rescon”).  Also named in the action were 1) Gabriel Abensur of 17/6 Bell Lane, Gibraltar; 2) John Morgan of 183 Madison Avenue, Suite 1719, New York, New York; 3) Speed of Thought Trading Corporation (“Speed”) of 1500 Market Street, 12th Floor, East Tower, Philadelphia, Pennsylvania; 4) Rescon, which shared the same address as Speed; 5) Northeast Development Corporation (“Northeast”) of 1500 Market Street, #12, Philadelphia, Pennsylvania and 68 G. Kingspring Street, Windsor Locks, Connecticut; 6) Hybrid Automotive Technologies, Inc. (“Hybrid”) of 14 Cranbrook Boulevard, Enfield, Connecticut; 7) Ironclad Investments, LLC (“Ironclad”) of 195 West Newberry Road, Bloomfield, Connecticut, an entity which held itself out as a high performance arbitraged FOREX fund; 8) Damian Seth Delgado of 2609 Dover Glen Circle, Orlando, Florida and 453 North Main Street, Suffield, Connecticut, who had previously been sentenced in New Jersey to a term of imprisonment for securities fraud; and 9) The African Diamond Company, Inc. (now known as Coal Corporation) (“African”) of 2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia.  Although African held itself out as having a business address at 1028 Boulevard, Suite 242, West Hartford, Connecticut, the action alleged that that address was actually a mail drop established by respondent Abensur.

At various times, Meissenn was allegedly the president of African, Speed, Rescon and Northeast.  Respondent Meissenn also formed Hybrid and, together with respondent Delgado, co-managed Ironclad.  The action also alleged that Meissenn and/or Abensur had a financial interest or served as an officer or director of Speed, Rescon, Northeast, African, Ironclad and Hybrid (the “Meissenn/Abensur Entities”), and that the securities issued by the Meissenn/Abensur Entities were low priced, thinly traded securities (penny stocks).

According to the action, over a span of eight years, commencing in 2001, respondents, with the exception of Delgado, sold unregistered securities of the Meissenn/Abensur Entities in or from Connecticut in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that respondent Morgan transacted business as an unregistered agent of issuer.  The action further alleged that Meissenn and Abensur violated the antifraud provisions by inducing investors who had previously bought securities issued by one or more of the Meissenn/Abensur entities to exchange their shares at a premium for different Meissenn/Abensur Entity securities while promising profitability but not disclosing critical information on the entity, the involvement of Meissenn and Abensur in the entity’s operations and the impact of dilution.  The action also alleged that Meissenn violated Section 36b-23 of the Act by misrepresenting in sworn testimony before Division investigators that Meissenn had no relationship with African.

The action further alleged that Meissenn and Abensur, with the material assistance of Delgado, engaged in a second fraudulent scheme which involved defrauding investors of Terra Energy Resources, Ltd. (“Terra”), a Delaware corporation quoted on OTC Link LLC.  Specifically, the action alleged that Abensur formed Sunrise Group Investments Corp. in Gibraltar, Bull Investments Limited in Gibraltar, Monrosa Investments Ltd. in the Republic of Seychelles, Romestar International Inc. in Gibraltar and Raven Investments PLC in Seychelles, then opened U.S. brokerage accounts for these companies at various broker-dealers, providing the companies’ address as 2842 Main Street, Suite 185, Glastonbury, Connecticut.  Through the companies, Abensur then bought and sold Terra securities multiple times on the same day in the companies’ various brokerage accounts, which created the false appearance of inflated and exaggerated trading activity in the shares of Terra.  Abensur deposited the sales proceeds into Ironclad’s bank account, which was controlled by Meissenn, and directed Meissenn and Delgado to write checks from that account for nonbusiness expenses.  The action also alleged that Abensur and/or Meissenn further perpetuated a scheme to defraud investors by circulating, from the Glastonbury address, misleading literature regarding Terra to investors in Connecticut and other states in an effort to create interest in Terra.

The respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.  Since respondents Coal Corporation, Hybrid Automotive Technologies, Inc., Ironclad Investments, LLC, John Morgan, Northeast Development Corporation, Rescon Technology Corporation and Speed of Thought Trading Corporation failed to request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to each of them on October 18, 2013.


