DOB: Summer 2014 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVIII  No. 2
Summer 2014

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


Four employees in the Department of Banking’s Securities and Business Investments Division were recently honored by the United States Attorney’s Office for the District of Connecticut.

The awards were presented on June 19, 2014, at the United States Attorney’s Office Law Enforcement Awards Ceremony, held in the City of New Haven’s aldermanic chambers.  This annual ceremony recognizes individuals for their investigative efforts in significant federal criminal prosecutions and civil cases in Connecticut over the past year.

The award recipients, listed alphabetically, were Michael Bessette, Financial Examiner; Cesar Garcia, Banking Department Manager; Dustin Johnson, Financial Examiner; and Klemes M. Klementon, Principal Examiner.

Mr. Garcia, Mr. Johnson and Mr. Klementon were recognized for their investigative efforts in the real estate investment fraud case of United States v. Juan Jose Alvarez de Lugo.  De Lugo was ultimately sentenced to 48 months of imprisonment and ordered to pay $5,161,083 in restitution.

Financial Examiner Michael Bessette was honored for his work in United States v. Julius Blackwelder, an affinity fraud case involving nearly $500,000 in investor losses.  Blackwelder pleaded guilty to fraud and money laundering charges, and was sentenced to 46 months in prison.

The Department of Banking is a participant (member) of the U.S. Attorney’s Connecticut Securities, Commodities and Investor Fraud Task Force.

Poppin Kettle Franchising, Inc., Chris T. Gregoris and Yofresh Yogurts Franchising, Inc. - Order to Cease and Desist and Notice of Intent to Fine Issued

On June 12, 2014, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-14-886-B) against Poppin Kettle Franchising, Inc. and Yofresh Yogurts Franchising, Inc., both of 8 Faneuil Hall Marketplace, Boston, Massachusetts.  Also named in the action was Chris T. Gregoris a/k/a Christos T. Gregoris a/k/a Christopher Gregoris, the sole officer and director of the entities.  Respondent Gregoris had been the president of Java's Brewin Development, Inc. which was the subject of a June 23, 2008 Order to Cease and Desist and an October 8, 2008 Order Imposing Fine issued by the Commissioner under the Connecticut Business Opportunity Investment Act (Docket No. CF-2008-845-B). The $30,000 fine levied by the October 8, 2008 Order remains unpaid.


The current action alleged that the respondents offered and/or sold unregistered Poppin Kettle franchises and unregistered Yofresh franchises in violation of Section 36b-67(1) of the Connecticut Business Opportunity Investment Act.  In addition, the action alleged that respondents Poppin Kettle Franchising, Inc. and Gregoris violated the antifraud provisions in Section 36b-67(6) of the Act by failing to provide purchaser-investors with material disclosures including the risks involved in buying the business opportunity; financial information on the seller; litigation involving Gregoris and several New York purchasers of the Java's Brewin business opportunity; background information on the seller, its principals and affiliates; that Gregoris was a control person of Java's Brewin; that the Commissioner fined Java's Brewin $30,000 for violating the Act; and that the fine against Java's Brewin remained unpaid.


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.


Gregory Richard Imbruce (CRD # 4392235), Hunton Oil Partners LP, Hunton Oil Genpar LLC, Giddings Oil & Gas LP, Giddings Genpar LLC, Asym Energy Fund III LP and Asym Capital III LLC - Amended Order to Cease and Desist and Notice of Intent to Fine Issued

On June 10, 2014, the Banking Commissioner issued an Amendment to the department’s December 17, 2013 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-13-8064-S) against 1) Gregory Richard Imbruce of New Canaan, Connecticut; 2) investment fund Hunton Oil Partners LP and its general partner, Hunton Oil Genpar LLC; 3) investment fund Giddings Oil & Gas LP and its general partner Giddings Genpar LLC; and 4) investment fund Asym Energy Fund III LP and its general partner, Asym Capital III LLC.  Each partnership and its respective general partner maintained a business address at 1055 Washington Boulevard, Suite 410, Stamford, Connecticut.  According to the action, respondent Imbruce occupied a control position and exercised critical decision making for the entities.

