DOB: Great Eastern - NOIR BD - NOIF

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IN THE MATTER OF:

GREAT EASTERN SECURITIES, INC.
CRD NO. 2061

    ("Respondent")

 
 
 
 
 


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NOTICE OF INTENE TO REVOKE
REGISTRATION AS BROKER-DEALER

ORDER SUMMARILY SUSPENDING
REGISTRATION AS BROKER-DEALER

ORDER DENYING WITHDRAWAL OF
REGISTRATION AS BROKER-DEALER

NOTICE OF INTENT TO FINE

AND

NOTICE OF RIGHT TO HEARING

DOCKET NO. RSDF-2007-7309-S


I. PRELIMINARY STATEMENT

1. The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (“Act”), and the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”).
2.
Pursuant to Section 36b-26(a) of the 2006 Supplement to the General Statutes, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondent to determine if it has violated, is violating or is about to violate provisions of the Act or Regulations.  Section 36b-26(a) of the 2006 Supplement to the General Statutes provides, in pertinent part:
The commissioner may, subject to the provisions of the Freedom of Information Act . . . (1) [m]ake such public or private investigations within or outside of this state as the commissioner deems necessary to determine whether any person has violated, is violating or is about to violate any provision of sections 36b-2 to 36b-33, inclusive, or any regulation . . . thereunder . . . .
3. As a result of the investigation by the Division, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act and Regulations.
4.
As a result of the investigation by the Division, the Commissioner brings this administrative action pursuant to Section 36b-15 of the 2006 Supplement to the General Statutes and Section 4-182(c) of the Connecticut General Statutes to revoke, summarily suspend and deny withdrawal of the broker-dealer registration of Respondent, as set forth herein.  Section 36b-15(a) of the 2006 Supplement to the General Statutes provides, in pertinent part:
The commissioner may, by order, . . . revoke any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant or, in the case of a broker-dealer . . . any partner, officer, or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer . . . (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-33, inclusive, or a predecessor statute or any regulation . . . under said sections or a predecessor statute; . . . (K) has failed reasonably to supervise:  (i) The agents . . . of such . . . registrant, if the . . . registrant is a broker-dealer . . . ; [or] (L) in connection with any investigation conducted pursuant to section 36b-26 or any examination under subsection (d) of section 36b-14, . . . upon request made by the commissioner, has withheld or concealed material information from . . . the commissioner . . . .
Section 36b-15(c) of the 2006 Supplement to the General Statutes provides, in pertinent part:

The commissioner may by order summarily . . . suspend registration pending final determination of any proceeding under this section.  Upon the entry of the order, the commissioner shall promptly notify the . . . registrant . . . that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request the matter will be set down for hearing.  If no hearing is requested and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner.  If a hearing is requested or ordered, the commissioner, after notice of and opportunity for hearing, may modify or vacate the order or extend it until final determination.

Section 36b-15(e)(1) of the 2006 Supplement to the General Statutes provides, in pertinent part:

Withdrawal from registration as a broker-dealer . . . becomes effective ninety days after receipt of an application to withdraw such registration . . . or within such shorter period of time as the commissioner may determine, unless . . . a proceeding to . . . revoke . . . is instituted within ninety days after the application . . . is filed.  If a proceeding is . . . instituted, withdrawal becomes effective at such time and upon such conditions as the commissioner by order determines.

Section 4-182(c) of the Connecticut General Statutes provides, in pertinent part:

No revocation . . . of any license is lawful unless, prior to the institution of agency proceedings, the agency gave notice by mail to the licensee of facts or conduct which warrant the intended action, and the licensee was given an opportunity to show compliance with all lawful requirements for the retention of the license.  If the agency finds that public health, safety or welfare imperatively requires emergency action, and incorporates a finding to that effect in its order, summary suspension of a license may be ordered pending proceedings for revocation or other action.  These proceedings shall be promptly instituted and determined.

5.
As a result of the investigation by the Division, the Commissioner has the authority to impose a fine on Respondent pursuant to Section 36b-27(d) of the 2006 Supplement to the General Statutes, which provides, in pertinent part:
(1)  Whenever the commissioner finds as the result of an investigation that any person has violated any of the provisions of sections 36b-2 to 36b-33, inclusive, or any regulation . . . adopted . . . under said sections, the commissioner may send a notice to (A) such person . . . by registered mail, return receipt requested . . . .  Any such notice shall include:  (i) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (ii) a short and plain statement of the matter asserted or charged; (iii) the maximum fine that may be imposed for such violation; and (iv) the time and place for the hearing.  Any such hearing shall be fixed for a date not earlier than fourteen days after the notice is mailed.