David Miller (CRD # 2570012) – Agent Registration Revoked

On September 6, 2013, the Banking Commissioner entered an Order revoking the broker-dealer agent registration of David Miller of Rockville Centre, New York.  Respondent Miller had formerly been associated with Rochdale Securities LLC, a securities brokerage firm located in Stamford, Connecticut.  Although Respondent Miller’s agent registration was withdrawn in November 2012, Connecticut law permits the Commissioner to initiate revocation proceedings within one year after a registration withdrawal becomes effective.  The revocation order had been preceded by a July 8, 2013 Notice of Intent to Revoke Registration as an Agent (Docket No. NR-13-8093-S) which alleged that 1) on April 15, 2013, Respondent Miller pleaded guilty to one count of conspiracy to commit wire fraud and one count of wire fraud, both felonies (United State of America v. David Miller, Case No. 3:13CR-00075-RNC (D. Conn.) in conjunction with unauthorized purchases of Apple, Inc. securities, and was awaiting sentencing; 2) on April 18, 2013, the United States District Court for the District of Connecticut permanently enjoined Respondent Miller from violating the antifraud provisions in Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 (Securities and Exchange Commission v. David Miller, C.A. No. 13-522 JBA (D. Conn.); and 3) Respondent Miller was the subject of an April 25, 2013 bar imposed by the SEC (Release No. 69460; Administrative Proceeding File No. 3-15-303).  Like the April 15, 2013 criminal proceeding, the civil injunctive action and the administrative bar were based on Respondent Miller’s transactions in securities of Apple, Inc.

Respondent Miller did not appear or contest the revocation of his agent registration.  Finding that a basis for revocation existed under Sections 36b-15(a)(2)(C), 36b-15(a)(2)(D) and 36b-15(a)(2)(F)(ii) of the Connecticut Uniform Securities Act, the Commissioner entered a revocation order by default against Respondent Miller.

Stephen Goodrich Fined $300,000 for Securities Fraud, Registration Violations


On September 3, 2013, the Banking Commissioner entered an Order Imposing Fine (Docket No. CRF-13-8085-S) against Stephen Goodrich a/k/a Stephen W. Goodrich a/k/a Stephen Western Goodrich d/b/a Goodrich Financial of 168 Queen Street, 1st Floor, Bristol, Connecticut.   The Order Imposing Fine had been preceded by a July 23, 2013 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-13-8085-S) alleging that, from at least March 2006 forward, respondent Goodrich pooled approximately $1.9 million in investor funds from at least 23 investors primarily located in Connecticut; commingled investor funds and used the monies to pay off earlier investors and to cover his personal expenses such as liquor purchases and online gambling; provided investors with fictitious account statements containing falsely inflated account balances; falsely held himself out as a licensed investment professional; sold unregistered securities; and failed to provide investors with critical information concerning their investment.  The July 23, 2013 action had further alleged that respondent Goodrich 1) violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered securities; 2) violated the antifraud provisions of Section 36b-4(a) of the Act; 3) transacted business as an unregistered investment adviser in contravention of Section 36b-6(c)(1) of the Act; 4) violated Section 36b-5(a) of the Act by engaging in fraudulent practices in connection with investment advisory activity; and 5) transacted business as an unregistered broker-dealer in violation of Section 36b-6(a) of the Act.


In fining Respondent Goodrich $300,000, the Commissioner found that the respondent had violated Sections 36b-16, 36b-4(a), 36b-6(c)(1), 36b-5(a) and 36b-6(a) of the Act.  Although the respondent initially requested a hearing on the allegations, the hearing request was later withdrawn.  Similarly uncontested were the Order to Cease and Desist and Order to Make Restitution each of which became permanent by default on August 19, 2013.


Terra Energy, LLC Fined $50,000 for Securities Fraud Violations

On September 3, 2013, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-13-7795-S) against Terra Energy, LLC of 195 West Newberry Road, Bloomfield, Connecticut.  The entity, controlled by Anthony Charles Vassallo (CRD number 1833409), had been the subject of a July 12, 2013 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-7795-S) alleging that Vassallo, through the instrumentality of Terra Energy, LLC, violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act.

