DOB: Winter 2014 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXVIII  No. 4
Winter 2014

Features

Enforcement and Other Highlights 
Contributors

Eric Wilder, Director
Cynthia Antanaitis, Assistant Director 


Andre Paul Young (CRD # 2901804) – Order to Cease and Desist Entered

On November 26, 2014, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-14-8081-S) against Andre Paul Young, a former broker-dealer agent and investment adviser agent of MetLife Securities Inc.  Respondent Young was assigned to the 6 Corporate Drive, Shelton, Connecticut branch office of MetLife Securities Inc.  The action alleged that the respondent engaged in dishonest or unethical business practices by lending money to an investment advisory client of MetLife Securities Inc.  The action also alleged that, while registered as a broker-dealer agent of MetLife Securities Inc., the respondent made improper use of two customers’ monies by not investing those monies in a stock fund but rather depositing customer monies into respondent’s personal bank account.  The Order to Cease and Desist stated that the respondent had admitted on the record that he had used the customers’ funds to pay his mortgage.  Ultimately, the respondent repaid the clients $45,000 of the $208,400 that the clients had tendered to the respondent.  On April 22, 2013, MetLife Securities Inc. entered into a settlement with the affected clients and reimbursed them $163,400 representing the unpaid balance of the funds they had tendered to respondent Young.
  

Respondent Young was afforded an opportunity to request a hearing on the Order to Cease and Desist.


Ulysses Partners, LLC and James E. Neilsen (CRD # 4825841) – Restitutionary Order Upheld Following Hearing; $25,000 Fine Imposed; Order to Cease and Desist Made Permanent

On November 13, 2014, following an administrative hearing, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order against Ulysses Partners, LLC, now or formerly of 124 East Avenue, Norwalk, Connecticut, and James E. Neilsen, chief financial officer of the firm.  The intended purpose of Ulysses Partners, LLC was to solicit investments in hedge funds on a compensated basis.  Respondent Neilsen, a former broker-dealer agent, is also a Certified Public Accountant.  The action had been preceded by a January 9, 2014 Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine (Docket No. CRF-13-8014-S) alleging that, 1) from approximately November 2005, to finance the business operations of Ulysses Partners, LLC, respondent Neilsen sold approximately $10 million of securities in the form of notes and investment agreements to Connecticut investors, the majority of whom were accounting clients of respondent Neilsen; 2) Respondent Neilsen allegedly represented to would-be investors that the investment would generate a high rate of return; and 3) investors allegedly did not receive key disclosures concerning, among other things, the risks involved, how the offering proceeds would be used or that the securities were not registered under the Connecticut Uniform Securities Act.  On February 18, 2014, the action was amended to change the end date of the alleged misconduct from December 2010 to September 2011.

After reviewing the evidence, the Commissioner concluded that, between 2005 and 2012, both Ulysses Partners, LLC and James E. Neilsen had violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities in the form of promissory notes, subscription agreements and investment agreements to 33 persons who invested approximately $7,438,341 in Ulysses Partners, LLC.  The Commissioner also determined that the respondents, through Neilsen, violated the antifraud provisions of the Act by misrepresenting the anticipated rate of return on the investments; guaranteeing principal; and omitting any type of written disclosure or discussion of risks.  The Commissioner noted that the misrepresentations and omissions were made to investors who had trusted Neilsen for years as their personal and business accountant.  Neilsen reassured investors that Ulysses was profitable and that investors were sure to be millionaires.  In reality, Ulysses Partners, LLC never made a profit.  The November 13, 2014 Order rendered permanent the earlier restitutionary order, but revised the relevant time period to May 2005 through September 2012.  Emphasizing the importance of returning money to investors, the Commissioner noted that, while he was authorized to fine Ulysses Partners, LLC and James E. Neilsen up to $100,000 per violation, the respondents would be fined $25,000, jointly and severally.  The November 13, 2014 also rendered permanent the Order to Cease and Desist issued against both respondents.


    
CONSENT ORDERS

HFP Capital Markets LLC (CRD #44351)

On December 11, 2014, the Banking Commissioner entered a Consent Order (No. CO-13-8124-S) with respect to HFP Capital Markets LLC of 386 Park Avenue South, 8th Floor, New York, New York.  The firm, once registered in multiple states as well as Connecticut, filed to withdraw its broker-dealer registration at the state and federal levels. The Consent Order alleged that in January 2010, the firm sold securities of Metals Milling & Mining LLC in violation of Section 36b-16 of the Connecticut Uniform Securities Act.  The Consent Order acknowledged, however, that the firm had made a $30,000 restitutionary payment to the affected investor.  In addition, the Consent Order alleged that the firm 1) failed to maintain the net capital prescribed by law; 2) violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act; 3) used sales presentations and sales scripts in a deceptive or misleading manner; 4) violated Section 36b-6(b) of the Act by employing at least three unregistered agents; 5) violated Section 36b-23 of the Act by representing to the agency that the firm's agents had updated a Connecticut customer's investment objectives when that was not the case; and 6) failed to establish, enforce and maintain an adequate supervisory system.  In agreeing to the Consent Order, the firm represented that it had discharged 26 broker-dealer agents who the firm believed may have violated the Act and the Regulations thereunder. 