The earlier action had alleged that at designated times between 2009 and 2012, the partnerships offered and sold unregistered securities absent compliance with Section 36b-16 of the Connecticut Uniform Securities Act.  The December 17, 2013 action had also alleged that 1) the general partners transacted business as unregistered investment advisers in contravention of Section 36b-6(c)(1) of the Act; 2) in violation of Section 36b-6(c)(2) of the Act, respondent Imbruce transacted business as an unregistered investment adviser agent; 3) the respondents violated the antifraud provisions of the Act by failing to disclose material facts to prospective limited partners, including disciplinary proceedings initiated by FINRA against respondent Imbruce relating to Imbruce’s activities while he was associated with Bernard L. Madoff Investment Securities LLC; 4) to induce several prospective limited partners to invest, respondent Imbruce represented to them that he personally invested in the affected limited partnership when that was not the case; 5) the subscription agreements for two of the partnerships falsely represented that all applicable blue sky registration requirements had been fulfilled; 6) respondent Imbruce violated Section 36b-23 of the Act by making a materially misleading statement to the Division; and 7) respondent Asym Energy Fund III LP employed an unregistered agent of issuer in violation of Section 36b-6(b) of the Act.

The Amendment added a new charge that respondent Imbruce further violated Section 36b-23 of the Act by making materially misleading statements to the Division relating to finder's fee payments in conjunction with the sale of Giddings Oil & Gas LP units.

A hearing on the action is pending.

Orion Capital, LLC and Herman Wayne Gibson (CRD # 1274821) – Order to Cease and Desist and Notice of Intent to Fine Issued

On May 8, 2014, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-14-8080-S) against Orion Capital LLC of 1297 Main Street, Watertown, Connecticut and Herman Wayne Gibson, the firm’s control person.  The action stated that Orion Capital, LLC had been created to process conventional loans for Pegasus Investment Group, LLC, a mortgage broker controlled by Gibson and previously licensed by the department.  According to the action, from at least September 20, 2009 forward, the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered notes issued by Orion Capital, LLC.  The action also alleged that 1) respondent Gibson allocated note holder monies to his personal use; and 2) in connection with the note sales, the respondents violated Section 36b-4(a) of the Act by failing to make key disclosures concerning their financial condition, the registration status of the securities, the risk factors involved and that Gibson would use a significant part of the investors’ money for his personal use.  The action also alleged that respondent Gibson transacted business as an unregistered agent of issuer in violation of Section 36b-6(a) of the Act, and that Gibson violated Section 36b-23 of the Act by making materially false or misleading statements to the Division regarding monies he deposited into  Monarch Funding, LLC, another entity he controlled.

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


    
CONSENT ORDERS

J.P. Morgan Securities LLC (CRD # 79) Fined $53,800 for Unregistered Sales Assistant Activity

On June 25, 2014, the Banking Commissioner entered a Consent Order (No. CO-14-8151-S) with respect to J.P. Morgan Securities, LLC, a Connecticut-registered broker-dealer.  The settlement arose from a multi-state investigation into the firm's supervisory system as it related to the state registration of sales assistants.  The investigation covered the period from January 1, 2004 through December 31, 2011.  In this case, certain sales assistants accepted unsolicited securities orders at a time when the sales assistants were not appropriately registered under the Connecticut Uniform Securities Act.  The Consent Order noted that the firm had since implemented a new trading system with the ability to confirm the registration status of order acceptors.


In resolution of the matter, the firm agreed to pay a fine of $53,800 to the department.