In fining Terra Energy, LLC $50,000, the Commissioner found that Terra Energy, LLC violated the antifraud provisions in Section 36b-4(a) of the Act.  Terra Energy, LLC did not appear or contest the imposition of the fine.  Similarly uncontested was the Order to Cease and Desist which became permanent as to Terra Energy, LLC on August 21, 2013.

Anthony Charles Vassallo (CRD # 1833409) and Terra Energy Resources, Ltd. Each Fined $100,000 for Securities Law Violations

On August 13, 2013, the Banking Commissioner entered two separate Orders Imposing Fine (Docket No. CF-13-7795-S) against 1) Terra Energy Resources, Ltd. (“Terra Delaware”), a Delaware entity whose main office addresses included Gibraltar; West Hartford, Connecticut; Hawthorne, New Jersey; 750 Main Street, Suite 902, Hartford, Connecticut; and, most recently, 222 Bay 14th Street, Second Floor, Brooklyn, New York; and 2) Anthony Charles Vassallo whose last known address is 149 Paddington Circle, Smithtown, New York.  Both Terra Delaware and respondent Vassallo had been the subject of a July 12, 2013 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-7795-S).  Since respondents Terra Delaware and Vassallo had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to them on July 31, 2013 and August 2, 2013, respectively. 

Also named in the July 12, 2013 action were  Terra Energy, LLC (“Terra Connecticut”), a Connecticut limited liability company controlled by Vassallo; and Christian Meissenn a/k/a Christian Nigohossian (CRD No. 2212929) of 2618 Corbyton Court, Orlando, Florida.

The July 12, 2013 action had alleged that, starting in February 2010 and following Vassallo’s formation of Terra Connecticut, Vassallo and Terra Delaware offered and/or sold unregistered Terra Delaware common stock in violation of Section 36b-16 of the Connecticut Uniform Securities Act; Vassallo transacted business as an unregistered agent of issuer and as an unregistered broker-dealer in violation of Section 36b-6(a) of the Act; and Terra Delaware employed Vassallo as an unregistered agent of issuer.  The action had further alleged that, while investors expected their stock purchase monies to be forwarded to Terra Delaware, in reality, Vassallo deposited those funds into his Terra Connecticut account as well as his personal account and then made multiple cash withdrawals to pay for personal expenses such as Costco purchases and veterinary bills.  Consequently, Vassallo, through the instrumentality of Terra Connecticut, allegedly violated the antifraud provisions in Section 36b-4(a) of the Act.  With respect to respondent Meissenn, the action alleged that Meissenn and Vassallo were business associates and that Meissenn violated Section 36b-23 of the Act by making a materially false or misleading statement to Division staff during an investigation.

In fining respondent Vassallo $100,000, the Commissioner found that respondent Vassallo violated Sections 36b-16, 36b-6(a) and 36b-4(a) of the Act.  In imposing a $100,000 fine against Terra Delaware, the Commissioner found that Terra Delaware violated Sections 36b-16 and 36b-6(b) of the Act.  Neither respondent Vassallo nor respondent Terra Delaware appeared or contested the imposition of the fine.

The matter remains pending with respect to respondent Meissenn.

Ronald Marvin (CRD # 722277), RMV Holding Company, LLC and RMV Investments, LLC Fined $230,000 In the Aggregate Following Hearing; Order to Cease and Desist Made Permanent

On July 29, 2013, following an administrative hearing, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order (Docket No. CF-12-7791-S) against RMV Holding Company, LLC and RMV Investments, LLC, both of 225 Main Avenue, Norwalk, Connecticut, and Ronald Marvin, principal of the firms.  Respondent RMV Holding Company, LLC was the general partner of RMV Partners, L.P., a hedge fund started by Respondent Marvin.  The action had been preceded by a May 9, 2012 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-12-7791-S) against the respondents.