(2)  The commissioner shall hold a hearing upon the charges made unless such person fails to appear at the hearing.  Any such hearing shall be held in accordance with the provisions of chapter 54.  After the hearing if the commissioner finds that the person has violated, caused a violation or materially aided in the violation of any of the provisions of sections 36b-2 to 36b-33, inclusive, or any regulation . . . adopted . . . under said sections, the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by said sections, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person.  If such person fails to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person.  The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested, . . . to any person named in such order.
 
II.  RESPONDENT
6.
Respondent is a corporation with its principal place of business at 50 Broad Street, Suite 1401, New York, New York 10004.
 
 
III.  STATEMENT OF FACTS
7. From at least January 1999 to the present, Respondent has been registered in Connecticut under the Act as a broker-dealer.
8.

On June 19, 20 and 21, 2006, and again on September 21 and 22, 2006, the Commissioner, through employees of the Department of Banking, conducted an investigation of Respondent pursuant to Section 36b-26(a) of the 2006 Supplement to the General Statutes (“Investigation”) and an examination of Respondent’s books and records pursuant to Section      36b-14(d) of the 2006 Supplement to the General Statutes (“Examination”).  The Investigation and Examination were conducted at Respondent’s principal place of business.

9. During the course of the Investigation and Examination, the Division requested numerous books and records from Respondent, including, inter alia, client files, order tickets, order confirmations, commission information, copies of correspondence, a copy of a cash receipts and disbursements blotter, trade blotters and various broker books.  These books and records are required to be kept and preserved pursuant to Section 36b-14(a)(2) of the 2006 Supplement to the General Statutes.
10. On July 7, 2006, the Division renewed its request for a copy of a cash receipts and disbursements blotter and requested further information from Respondent by e-mail.  On November 27, 2006, the Division renewed its request for copies of client files and requested further information from Respondent by e-mail.
11. To date, Respondent has failed to provide some of the requested books and records, including, inter alia, two client files, two order tickets, a cash receipts and disbursements blotter, and copies of correspondence and commission payments.
12. Of those books and records that were produced by Respondent, the requested trade blotter was inaccurate.
13. Respondent provided the Division with a copy of its “Written Supervisory Procedures” manual (“Supervisory Manual”) during the Investigation and Examination.  The Supervisory Manual, however, was outdated and, inter alia, listed an individual who had left the firm at least one year earlier as Respondent’s compliance officer, principal responsible for purposes of anti-money laundering compliance and chief operating officer.
14. Section 22.4.1.1 of the Supervisory Manual provides, in pertinent part, that “[t]he Branch Office will submit copies of all order tickets to the Home Office”.
15. Respondent’s branch offices failed to submit copies of order tickets to Respondent’s principal office on numerous occasions.
16. Section 22.2.4 of the Supervisory Manual provides, in pertinent part, that “[t]he BRANCH MANAGER will be responsible for reviewing all outgoing correspondence and keeping initialed copies of such in a separate outgoing correspondence file”.
17. Respondent’s branch manager failed to review outgoing correspondence and keep initialed copies of such on at least one occasion.
18. From at least September 2005 to the present, Respondent employed at least six agents who, on behalf of Respondent and without registration in Connecticut under the Act as agents of Respondent, effected trades in securities for the accounts of at least six persons located in Connecticut.
19. From at least July to October 2005, Respondent, through its agents, made a total of at least 26 offers and sales of securities in AFV Solutions, Inc., Ad Venture Partners, Inc., Fidelis Energy, Inc., Produce Safety and Security International, Inc., and Youbet.com, Inc., for the accounts of at least six Connecticut customers.
20. The securities of AFV Solutions, Inc., Ad Venture Partners, Inc., Fidelis Energy, Inc., Produce Safety and Security International, Inc., and Youbet.com, Inc., were never registered in Connecticut under Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the 2006 Supplement to the General Statutes, nor were they covered securities.
21.
On December 27, 2006, the Division received an email from Derick Johnson, General Counsel for Respondent, which stated, inter alia, that:
I am not sure we will be able to respond to any of your more of (sic) your requests.

On December 20, Great Eastern lost an adverse decision in an ongoing arbitration.  As a result, Great Eastern was required to place half a million dollars in escrow.  The requirement to put the money in escrow placed the firm under its net capital requirements. . . .  As a result of these events, Great Eastern’s business was limited to liquidations only since December 21, 2006. . . .

