DOB: Southern Connecticut Financial Services Consent

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IN THE MATTER OF:

SOUTHERN CONNECTICUT
FINANCIAL SERVICES, INC.

DAVID KASOWITZ

MONTE S. KLEIN

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CONSENT ORDER

File No. CO-07-7265-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 Southern Connecticut Financial Services, Inc. (“SCFS”) of 935 White Plains Road, Trumbull, Connecticut, and of its officers, David Kasowitz (“Kasowitz”) and Monte S. Klein (“Klein”), 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, SCFS is licensed as a first and secondary mortgage lender under laws administered by the Commissioner;
 
WHEREAS, as a result of such investigation, the Commissioner obtained evidence that from approximately 1999 to 2006, SCFS, through Kasowitz and Klein, offered and sold over $12.3 million in promissory notes to over one hundred investors located in Connecticut and in other jurisdictions;
 
WHEREAS, SCFS, Kasowitz and Klein have represented to the Commissioner that the proceeds of such note sales were used to fund the making of mortgage loans by SCFS;
 
WHEREAS, at no time were such notes registered under Sections 36b-17, 36b-18 or 36b-19 of the Act, nor had SCFS 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 SCFS, Klein and Kasowitz 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, SCFS, Kasowitz and Klein have represented to the Commissioner that SCFS had not had audits of its financial records done in the past nor had SCFS had independent reviews of its internal controls conducted.  At the Division’s request, an audit was conducted of SCFS in the latter part of 2006 by independent auditors;
 
WHEREAS, SCFS, Kasowitz and Klein have represented to the Commissioner that they would have audits of SCFS conducted by independent auditors every other year;

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, SCFS, Kasowitz and Klein, 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;

CONSENT TO ENTRY OF FINDINGS

WHEREAS, SCFS, Kasowitz and Klein, through their execution of this Consent Order, and without admitting or denying the Commissioner's allegations of violations, consent to the entry of the following Findings by the Commissioner:

1. That 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. That SCFS, Kasowitz and Klein violated Section 36b-16 of the Act by offering and selling securities for which no registration, exemptive claim or claim of covered security status had been made under the Act; and
3. That the violation of Section 36b-16 of the Act by SCFS, Kasowitz and Klein supports the initiation of administrative proceedings under Section 36b-27 of the Act;


CONSENT TO ENTRY OF SANCTIONS AND REMEDIAL MEASURES

WHEREAS, SCFS, Kasowitz and Klein, 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, SCFS shall extend a written rescission offer of approximately $10.5 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. SCFS, Kasowitz and Klein 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. SCFS, its affiliates and successors in interest shall restrict any future offers or sales of securities in or from Connecticut to (a) those offerees or purchasers who qualify as “accredited investors” within the meaning of Section 501(a) of Regulation D under the Securities Act of 1933 (“Accredited Investors”), and shall maintain records, open to the Division upon request, documenting its due diligence in establishing investor suitability; and/or (b) offerees or purchasers who are eligible to participate in the rescission offer referenced in this Consent Order, regardless of whether such note investors qualify as Accredited Investors; and
4. No later than the date this Consent Order is entered by the Commissioner, SCFS shall remit to the department by certified bank check the sum of thirty thousand dollars ($30,000), twenty-five thousand dollars ($25,000) of which shall constitute as an administrative fine and five thousand dollars ($5,000) of which shall represent reimbursement for Division investigative costs;

ORDER

THE COMMISSIONER THEREFORE ORDERS THAT:

1. The Findings, Sanctions and Remedial Measures 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 SCFS, Kasowitz or Klein 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 SCFS, Kasowitz or Klein in connection with this matter is subsequently discovered to be untrue; and
3. This Consent Order shall become final when issued.
 
 

               ________/s/_________ 
    Howard F. Pitkin
            Banking Commissioner

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

CONSENT TO ENTRY OF ORDER

I, David Kasowitz, president of Southern Connecticut Financial Services, Inc., 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 Southern Connecticut Financial Services, Inc.; and that Southern Connecticut Financial Services, Inc. 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.


      Southern Connecticut Financial Services, Inc.

By
       _________/s/_______________  
       David Kasowitz  
       President


On this 7 day of June, 2007, personally appeared David Kasowitz, 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 Southern Connecticut Financial Services, Inc., a corporation, and acknowledged the same to be his free act and deed, before me.



____________/s/_____________
Notary Public
My Commission Expires:  2-28-08

 
I, David Kasowitz, 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/_______________  
       David Kasowitz  
      



Subscribed and sworn to before me
this 7 day of June 2007.


____________/s/____________
Notary Public
My Commission Expires:  2-28-08


I, Monte S. Klein, 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/_______________  
       Monte S. Klein  
      



Subscribed and sworn to before me
this 7th day of June 2007.


___________/s/______________________
Commissioner of the Superior Court
My Commission Expires:


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