The hearing decision found that 1) Ronald Marvin violated Section 36b-6(c)(2) of the Connecticut Uniform Securities Act by transacting business as an unregistered investment adviser agent; 2) RMV Holding Company, LLC violated Section 36b-6(c)(1) of the Act by transacting business as an unregistered investment adviser; 3) in connection with their advisory activities, Ronald Marvin and RMV Holding Company, LLC engaged in dishonest or unethical practices within the meaning of Section 36b-5(f) of the Act, and RMV Investments, LLC materially assisted in that violation; 4) Ronald Marvin engaged in dishonest or unethical practices while registered as a broker-dealer agent under the Act; and 5) Ronald Marvin failed to make certain conflict of interest disclosures in contravention of Section 36b-31-15d(a)(2) of the Regulations under the Act.

The July 29, 2013 Order rendered permanent the cease and desist order issued against each respondent.  In addition, the Order imposed fines of $200,000 against Ronald Marvin, $20,000 against RMV Holding Company, LLC and $10,000 against RMV Investments, LLC for their respective violations of Connecticut’s securities laws.

Fundraising Co-Op, Inc. Buyer Topia, Inc., Nicholas C. Burkholder, Duncan H. Graham and John Weber – Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine issued

On July 25, 2013, the Banking Commissioner entered an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-13-883-B) against Fundraising Co-Op, Inc. and Buyer Topia, Inc., both of 600 Louis Drive, Suite 202B, Warminster, Pennsylvania.  Also named in the order were Nicholas C. Burkholder, an executive officer of respondents Fundraising Co-Op, Inc. and Buyer Topia, Inc.; Duncan H. Graham, the Executive Director of Fundraising Co-Op, Inc. and the Director of Development for Buyer Topia, Inc.; and John Weber, Treasurer of Fundraising Co-Op, Inc.  Fundraising Co-Op, Inc. and Buyer Topia, Inc. are in the purported business of selling advertising and product fundraising programs to enable purchasers to start their own home based business, earning commissions on products as well as a share of collateral advertising.

The action alleged that the respondents violated the Connecticut Business Opportunity Investment Act by offering and selling unregistered business opportunities; making unsubstantiated earnings claims; and engaging in fraudulent conduct in violation of Section 36b-67(6) of the Act.  The action also alleged that respondent Fundraising Co-Op, Inc. violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered interests in a cooperative.

The respondents were afforded an opportunity to request a hearing on the 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 Fined $100,000, Directed to Pay Full Restitution Following Violation of Consent Order

On July 25, 2013, the Banking Commissioner entered an Order Imposing Fine and Order of Restitution (Docket No. CRF-12-8048-S) against DFS Capital Management, LP ; John Vincent Greco, president of the firm; and DFS Fund, Limited Partnership, an affiliated investment fund.  The respondents had been the subject of a May 1, 2013 Consent Order which sought to resolve a November 6, 2012 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).  The Consent Order had required the respondents to repay a negotiated amount to certain investors who purportedly had been harmed by respondents’ conduct.  The Consent Order also provided that a failure by the respondents to repay the affected investors on or before June 30, 2013 would result in an order of full restitution to the affected investors and the imposition of a $100,000 fine by the Commissioner.

Since the respondents did not fulfill their repayment obligation to the affected investors, the July 25, 2013 order directed the respondents to pay the affected investors $197,000 and $117,000, respectively, by September 6, 2013 and to pay a fine of $100,000 to the agency no later than October 4, 2013.

Accelerated Mentoring LLC f/k/a Internet Sales Institute LLC, Clancey Braxton Yohman and Josh Jensen Fined $210,000 in the Aggregate for Business Opportunity Act Violations

On July 16, 2013, the Banking Commissioner entered three separate Orders Imposing Fine (Docket No. CF-13-8051-B) against Accelerated Mentoring LLC, now or formerly of 3910 Hill Road, Suite 102-103, Boise, Idaho; 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 three respondents had been the subject of a March 18, 2013 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-8051-B) alleging that 1) the respondents violated Section 36b-67(1) of the Connecticut Business Opportunity Investment Act by offering and selling unregistered business opportunities; 2) respondents Accelerated Mentoring LLC and Yohman violated Section 36b-67(2) of the Act by making unsubstantiated earnings or income claims; and 3) 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.  None of the respondents requested a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Adopting as findings the allegations contained in the Order to Cease and Desist and Notice of Intent to Fine, the Commissioner fined Accelerated Mentoring LLC $90,000.  Clancey Braxton Yohman also was directed to pay a $90,000 fine.  A fine of $30,000 was imposed against respondent Josh Jensen.