As a result of these events all activities of Great Eastern have been suspended.  We are working with the NASD and the SEC to resolve our financial matters or possibly file a BDW and transfer all accounts for the protection of customers if we canot (sic) resolve our financial matters.
22. On January 22, 2007, Respondent applied to the Commissioner for the withdrawal of its registration in Connecticut as a broker-dealer by filing, via the Central Registration Depository, a Form BDW, Uniform Request for Withdrawal from Broker-dealer Registration (“Application”).
23.
On January 23, 2007, the Commissioner gave Respondent written notice pursuant to Section 4-182(c) of the Connecticut General Statutes that Respondent may have engaged in conduct which, if proven, would constitute a basis for the suspension or revocation of Respondent’s broker-dealer registration in Connecticut, and gave Respondent the opportunity to show compliance with all lawful requirements for the retention of its registration as a broker-dealer in Connecticut.
 
 
IV.  STATUTORY BASIS FOR REVOCATION AND SUMMARY SUSPENSION
OF BROKER-DEALER REGISTRATION AND FINE
 
a.  Wilful Violation of Section 36b-6(b) of the 2006 Supplement to the
General Statutes – Employment of Unregistered Agents by a Broker-Dealer
24. Paragraphs 1 through 23, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
25.
Respondent’s employment of at least six unregistered agents, as more fully described in paragraph 18, constitutes a wilful violation of Section 36b-6(b) of the 2006 Supplement to the General Statutes, and such wilful violation forms a basis for the revocation of Respondent’s registration as a broker-dealer pursuant to Section 36b-15(a)(2)(B) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
 
 
b.  Wilful Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
26. Paragraphs 1 through 25, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
27.
Respondent effected at least 26 offers and sales of securities in AFV Solutions, Inc., Ad Venture Partners, Inc., Fidelis Energy, Inc., Produce Safety and Security International, Inc., and Youbet.com, Inc., for the accounts of at least six Connecticut customers, as more fully described in paragraph 19, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 20.  The offer and sale of such securities absent registration constitutes a wilful violation of Section 36b-16 of the Act, and such wilful violation forms a basis for the revocation of Respondent’s registration as a broker-dealer pursuant to Section      36b-15(a)(2)(B) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2006 Supplement to the General Statutes.
 
 
c.  Wilful Violation of Section 36b-31-6f(b) of the Regulations –
Failure to Enforce and Maintain Adequate Supervisory Procedures
28. Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
29.
Respondent’s failure to establish, enforce and maintain a system for supervising the activities of its agents that is reasonably designed to achieve compliance with applicable securities laws and regulations, as more fully described in paragraphs 13 through 17, inclusive, constitutes a wilful violation of Section 36b-31-6f(b) of the Regulations.  Such wilful violation forms a basis for the revocation of Respondent’s registration as a broker-dealer pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(K) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
 
 
d.  Wilful Violation of Section 36b-31-14a(a) of the Regulations –
Failure to Keep True, Accurate and Current Records
30. Paragraphs 1 through 29, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
31.
Respondent’s failure to keep true, accurate and current records, as more fully described in paragraph 12, constitutes a wilful violation of Section 36b-31-14a(a) of the Regulations.  Such wilful violation forms a basis for the revocation of Respondent’s registration as a broker-dealer pursuant to Section 36b-15(a)(2)(B) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section        36b-27(d) of the 2006 Supplement to the General Statutes.
 
 
e.  Wilful Violation of Section 36b-14(d) of the 2006
Supplement to the General Statutes and Section
36b-31-14f(b)(3) of the Regulations – Failure to Provide
Copies or Computer Printouts of Records When so Requested
32. Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
33.
Respondent’s failure to provide copies or computer printouts of records when so requested, as more fully described in paragraphs 9 through 11, inclusive, and paragraph 21, constitutes a wilful violation of Section      36b-14(d) of the 2006 Supplement to the General Statutes and Section 36b-31-14f(b)(3) of the Regulations.  Such wilful violation forms a basis for the revocation and summary suspension of Respondent’s registration as a broker-dealer pursuant to Sections 36b-15(a)(2)(B), 36b-15(a)(2)(L) and 36b-15(c) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
 

V.  NOTICE OF INTENT TO REVOKE BROKER-DEALER
REGISTRATION AND NOTICE OF RIGHT TO HEARING

WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct that, pursuant to Section 36b-15(a) of the 2006 Supplement to the General Statutes, constitute grounds for revoking its registration as a broker-dealer in Connecticut;

WHEREAS, the Commissioner believes that the issuance of an order revoking registration would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;

AND WHEREAS, Section 36b-15(f) of the 2006 Supplement to the General Statutes provides, in pertinent part, that “[n]o order may be entered under this section . . . without (1) appropriate prior notice to the . . . registrant . . . , (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”.