Morgan Stanley Smith Barney LLC (CRD # 149777) Fined $5 Million for Supervisory System Lapse

On June 9, 2014, the Banking Commissioner entered a Consent Order (Docket No. CO-14-8023-S) with respect to Morgan Stanley Smith Barney LLC, a Connecticut-registered broker-dealer.  The Consent Order alleged that the firm failed to establish, enforce and maintain an adequate supervisory system, particularly with respect to supervisor access to employee e-mail, the outsourcing of external e-mail surveillance to third party contractors, including a third party contractor in Chennai India; and ensuring that individuals who supervised the India third party contractor personnel performing the outsourced work held licenses required by FINRA.  In addition, the Consent Order alleged that the firm 1) failed to maintain its records in a form readily accessible to the Commissioner and failed to make those records readily available to agency staff during an examination in contravention of Sections 36b-14(a)(3) and 36b-14(d) of the Connecticut Uniform Securities Act and Section 36b-31-14f of the Regulations thereunder; and 2) failed to keep certain compliance records true, accurate and current in contravention of Section 36b-31-14a(a) of the Regulations.
 

The Consent Order fined Morgan Stanley Smith Barney LLC $5 million and directed the firm to cease and desist from regulatory violations.  In addition, the Consent Order required that the firm 1) complete a targeted supervisory and quality control review within six months and ensure that supervisory personnel involved in e-mail surveillance maintain all securities licenses required by FINRA; 2) within twelve months, implement a system to ensure that branch supervisory personnel have direct access to e-mailed communications sent or received by specified employees during the previous 120 days; 3) within twelve months, implement procedures to ensure that required books and records would be open to inspection by, and readily accessible to, agency staff; 4) within twelve months conduct training within the firm's legal department to more efficiently address the treatment of legally privileged documents; and 5) within twelve months, implement a separate quarterly quality control procedure measuring the effectiveness of selecting external e-mails for review.

Vasilios Koutsobinas Barred from Connecticut Securities Business for Ten Years

On April 25, 2014, the Banking Commissioner entered a Consent Order (Docket No. CO-13-8022-S) with respect to Vasilios Koutsobinas of Riverdale, New York.  Koutsobinas, the chairman of Euro Group of Companies, Inc., had been the subject of a February 10, 2014 Amended and Restated Order to Cease and Desist and Amended and Restated Notice of Intent to Fine alleging that Euro Group, with the material assistance of respondent Koutsobinas, violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered nonexempt securities.  The action had also alleged that Euro Group and respondent Koutsobinas violated the antifraud provisions of the Act by 1) failing to disclose to affected investors, none of whom was a control person of Euro Group, that the investors could have purchased Euro Group shares in the open market for significantly less than what they paid in the issuer transactions; and 2) failing to provide investors with an offering document that disclosed the risks associated with purchasing Euro Group securities.


The entry of the Consent Order obviated the need for an administrative hearing on the allegations in the Amended and Restated Order to Cease and Desist and the Amended and Restated Notice of Intent to Fine.


The Consent Order barred Vasilios Koutsobinas and any entity under his control from transacting business in Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent for ten years.  In addition, the Consent Order directed Koutsobinas to cease and desist from violative conduct.
 
      
 


Banking Commissioner v. Papic

On August 8, 2005, following an administrative hearing, the Banking Commissioner entered a cease and desist order against defendant and directed that defendant pay a $40,000 fine by December 8, 2005. In an appeal by defendant, the Superior Court sustained the Commissioner’s decision, and in March 2009, the Appellate Court affirmed (Papic v. Burke, 113 Conn. App. 198, 965 A.2d 633 (2009). In a separate action (Banking Commissioner v. Eddie Papic, Docket No. HHD-CV6-4020422-S), the Commissioner sought judicial enforcement of the prior administrative order, and filed a motion for summary judgment since the fine remained unpaid. On October 3, 2013, the Superior Court determined that summary judgment was proper, and directed the defendant to pay the original fine of $40,000 plus an additional fine of $10,000 pursuant to Section 36b-27(e) of the Connecticut Uniform Securities Act.  Defendant Papic appealed to the Appellate Court (Docket No. AC 36239).