Wayne P. Franco, M.D., New Heart LLC, Progenesis LLC and Oz III, LLC Fined $10,000 Jointly and Severally for Alleged Securities Violations

On September 25, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-7907-S) with respect to New Heart LLC, Progenesis LLC and Oz III, LLC, all of 520 Saybrook Road, Middletown, Connecticut.  Also named in the Consent Order was Wayne P. Franco, M.D., managing member of the entities.  The Consent Order alleged that the respondents offered and/or sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that respondent Franco transacted business an unregistered agent of issuer.  In addition, the Consent Order alleged that, at various times from September 2004 to May 2011, the respondents failed to disclose to investors that 1) checks earmarked for an investment in Progenesis LLC were actually deposited in New Heart LLC’s bank account and invested in New Heart LLC; and 2) approximately $29,000 of investor funds were used to pay respondent Franco’s medical malpractice insurance.  The Consent Order directed each of the respondents to cease and desist from regulatory violations and fined them $10,000 jointly and severally.  The Consent Order also required that, for five years, prior to soliciting or accepting funds for investment purposes, the respondents and their successors in interest retain experienced securities legal counsel to handle necessary regulatory filings and provide the Division with 30 days advance written notice of any such securities offers or sales.

Howard Baldwin, Sr. - Consent Order Entered

On September 24, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-7936-S) with respect to Howard Baldwin, Sr., director and control person of Hollywood Next Holdings LLC, a now defunct film production studio.  The Consent Order alleged that from various times between April 2008 and December 2008, Howard Baldwin sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act and made omissions of material fact in violation of Section 36b-4(a)(2) of the Act.  The Consent Order directed Howard Baldwin to cease and desist from regulatory violations and fined him $40,000.

A. Searle Field and Hollywood Next Holdings LLC  - Consent Order Entered

On September 19, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-7936-S) with respect to Hollywood Next Holdings LLC of 225 Parkway North, Waterford, Connecticut and A. Searle Field, director and control person of the company.  The Consent Order alleged that the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling securities that were not registered nor the subject of a filed exemption claim.  Those securities consisted of shares and/or units of Hollywood Next Holdings LLC as well as securities issued by United Atlantic Film Fund No. 1, LLC, United Atlantic Film Equity Fund No. 2, LLC, United Atlantic Film Equity Fund No. 3, LLC, United Atlantic Film Equity Fund No. 4, LLC and United Atlantic Film Equity Fund No. 5, LLC.  Ultimately, on August 29, 2013, respondent Field made exemptive filings for the United Atlantic funds.  The Consent Order also alleged that the respondents violated the antifraud provisions in Section 36b-4(a)(2) of the Act in connection with sales of the securities.  In resolution of the matter, the respondents agreed to cease and desist from regulatory violations.  The Consent Order also directed respondent Field to pay a $50,000 fine no later than November 1, 2013.

John Calash and Susan Calash  - Partial Restitution Fund to be Established Pursuant to Consent Order

On September 12, 2013, the Banking Commissioner entered a Consent Order (Docket No. CO-12-7892-S) resolving allegations in a December 17, 2012 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing against John Calash and Susan Calash.  The December 17, 2012 action had 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 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; and 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, among other things, that 1) Linings, Holdings and John Calash offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 2) John Calash violated Section 36b-6(a) of the Act by transacting business as an unregistered agent 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.

The Consent Order directed John Calash and Susan Calash to cease and desist from regulatory violations.  In addition, the Consent Order established a means by which investors in Steadfast Holdings Group, Inc. could obtain partial restitution.  The Calash Partial Restitution Fund would be overseen by an Independent Administrator and funded in the amount of $100,000 by John Calash and Susan Calash.  The Independent Administrator would be responsible for contacting affected investors, processing investor claims and making disbursements to investors from the restitution account.  The Consent Order anticipated that the process would be completed by March 30, 2014.