NOW THEREFORE, notice is hereby given to Respondent that its registration as a broker-dealer in Connecticut shall be revoked, subject to its right to a hearing on the allegations set forth above.

A hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following its receipt of this Notice.  The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address.  If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se.”  Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies.

The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes.  At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.

If Respondent fails to request a hearing within the prescribed time period, the Commissioner shall issue an order revoking its registration as a broker-dealer in Connecticut.


VI.  ORDER SUMMARILY SUSPENDING BROKER-DEALER REGISTRATION

WHEREAS, the Commissioner has initiated proceedings to revoke Respondent’s registration as a broker-dealer in Connecticut under Section 36b-15(a) of the 2006 Supplement to the General Statutes;

AND WHEREAS, the Commissioner finds, pursuant to Section 4-182(c) of the Connecticut General Statutes, that public welfare imperatively requires emergency action because the Commissioner has reason to believe that Respondent has engaged in acts or conduct that violated the Act and Regulations, and Respondent’s failure to provide information requested by the Commissioner prevents the Commissioner from determining the extent of Respondent’s violations and the harm to the public.

NOW THEREFORE IT IS ORDERED, pursuant to Section 36b-15(c) of the 2006 Supplement to the General Statutes and Section 4-182(c) of the Connecticut General Statutes, that Respondent’s registration as a broker-dealer in Connecticut be and is hereby SUMMARILY SUSPENDED pending final determination of the proceedings to revoke Respondent’s registration.  Pursuant to Section 36b-15(c) of the 2006 Supplement to the General Statutes, this Order Summarily Suspending Registration will be set down for a hearing within fifteen (15) days after the receipt of a written request for a hearing from Respondent.

If no hearing is requested on this Order and none is ordered by the Commissioner, this Order will remain in effect until it is modified or vacated by the Commissioner.  If a hearing is requested or ordered, the Commissioner, after notice and opportunity for hearing, may modify or vacate this Order or extend it until final determination of the proceeding to revoke Respondent’s registration as a broker-dealer in Connecticut.


VII.  NOTICE OF INTENT TO FINE RESPONDENT AND NOTICE OF HEARING

WHEREAS, the Commissioner finds as a result of an investigation by the Division that Respondent has wilfully violated Sections 36b-6(b) and 36b-14(d) of the 2006 Supplement to the General Statutes, Section 36b-16 of the Act and Sections 36b-31-6f(b), 36b-31-14a(a) and 36b-31-14f(b)(3) of the Regulations;
 
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondent would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;

AND WHEREAS, notice is hereby given to Respondent that the Commissioner intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation or a maximum fine of Six Hundred Thousand Dollars ($600,000).

NOW THEREFORE, a hearing will be held in accordance with Section           36b-27(d)(2) of the 2006 Supplement to the General Statutes and Chapter 54 of the Connecticut General Statutes.

The hearing will be held on March 27, 2007, at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
 
At the hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law relating to the allegations stated herein.  If Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon Respondent.


VIII.  ORDER DENYING WITHDRAWAL OF
REGISTRATION AS BROKER-DEALER

WHEREAS, Section 36b-31(a) of the 2006 Supplement to the General Statutes provides, in relevant part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive”;

WHEREAS, Section 36b-31(b) of the 2006 Supplement to the General Statutes provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive”;

AND WHEREAS, the Commissioner finds that this action is necessary and appropriate in the public interest and for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 36b-33, inclusive, of the Act.


ORDER

1. The Application submitted by Respondent to withdraw from registration as a broker-dealer is DENIED, until final resolution of the matters alleged in this Notice are resolved.
2.
This Order Denying Withdrawal shall become final when entered.

 

Entered at Hartford, Connecticut
this 26th day of January 2007.           ________/s/_________
                                                    Howard F. Pitkin
                                                    Banking Commissioner



CERTIFICATION

I hereby certify that on this 26th day of January 2007, the foregoing Notice of Intent to Revoke Registration as Broker-dealer, Order Summarily Suspending Registration as Broker-dealer, Order Denying Withdrawal of Registration as Broker-dealer Notice of Intent to Fine and Notice of Right to Hearing was sent by registered mail, return receipt requested, to Great Eastern Securities,          Inc., 50 Broad Street, Suite 1401, New York, New York 10004, registered mail no. RB028033468US.

                    ________/s/________
                    Jesse B. Silverman
                    Prosecuting Attorney


Administrative Orders and Settlements