DOB: Energy Automation Systems Consent

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IN THE MATTER OF:

ENERGY AUTOMATION SYSTEMS, INC.


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CONSENT ORDER

No. CO-2007-829-B

PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672c of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act (the “Act”);
 
WHEREAS, Energy Automation Systems, Inc. (“EASI”) is a corporation formed on April 25, 1985 under the laws of the State of Tennessee, and has its principal office at 145 Anderson Lane, Hendersonville, Tennessee;
 
WHEREAS, Joseph C. Merlo (“Merlo”) is the Chief Executive Officer of EASI, and Paul B. Bleiweis (“Bleiweis”) is the President of EASI;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-71(a) of the Act into the activities of EASI, its officers, directors, agents, employees and representatives to determine whether they, or any of them, had violated, were violating or were about to violate any provisions of the Act;
 
WHEREAS, as a result of such investigation, the Division alleges that from at least 2003, EASI, through its representatives, including Merlo and Bleiweis, (1) sold unregistered energy conservation business opportunities to Connecticut purchaser-investors in violation of Sections 36b-67(1), 36b-62(a) and 36b-65(a) of the Act; (2) failed to provide the required disclosure document to Connecticut purchaser-investors in connection with the sale of a business opportunity in violation of Section 36b-63 of the Act; and (3) violated Section 36b-67(2) of the Act by making earnings claims without including documented data to substantiate such claims and disclosing such data to prospective purchaser-investors at the time such representations were made;
 
WHEREAS, the Commissioner believes that the foregoing allegations would support the entry of an Order to Cease and Desist pursuant to Section 36b-72(a) of the Act and the imposition of a fine under Section 36b-72(b) of the Act;
 
WHEREAS, an administrative proceeding under Section 36b-72 of the Act would constitute a "contested case" within the meaning of Section 4-166(2) of the Connecticut General Statutes;
 
WHEREAS, Section 4-177(c) of the Connecticut General Statutes provides, in relevant part, that “[u]nless precluded by law, a contested case may be resolved by . . . consent order”;
 
WHEREAS, EASI maintains that it regularly retained counsel upon whose advice it relied for the preparation of appropriate business opportunity registrations and/or disclosures in all states, but that such counsel never made such registration or disclosure in the State of Connecticut on behalf of EASI;
 
WHEREAS, through its execution of this Consent Order, EASI undertakes and represents that 1) notwithstanding any claim of definitional exclusion or exemption under the Act, it shall, no later than the date this Consent Order is entered by the Commissioner, file an application for business opportunity registration under the Act and not make additional sales of its energy conservation business opportunities in or from Connecticut until such registration is declared effective by the Commissioner; 2) file with the Division the audited financial statements required by Section 36b-65(b) for EASI’s fiscal year ending July 31, 2008; 3) if such registration is made effective by the Commissioner, maintain such registration or renewal thereof for three years from the entry of this Consent Order or until such time as EASI shall furnish the Division with audited financial statements; and 4) while such application is pending or such registration is in effect, EASI shall submit to the jurisdiction of the Commissioner under the Act;
 
WHEREAS, EASI and the Commissioner now desire to resolve the foregoing matter without the need for administrative proceedings, and agree to the language in this Consent Order.
 
CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, EASI, through its execution of this Consent Order, voluntarily waives the following rights:

1. To be afforded an opportunity for a hearing within the meaning of Sections 36b-72(a) and 36b-72(b) of the Act, and Section 4-177(a) of the Connecticut General Statutes;
2. To present evidence and argument and to otherwise avail itself of Sections 36b-72(a) and 36b-72(b) of the Act, and Section 4-177c(a) of the Connecticut General Statutes;
3. To present its position in a hearing in which it is represented by counsel;
4. To have a written record of the hearing made and a written decision issued by a hearing officer; and
5. To seek judicial review of, or otherwise challenge or contest, the matters described herein, including the validity of this Consent Order.

ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS

WHEREAS, EASI, through its execution of this Consent Order, acknowledges the following allegations of the Commissioner, without admitting or denying them:

1. The entry of this Consent Order is necessary or appropriate in the public interest or for the protection of purchaser-investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
2. From at least 2003, EASI, through its representatives, including Merlo and Bleiweis, sold unregistered energy conservation business opportunities to Connecticut purchaser-investors in violation of Sections 36b-67(1), 36b-62(a) and 36b-65(a) of the Act, which constitutes a basis for an order to cease and desist pursuant to Section 36b-72(a) of the Act, and an order imposing fine pursuant to Section 36b-72(b) of the Act;
3. From at least 2003, EASI, through its representatives, including Merlo and Bleiweis, failed to provide the required disclosure document to Connecticut purchaser-investors in connection with the sale of a business opportunity in violation of Section 36b-63 of the Act; which conduct constitutes a basis for an order to cease and desist pursuant to Section 36b-72(a) of the Act, and an order imposing fine pursuant to Section 36b-72(b) of the Act;
4. From at least 2003, EASI, through its representatives, including Merlo and Bleiweis, violated Section 36b-67(2) of the Act by making earnings claims without including documented data to substantiate such claims and disclosing such data to prospective purchaser-investors at the time such representations were made, which conduct constitutes a basis for an order to cease and desist pursuant to Section 36b-72(a) of the Act, and an order imposing fine pursuant to Section 36b-72(b) of the Act;

WHEREAS, if the above allegations were proven, the Commissioner would have the authority to enter findings after granting EASI an opportunity for a hearing;

WHEREAS, EASI acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.

CONSENT TO ENTRY OF SANCTIONS

WHEREAS, EASI, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing the following sanctions:

1. EASI, Bleiweis, Merlo, their agents, affiliates, and successors in interest shall cease and desist from violating the Act and from the further sale or offer of business opportunities constituting or which would constitute a violation of the Act, including, without limitation, the sale or offer of unregistered business opportunities, the failure to provide sufficient disclosures to prospective purchaser-investors and the making of unsubstantiated earnings claims;
2. No later than the date this Consent Order is entered by the Commissioner, EASI shall remit to the Department of Banking, by certified or cashier’s check made payable to “Treasurer, State of Connecticut”, the sum of Twenty Five Thousand Dollars ($25,000) as an administrative fine;
3.
(a) No later than the date this Consent Order is entered by the Commissioner, EASI shall extend a written rescission offer (the “Rescission Offer”), preapproved as to form and content by the Division Director, to each Connecticut purchaser-investor to whom EASI has sold a business opportunity from 2000 forward and who has not received restitution from EASI, and provide the Division Director with written proof that such Rescission Offer was mailed to the affected purchaser-investors via certified mail, return receipt requested.  No later than thirty (30) days) following the entry of this Consent Order, EASI shall provide the Division Director with copies of the return receipts or evidence of non-delivery of the Rescission Offer.  No later than ninety (90) days following the entry of this Consent Order by the Commissioner, EASI shall file with the Division Director copies of the affected purchaser-investors’ election forms, either accepting or rejecting the Rescission Offer.
(b) The amount of restitution to be paid to each purchaser-investor electing rescission shall be determined via binding arbitration conducted in Connecticut under the auspices of the American Arbitration Association (“AAA”) and in accordance with the rules of the AAA.  The cost of such arbitration shall be borne by EASI.  EASI shall file with the Division Director a copy of each demand for arbitration no later than five business days after such demand has been filed with the AAA.  The arbitrator shall not have, or have had, an affiliation with the purchaser-investor or with EASI, its officers, directors, agents or representatives, nor shall the arbitrator have any financial interest in the dispute, controversy, or claim under consideration.
(c) EASI, its officers, directors, agents and representatives shall abide by and implement the determination of the arbitrator concerning any matter submitted to the arbitrator for resolution.  Such obligation shall include making payment to affected purchaser-investors no later than thirty (30) days following the arbitrator’s determination relating to such payment or within such other time frame as the arbitrator may allow.  Any determination made by the arbitrator shall be non-appealable to any judicial or administrative body, including the Commissioner or the Division.  If requested by the Division, EASI shall provide the Division with a copy of the final determination by the arbitrator relating to any issue submitted to the arbitrator for resolution as well as documentary evidence that the claims of purchaser-investors have been paid.  Should EASI fail to abide by the arbitrator’s decision relating to payments due or owing to any affected purchaser-investor, the Division, in its discretion, may impose sanctions, including, without limitation, a monetary penalty of up to $100,000 against EASI, and EASI, through its execution of this Consent Order, knowingly waives notice and an opportunity for a hearing in connection with the imposition of any such sanction;
(d) EASI, its officers, directors, agents and representatives shall assist and cooperate with the arbitrator, including, without limitation, providing the arbitrator with any documentation necessary to determine the actual restitutionary amounts due to affected purchaser-investors. The arbitrator shall have the right to make a report to the Commissioner should the arbitrator determine that EASI is not acting with due diligence or in good faith, or is failing to fully cooperate with the arbitrator.  For purposes of this paragraph, “failing to fully cooperate” includes, but is not limited to, failing to provide, or failing to provide in a reasonable time and format, any records in EASI’s possession or control necessary to resolve the issues involved;
(e) Nothing herein shall preclude EASI from requiring affected purchaser-investors who accept restitutionary payment hereunder to execute a Release waiving any right to further remedies at law or in equity against EASI, its officers, directors, employees or agents arising from the conduct described in this Consent Order;
4. EASI shall comply in all respects with its undertakings and representations set forth in this Consent Order, including, without limitation, its representation that it would file audited financial statements with the Division for its fiscal year ending July 31, 2008; provided that EASI’s inability to file audited financial statements as required by Section 36b-65(b) of the Act in conjunction with the initial registration of its business opportunity shall not, in and of itself, preclude registration of such business opportunity or constitute a basis for stop order proceedings under Section 36b-68 of the Act;
5. For a period of three (3) years commencing on the date this Consent Order is entered by the Commissioner, EASI, [Bleiweis] and Merlo shall retain counsel familiar with the regulation of business opportunities to evaluate at least twice during each calendar year their respective compliance with the Act, including, without limitation, substantiation of earnings claims disclosures, and the terms of this Consent Order.  Should EASI, Bleiweis or Merlo sever their relationship with counsel during such three year period, EASI, Bleiweis or Merlo, as the case may be, shall apprise the Division Director in writing of the reasons therefor and shall identify the successor attorney engaged to perform the services described in this paragraph;

CONSENT ORDER

NOW THEREFORE, the Commissioner enters the following:

1. The Sanctions set forth above be and are hereby entered;
2. Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against EASI, Bleiweis or Merlo based upon a violation of this Consent Order or the matters underlying its entry, if the Commissioner determines that compliance with the terms herein is not being observed by the specific party being bound or if any representation made by EASI and reflected here is subsequently determined to be untrue; and
3. This Consent Order shall become final when entered.
 
 

               ________/s/_________ 
    Howard F. Pitkin
            Banking Commissioner

So ordered at Hartford, Connecticut                 
this 21st day of March 2007.                         
 

CONSENT TO ENTRY OF ORDER

I, Joseph C. Merlo, state on behalf of Energy Automation Systems, Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Energy Automation Systems, Inc.; that Energy Automation Systems, Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Energy Automation Systems, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.


      Energy Automation Systems, Inc.

By
       ________/s/_______________ 
      Joseph C. Merlo 
      Chief Executive Officer



On this 6th day of March, 2007, personally appeared Joseph C. Merlo, signer of the foregoing Consent Order, who, being duly sworn, did acknowledge to me that he was authorized to execute the same on behalf of Energy Automation Systems, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.



_______________/s/_____________
Notary Public
My Commission Expires:  6-17-2009

  


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