Rochdale Securities LLC (CRD # 6863) – Broker-dealer Registration Revoked

On August 12, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-8070-S) revoking the broker-dealer registration of Rochdale Securities LLC, a firm located at 750 East Main Street, 7th Floor, Stamford, Connecticut.  Although the firm indicated in regulatory filings that it had ceased conducting business on October 26, 2012 and therefore sought to withdraw its state registration, Connecticut law permits the Commissioner to initiate revocation proceedings post-withdrawal.  The Consent Order alleged that the firm failed to maintain the minimum net capital required by SEC and state rules; failed to provide the Commissioner with notice of the net capital deficiency; and failed to fulfill state financial reporting obligations.  The Consent Order acknowledged the firm’s position that David Miller (CRD number 2570012), a former agent of the firm, contributed to the net capital deficiency by causing the firm to lose approximately $5.3 million as a result of unauthorized purchases of Apple, Inc. shares by Miller.  On April 15, 2013, Miller pleaded guilty to one count of conspiracy to commit wire fraud and one count of wire fraud (United States of America v. David Miller, Case No. 3:13CR-00075-RNC (D. Conn.)) in connection with the Apple, Inc. transactions.   The Consent Order revoked the firm’s Connecticut broker-dealer registration, and directed the firm, its agents, affiliates and successors in interest to cease and desist from violative conduct.


Ocean Cross Capital Markets LLC (CRD # 156256) Fined $1,000 for Securities Law Violations

On July 8, 2013, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-12-8047-S) with Ocean Cross Capital Markets LLC, a broker-dealer that is in the process of deregistering with the various states.  The firm is located at One Gorham Island, Suite 302, Westport, Connecticut.  The Stipulation and Agreement alleged that the firm 1) failed to facilitate an examination of its books and records by agency staff; 2) employed an unregistered broker-dealer agent in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act; and 3) sold unregistered common stock of Bizzingo, Inc. (f/k/a Phreadz, Inc. and f/k/a Atwood Minerals & Mining Corp.) in violation of Section 36b-16 of the Act.  The Stipulation and Agreement acknowledged that a curative Rule 506 notice filing was received after the fact for the Bizzingo, Inc. offering.

In resolution of the matter, Ocean Cross Capital Markets LLC agreed to pay a $1,000 fine to the department and to refrain from violative conduct.


Lammergeier Research LLC (CRD # 164450), Justin Michael Scott (CRD # 6086509) and Omid Kamshad (CRD # 6087236)

On August 28, 2013, the Banking Commissioner entered a Consent Order (No. CO-13-8094-S) conditioning the registration of Lammergeier Research LLC as an investment adviser in Connecticut and the registrations of Justin Michael Scott and Omid Kamshad as investment adviser agents of the firm.  The firm maintains its principal place of business at 4 Knollwood Drive East, Greenwich, Connecticut.  Scott and Kamshad are both managing members and co-portfolio managers of the firm.

The action was predicated on 2003 allegations made by the Securities and Exchange Commission and the Massachusetts Securities Division that Scott and Kamshad had engaged in excessive short-term trading in personal deferred compensation accounts of Putnam mutual fund shares while employed by Putnam Investment Management, LLC.  Those allegations resulted in a June 4, 2007 injunction procured by the SEC (Securities and Exchange Commission v. Justin M. Scott and Omid Kamshad, Civil Action No. 03-12082-EFH, D. Mass); and separate consent orders entered by the State of Massachusetts in 2007 (Docket No. E-2003-061) imposing 12 month suspensions on Scott and Kamshad.

The Order Conditioning Registration noted that neither Scott nor Kamshad had reported any intervening disciplinary events since the 2007 SEC injunction and the 2007 Massachusetts consent orders.