The Consent Order directed HFP Capital Markets LLC to cease and desist from regulatory violations and fined the firm $3,500.

Michael James Byl (CRD # 1204677)

On December 3, 2014, the Banking Commissioner entered a Consent Order (Docket No. CR-14-8150-S) with respect to Michael James Byl, a control person and registered investment adviser agent of LGAUS LLC d/b/a Landmark Global Advisors LLC.   Michael James Byl had been the subject of a July 3, 2014 Order to Cease and Desist, Notice of Intent to Revoke Registration as an Investment Adviser Agent and Notice of Right to Hearing.  The July 3, 2014 action had alleged that 1) respondent Byl and others were directed to pay damages in conjunction with an April 4, 2012 FINRA arbitration award (Coleman McCarthy v. Southridge Investment Group LLC et al., Case No. 09-06667); 2) on December 18, 2013, FINRA suspended respondent Byl for failing to comply with the arbitration award or to satisfactorily respond to a FINRA information request; 3) the failure to pay the arbitration award and the FINRA suspension would support administrative proceedings against Byl; and 4) Byl violated Section 36b-31-14e(a) of the Regulations under the Connecticut Uniform Securities Act by failing to update his Form U-4 to disclose the 2012 arbitration award, his failure to pay the award and his suspension by FINRA.
 
The Consent Order directed respondent Byl to cease and desist from regulatory violations.  In addition, the Consent Order barred respondent Byl from:  (a) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; (b) acting as a finder for compensation, or receiving referral fees, directly or indirectly, in connection with any recommendation, sale or purchase of securities; (c) directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut; and (d) maintaining a direct or indirect ownership interest in a broker-dealer or an investment adviser registered or required to be registered in Connecticut.  The bar would run until one year had elapsed from the date Byl paid the April 4, 2012 FINRA arbitration award and provided documented proof of payment to the Commissioner.  The Consent Order also required that respondent Byl withdraw Landmark Global Advisors LLC's Connecticut investment adviser registration prior to the entry of the Consent Order.

Columbus Advisory Group, Ltd. (CRD # 126331)

On November 26, 2014, the Banking Commissioner entered a Consent Order (No. CO-14-8172-S) with respect to Columbus Advisory Group, Ltd., a Connecticut-registered broker-dealer located at 150 East 58th Street, 14th Floor, New York, New York, New York  10155.  The firm maintained a branch office at 246 Wolcott Road, Suite #9, Wolcott, Connecticut.  The Consent Order, which resulted from an examination of the firm’s books and records, alleged that the firm 1) engaged in dishonest or unethical business practices by employing an unregistered “cold caller”; 2) violated Section 36b-4 of the Connecticut Uniform Securities Act and engaged in dishonest or unethical business practices by employing an agent who used research materials, sales presentations and/or sales scripts in a misleading manner; 3) violated Section 36b-6(b) of the Act by employing an unregistered agent; and 4) failed to establish, enforce and maintain an adequate supervisory system.


The Consent Order fined the firm $5,000 and directed it to cease and desist from regulatory violations.  In addition, the Consent Order required that the firm reimburse the agency up to $3,500 for the cost of a future regulatory examination to be conducted within 24 months.

Orion Capital, LLC and Herman Wayne Gibson (CRD # 1274821)

On November 7, 2014, the Banking Commissioner entered a Consent Order (Docket No. CF-14-8080-S) with respect to Orion Capital LLC of 1297 Main Street, Watertown, Connecticut and Herman Wayne Gibson, the firm’s control person.  The Consent Order followed a May 8, 2014 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against the respondents.  The May 8, 2014 action had alleged violations of Sections 36b-16, 36b-4(a), 36b-6 and 36b-23 of the Connecticut Uniform Securities Act.  According to the May 8, 2014 action, 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, and that, from at least September 20, 2009 forward, the respondents offered and sold unregistered notes issued by Orion Capital, LLC.  The Consent Order acknowledged that the respondents had demonstrated a financial inability to pay the fine that otherwise would have been imposed against them.


The Consent Order barred Herman Wayne Gibson for ten years from 1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; 2) soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut; and 3) engaging in any activity that would trigger the registration requirements of the Connecticut Uniform Securities Act.  The Consent Order also directed both respondents to cease and desist from regulatory violations.