On March 27, 2014, to resolve the pending appeal, the Commissioner and defendant Papic executed a Settlement Agreement and Release.  Pursuant to the Settlement Agreement and Release, defendant Papic agreed to withdraw the appeal within five days and pay the State $20,000 by April 15, 2014 in full satisfaction of the Commissioner's claims.  The Commissioner, in turn, agreed to release the November 4, 2013 judgment lien recorded in the Town of Darien land records in Vol. 1517 at Pages 461-62.       


Rawlings Wealth Management LLC (IARD # 171087) – Investment Adviser Registration Conditioned

On June 20, 2014, the Banking Commissioner executed a Stipulated Agreement (No. ST-14-8165-S) conditioning the registration of Rawlings Wealth Management LLC as an investment adviser in Connecticut.  The firm, headed by Bradford Rawlings Boisvert, is located at 213 East Oakland Street, Manchester, Connecticut.  Connecticut law requires that the principals of an investment advisory firm fulfill certain experience requirements, and the firm did not satisfy the experience criteria.  The Stipulated Agreement required that, for three years, the firm 1) refrain from charging performance fees; 2) limit its advisory activity to listed securities, investment company securities, commercial paper, certificates of deposit, corporate debt securities, municipal securities, U.S. government securities and insurance products subject to regulation by the Connecticut Insurance Commissioner; and 3) refrain from having custody or control of client funds or securities (other than a direct fee deduction arrangement).

Rawlings Wealth Management LLC became registered as an investment adviser under the Connecticut Uniform Securities Act on June 20, 2014.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,799   2,836
       
       
Broker-dealer Agents Registered 154,725 156,762
     
      
Broker-dealer Branch Offices Registered 2,262 2,443
     
      
Investment Advisers Registered 535 536         
        
SEC Registered Advisers Filing Notice 2,006 2,049         
       
Investment Adviser Agents Registered 11,765 11,917          
        
Exempt Reporting Advisers
84
84
       
       
Agents of Issuer Registered 22 23          
    
Conditional Registrations
0
1
      
     
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 42 46
       
          88
Investment Company Notice Filings 740 496
    
         1,236
Exemptions and Exemptive Notices 858 864                   1,722
 
 
Examinations
     
Broker-dealers 6 9
     
         15
Investment Advisers 47 31
     
         78
 
 
Securities Investigations
 
Opened 18 17         
    
35
Closed 22 9         
       
31
Ongoing as of End of Quarter 69 77           
         
  
Subpoenas issued 16 10                     26
Matters referred from Attorney General 1 0                   1
Matters referred from Other Agencies 3 2                    5
 
 
Business Opportunity Investigations
 
Investigations Opened 1 1                    2
Investigations Closed 1 0
        
         1
Ongoing as of End of Quarter 4 5                                
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
0
    
        
0
Notices of Intent to Suspend (Licensing)
0
0
    
     
0
Notices of Intent to Revoke (Licensing)
1
0
     
    
1
Denial Orders (Licensing) 0 0
    
        0
Suspension Orders (Licensing) 0 0
       
        
0
Revocation Orders (Licensing) 0 0
       
          0
Notices of Intent to Fine 3 3
       
          6
Orders Imposing Fine 0 0
     
          0
Cease and Desist Orders 3 3
       
         6
Notices of Intent to Issue Stop Order 0 0
    
     
0
Activity Restrictions/Bars 1 1
    
     
2
Stop Orders 0 0                  0
Vacating/Withdrawal/ Modification Orders 0 1                    1
Restitutionary Orders 1 0
        
         1
Injunctive Relief Obtained 0 0                    0
 
 

Proceedings and Settlements

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

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$1,300
$5,073,800
    
        $5,075,100
Portion attributable to settlements
$1,300
$5,053,800
     
     
$5,055,100
Attributable to Court-Ordered Penalties     
$20,000
         
    
$20,000
Restitution or Other Monetary Relief
( includes rescission offer amounts)
$43,250
$1,766,556
    
         $1,809,806

*Cents eliminated

 

Securities Referrals

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



Securities Division