The Order Conditioning Registration required the firm, for two years, to retain an independent consultant to conduct quarterly compliance reviews and prepare written follow-up reports.  The Order Conditioning Registration also limited the client base of Scott and Kamshad to pooled investment vehicles not required to be registered as investment companies under the Investment Company Act of 1940; and to “qualified clients” within the meaning of Rule 205-3 under the Investment Advisers Act of 1940.

The firm and each of its two investment adviser agents became registered in Connecticut on August 28, 2013.

MDS Securities, LLC (CRD # 159555) - Broker-dealer Registration Conditioned

On July 18, 2013, the Banking Commissioner executed a Stipulated Agreement (No. ST-13-8103-S) conditioning the registration of MDS Securities, LLC as a broker-dealer in Connecticut.  The firm is located at 409 Butler Road, Suite A, Kittanning, Pennsylvania and focuses on selling private placements, gas or oil interests, tax shelters and limited partnerships in primary distributions.  Connecticut law requires that the principals of a securities brokerage firm fulfill certain experience requirements, and the firm did not satisfy the experience criteria.  The Stipulated Agreement required that, for two years, the firm not engage in retail securities brokerage activities in or from Connecticut in connection with any primary or secondary distribution, but rather effect transactions exclusively with or through other Connecticut registered broker-dealers.   Subject to that limitation and for a two year period, 1) where the firm served as dealer manager in a Regulation D offering, Connecticut securities purchasers were required to be accredited investors; and 2) where the firm served as dealer manager in a public offering of oil and gas securities, the Stipulated Agreement required that Connecticut securities purchasers satisfy specific suitability criteria.

MDS Securities, LLC became registered as a broker-dealer under the Connecticut Uniform Securities Act on July 18, 2013.


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 2,327
2,314
         
Broker-dealer Agents Registered 151,390   153,103
  155,630
         
Broker-dealer Branch Offices Registered 2,675  2,676
2,697
            
Investment Advisers Registered 555  563 558
  
SEC Registered Advisers Filing Notice 1,916  1,966 1,991
  
Investment Adviser Agents Registered 11,197  11,409 11,560
    
Exempt Reporting Advisers
68
71
74
Agents of Issuer Registered 21 23 24
    
Conditional Registrations
0
1
2
    
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 35 44
32
        111
Investment Company Notice Filings 605 493
498
    1,596
Exemptions and Exemptive Notices 767 824 753         2,344
 
 
Examinations
     
Broker-dealers 32 27
15
        74
Investment Advisers 30 47
43
         120
 
 
Securities Investigations
 
Opened 20 21 14
    
55
Closed 14 10 34
    
58
Ongoing as of End of Quarter 89 100 80
           
Subpoenas issued 11 25 24        60
Matters referred from Attorney General 0 5 0         5
Matters referred from Other Agencies 4 0 0           4
 
 
Business Opportunity Investigations
 
Investigations Opened 1 0 0           1
Investigations Closed 1 1
0
         2
Ongoing as of End of Quarter 3 2 2            
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
0
0
         
0
Notices of Intent to Suspend (Licensing)
1
0
0
        
1
Notices of Intent to Revoke (Licensing)
1
0
1
       
2
Denial Orders (Licensing) 0 0
0
         0
Suspension Orders (Licensing) 1 0
0
       
1
Revocation Orders (Licensing) 0 0
2
         2
Notices of Intent to Fine 7 0
3
          10
Orders Imposing Fine 5 8
11
          24
Cease and Desist Orders 6 0
3
         9
Notices of Intent to Issue Stop Order 0 0
0
0
Activity Restrictions/Bars 0 2
2
4
Stop Orders 0 0 0          0
Vacating/Withdrawal/ Modification Orders 0 2 0         2
Restitutionary Orders 4 0
3
         7
Injunctive Relief Obtained 0 0 0         0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
13
7
14
        
34
Consent Orders
2
3
5
         
10
Stipulation and Agreements
0
0
1
        
1
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$360,000
$708,208
$1,191,000
            $2,259,208
Portion attributable to settlements
$10,000
$8,208
$101,000
         
$119,208
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$178,000
$265,000
$544,000
             $987,000

*Cents eliminated

 

Securities Referrals

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



Securities Division