DOB: Private Mortgage Fund Consent

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IN THE MATTER OF:

THE PRIVATE MORTGAGE
FUND, LLC

JOSEPH A. ANTONIOS

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CONSENT ORDER

File No. CO-07-7136-S

PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division of the Department of Banking ( the “Division”), has conducted an investigation pursuant to Section 36b-26 of the Act into the activities of The Private Mortgage Fund, LLC (“PMF”) of 765 Straits Turnpike, Crossroads West II, Suite 2002, Middlebury, Connecticut, and of its managing member, Joseph A. Antonios (“Antonios”), to determine whether they, or any of them, had violated, were violating or were about to violate any provision of the Act or any regulation or order under the Act;
 
WHEREAS, PMF is licensed as a first mortgage lender under laws administered by the Commissioner;
 
WHEREAS, as a result of such investigation, the Commissioner obtained evidence that from approximately 2000 to 2006, PMF and Antonios offered and sold over $5.5 million in promissory notes to over ten investors located in Connecticut and in other jurisdictions;
 
WHEREAS, PMF, through Antonios, has represented to the Commissioner that the proceeds of such note sales were used to fund the making of mortgage loans by PMF;
 
WHEREAS, at no time were such notes registered under Sections 36b-17, 36b-18 or 36b-19 of the Act, nor had PMF made a claim of exemption or covered security status under Section 36b-21 of the Act;
 
WHEREAS, Section 36b-16 of the Act states that:  “No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, inclusive, (2) the security or transaction is exempted under section 36b-21, or (3) the security is a covered security provided such person complies with any applicable requirements in subsections (c), (d) and (e) of section 36b-21”;
 
WHEREAS, Section 36b-27 of the Act permits the Commissioner, among other things, to enter an order to cease and desist and/or to impose a fine of up to $100,000 against any person found to have violated the Act or any regulation or order under the Act;
 
WHEREAS, the Commissioner believes that the evidence described herein would support the initiation of administrative proceedings against PMF and Antonios pursuant to Section 36b-27 of the Act;
 
WHEREAS, an administrative proceeding initiated under Section 36b-27 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 Chapter 54 of the Connecticut General Statutes provides that "[u]nless precluded by law, a contested case may be resolved by stipulation, agreed settlement, or consent order or by the default of a party";
 
WHEREAS, Section 36b-31(a) of the Act provides, in part, that: "The commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of Sections 36b-2 to 36b-33, inclusive [of the Connecticut Uniform Securities Act]";
 
WHEREAS, PMF, through Antonios, has represented to the Commissioner that PMF has had independent reviews of its financial statements, but had not had audits of its financial records done in the past nor had PMF had independent reviews of its internal controls conducted.  At the Division’s request an audit was conducted for the financial statements ending December 31, 2006 by independent auditors;
 
WHEREAS PMF, through Antonios, has represented to the Commissioner that it would continue to have annual audits of PMF conducted by independent auditors;
 

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, PMF and Antonios through their execution of this Consent Order, voluntarily waive the following rights:

1. To receive prior written notice within the meaning of Sections 36b-27 and 4-177(b) of the Connecticut General Statutes;
2. To present evidence and argument and to otherwise avail themselves of Section 4-177c(a) of the Connecticut General Statutes;
3. To present their respective positions in a hearing in which each 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, PMF and Antonios through their execution of this Consent Order, acknowledge the following allegations of the Commissioner, without admitting or denying them:

1. The entry of this Consent Order is appropriate, in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;
2. PMF and Antonios violated Section 36b-16 of the Act by offering and selling securities for which no registration, exemptive claim or notice had been made [or] filed [under] the Act; and
3. The violation of Section 36b-16 of the Act by PMF and Antonios supports the initiation of administrative proceedings under Section 36b-27 of the Act;

WHEREAS, if the foregoing allegations were proven, the Commissioner would have the authority to enter findings after granting PMF and Antonios an opportunity for a hearing;

WHEREAS , PMF and Antonios acknowledge the possible consequences of an administrative hearing and voluntarily agree to consent to the entry of the sanctions described below;


CONSENT TO ENTRY OF SANCTIONS

WHEREAS, PMF and Antonios, through their execution of this Consent Order, consent to the Commissioner issuing an order imposing on them the following sanctions:

1. No later than the date this Consent Order is entered by the Commissioner, PMF shall extend a written rescission offer of approximately $5.5 million to those note investors whose principal has not been repaid.  The rescission offer shall be preapproved by the Division Director and shall entitle such investors to a refund of the consideration paid together with interest at six percent per year from the date of payment, less the amount of any income received on the promissory notes;
2. PMF and Antonios shall cease and desist from engaging in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act including, without limitation, offering or selling securities absent compliance with Section 36b-16 of the Act;
3. PMF, its affiliates and successors in interest shall restrict any future offers or sales of securities in or from Connecticut to those offerees or purchasers who qualify as “accredited investors” within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933, and shall maintain records, open to the Division upon request, documenting its due diligence in establishing investor suitability; and
4. No later than the date this Consent Order is entered by the Commissioner, PMF shall remit to the department by certified bank check payable to “Treasurer, State of Connecticut” the sum of twenty thousand dollars ($20,000), fifteen thousand dollars ($15,000) of which shall constitute an administrative fine and five thousand dollars ($5,000) of which shall defray costs incurred by the Division in the investigation of this matter;

ORDER

THE COMMISSIONER THEREFORE ORDERS THAT:

1. The Findings and Sanctions set forth above be and are hereby entered;
2. This Consent Order shall not, in and of itself, disqualify PMF, its managing members or current or former employees from any business that they otherwise are qualified, licensed or permitted to perform under the applicable law of Connecticut, and any disqualifications from relying upon the securities exemption and registration provisions in the Act that arise solely from the entry of this Consent Order are hereby waived;
3. Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against PMF, Antonios or both based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance is not being observed with the terms hereof or if any representation reflected herein or in any document produced to the Division by PMF or Antonios in connection with this matter is subsequently discovered to be untrue; and
4. This Consent Order shall become final when issued.
 
 

               ________/s/_________ 
    Howard F. Pitkin
            Banking Commissioner

So ordered at Hartford, Connecticut this                  
13th day of June 2007.                         
 

CONSENT TO ENTRY OF ORDER

I, Joseph A. Antonios, managing member of The Private Mortgage Fund, LLC., state on behalf of such entity that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute the same on behalf of The Private Mortgage Fund, LLC; and that The Private Mortgage Fund, LLC. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein, expressly waiving any right to a hearing on the matters described herein.


      The Private Mortgage Fund, LLC.

By
       ________/s/_______________ 
       Joseph A. Antonios 
       Managing Member


On this 8 day of June, 2007, personally appeared Joseph A. Antonios, 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 The Private Mortgage Fund, LLC., a limited liability company, and acknowledged the same to be his free act and deed, before me.



_______________/s/______________________
Notary Public/Commissioner of the Superior Court
My Commission Expires:  Sep. 30, 2009

 
I, Joseph A. Antonios, state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I voluntarily consent to the entry of this Consent Order, expressly waiving any rights I may have to a hearing on the matters described herein.



       ________/s/_______________ 
       Joseph A. Antonios 
      



Subscribed and sworn to before me
this 8 day of June 2007.


_______________/s/______________________
Notary Public/Commissioner of the Superior Court
My Commission Expires:  Sep. 30, 2009


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