Vanderbilt Securities, LLC (CRD # 5953) Sanctioned for Supervisory Violation

On October 8, 2014, the Banking Commissioner entered a Consent Order (No. CO-14-7988A-S) with respect to Vanderbilt Securities, LLC, a Connecticut-registered broker-dealer located at 125 Froehlich Farm Boulevard, Woodbury, New York.  From 2006 to 2011, the firm maintained a branch office at 152 Deer Hill Avenue, Suite 203, Danbury, Connecticut, and employed Stephen Burton Blankenship (CRD number 2234577) as a registered broker-dealer agent.  Blankenship, the sole managing member and control person of Deer Hill Financial Group, LLC, also conducted tax preparation, financial planning and investment advisory services from the Danbury location.  Following allegations of unregistered investment advisory activity, fraud and misappropriation, the Banking Commissioner entered a Consent Order (Docket No. CO-12-7988-S) with respect to Blankenship and Deer Hill Financial Group, LLC on August 31, 2012.  That consent order revoked Blankenship's registration as a broker-dealer agent and permanently barred both Blankenship and Deer Hill Financial Group, LLC from transacting securities business in or from Connecticut.  In addition, the U.S. District Court for the District of Connecticut fined Blankenship $7,500, directed Blankenship to make $607,516.81 in restitution and sentenced Blankenship to 41 months in prison following Blankenship’s guilty plea to one count of federal mail fraud and one count of federal securities fraud (United States of America v. Stephen Blankenship, D. Conn. Case No. 3:12CR197 (VLB)).


The Consent Order with Vanderbilt Securities, LLC alleged that, in contravention of Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act, the firm failed to establish, enforce and maintain a system for supervising the activities of its agents and its Connecticut office operations reasonably designed to achieve compliance with applicable securities laws and regulations.


The Consent Order acknowledged that Vanderbilt Securities, LLC and another securities brokerage firm had reimbursed affected investors for 100% of the financial losses they incurred as a result of Blankenship's misconduct.   Specifically, Vanderbilt Securities, LLC repaid affected investors $303,758.20.


In resolution of the matter, the Consent Order directed the firm to refrain from regulatory violations.  In addition, the Consent Order required that the firm 1) retain a consultant to review the firm’s supervisory and compliance procedures; and 2) provide the agency with an implementational plan for recommendations made by the consultant.
 
      
 


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
2,292
2,215
Broker-dealer Agents Registered 154,725 156,762
159,352
152,522
Broker-dealer Branch Offices Registered 2,262 2,443
2,768
2,717
Investment Advisers Registered 535 536 547
514
SEC Registered Advisers Filing Notice 2,006 2,049 2,076
2,005
Investment Adviser Agents Registered 11,765 11,917 12,093
11,829
Exempt Reporting Advisers
84
84
84
88
Agents of Issuer Registered 22 23 23
22
Conditional Registrations
0
1
0
0
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 42 46
33
31 152
Investment Company Notice Filings 740 496
564
7,847 9,647
Exemptions and Exemptive Notices 858 864 839 863 3,424
 
 
Examinations
     
Broker-dealers 6 9
22
17 54
Investment Advisers 47 31
25
37 140
 
 
Securities Investigations
 
Opened 18 17 11
18
64
Closed 22 9 8
11
50
Ongoing as of End of Quarter 69 77 80
87
  
Subpoenas issued 16 10 10 2 38
Matters referred from Attorney General 1 0 0 0 1
Matters referred from Other Agencies 3 2 0 1 6
 
 
Business Opportunity Investigations
 
Investigations Opened 1 1 0 0 2
Investigations Closed 1 0
3
0 4
Ongoing as of End of Quarter 4 5 2 2           
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
0
0
0
0
Notices of Intent to Suspend (Licensing)
0
0
0
0
0
Notices of Intent to Revoke (Licensing)
1
0
1
0
2
Denial Orders (Licensing) 0 0
0
0 0
Suspension Orders (Licensing) 0 0
0
0
0
Revocation Orders (Licensing) 0 0
0
0 0
Notices of Intent to Fine 3 3
1
0 7
Orders Imposing Fine 0 0
0
1 1
Cease and Desist Orders 3 3
2
1 9
Notices of Intent to Issue Stop Order 0 0
0
0
0
Activity Restrictions/Bars 1 1
2
2
6
Stop Orders 0 0 0 0 0
Vacating/Withdrawal/ Modification Orders 0 1 0 0 1
Restitutionary Orders 1 0
1
1 3
Injunctive Relief Obtained 0 0 0 0 0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
2
3
2
2
9
Consent Orders
2
3
4
5
14
Stipulation and Agreements
1
0
0
0
1
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$1,300
$5,073,800
$90,000
$33,500 $5,198,600
Portion attributable to settlements
$1,300
$5,053,800
$90,000
$8,500
$5,153,600
Attributable to Court-Ordered Penalties
$20,000
  
$20,000
Restitution or Other Monetary Relief
( includes rescission offer amounts)
$43,250
$1,766,556
$1,620,949
$7,489,290 $10,920,045

*Cents eliminated

 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
0
1
0
2
3
Civil (Attorney General)
0
0
0
0
0
Other Agency Referrals
3
2
0
1
6



Securities Division