DOB: TDA Advantage Trust-Desteph-Findings

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IN THE MATTER OF:

TDA ADVANTAGE TRUST ("TDA")

THOMAS F. DESTEPH ("DeSteph") 

    (collectively "Respondents")

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FINDINGS OF FACT,
CONCLUSIONS OF LAW
AND ORDER

DOCKET NO. CF-2008-7555-S


FINDINGS OF FACT

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).
2. On April 7, 2009, the Commissioner issued an Order to Cease and Desist (“Order”), Notice of Intent to Fine (“Fine Notice”) and Notice of Right to Hearing (collectively “Notice”) against Respondents.  (Tr. at 25; State Ex. 1.)
3. On April 8, 2009, the Notice was sent by registered mail, return receipt requested, to TDA at 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869121US; and 4 Summit Road, Keene, New Hampshire 03431, registered mail no. RB027869135US. (State Ex. 1.)
4.
On April 8, 2009, the Notice was sent by registered mail, return receipt requested, to DeSteph at 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869149US; and 4 Summit Road, Keene, New Hampshire 03431, registered mail no. RB027869152US.  (State Ex. 1.)
5.
The Notice asserted that:
a. TDA is a purported New Hampshire entity with its principal places of business last known to the Commissioner at 1 Dustin Lane, Jaffrey, New Hampshire 03452, and 4 Summit Road, Keene, New Hampshire 03431.
b. DeSteph is an individual whose addresses last known to the Commissioner are 1 Dustin Lane, Jaffrey, New Hampshire 03452, and 4 Summit Road, Keene, New Hampshire 03431.
c. From at least March 10, 2003, to the present, TDA has been an issuer of securities in the form of promissory notes (“TDA Note”).
d. On or about March 10, 2003, DeSteph, on behalf of TDA, effected the sale of a TDA Note to at least one Connecticut investor.
e. The TDA Note that was offered and sold by Respondents was never registered in Connecticut, nor was it exempt from registration, nor was it a covered security.
f. DeSteph has never been registered in Connecticut as an agent of TDA, nor was he an associated person.
(State Ex. 1.)
6. The Notice alleged that Respondents offered and sold an unregistered security to at least one Connecticut investor, which security was not registered in Connecticut under the Act.  The offer and sale of such security absent registration constitutes a violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the Act; and for the imposition of a fine against Respondents under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 1.)
7. The Notice alleged that DeSteph acted as an agent of issuer on at least one occasion, absent registration.  Such conduct constitutes a violation of Section 36b-6(a) of the Act, which forms a basis for an order to cease and desist to be issued against DeSteph under Section 36b-27(a) of the Act, and for the imposition of a fine against DeSteph under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 1.)
8. The Notice alleged that TDA employed DeSteph as an agent of issuer on at least one occasion, absent registration.  Such conduct constitutes a violation of Section 36b-6(b) of the Act, which forms a basis for an order to cease and desist to be issued against TDA under Section 36b-27(a) of the Act, and for the imposition of a fine against TDA under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 1.)
9. In the Order, the Commissioner ordered that TDA cease and desist from directly or indirectly violating the provisions of the Act, including without limitation, (1) offering and selling unregistered securities, and (2) employing an agent of issuer absent registration; and that DeSteph cease and desist from directly or indirectly violating the provisions of the Act, including without limitation, (1) offering and selling unregistered securities, and (2) acting as an agent of issuer absent registration.  (State Ex. 1.)
10. The Order stated that a hearing would be granted to Respondents if a written request for a hearing was received by the Department of Banking (“Department”), 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following each Respondent’s receipt of the Order.  (State Ex. 1.)
11. The Order stated that the Order shall remain in effect and become permanent against TDA if it does not request a hearing within the prescribed time period, and against DeSteph if he does not request a hearing within the prescribed time period.  (State Ex. 1.)
12. The Fine Notice stated that the Commissioner intended to impose a fine against Respondents, that a hearing would be held on the matters alleged in the Fine Notice on May 20, 2009 (“Fine Hearing”), and that if Respondents failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Twenty Thousand Dollars ($20,000) be imposed on TDA and a maximum fine of Twenty Thousand Dollars ($20,000) be imposed on DeSteph.  (State Ex. 1.)
13. On April 13, 2009, DeSteph received the Notice sent to him by registered mail no. RB027869149US.  (State Ex. 1.)
14. By facsimile dated April 12, 2009, the Department received an Appearance and Request for Hearing signed and dated April 14, 2009, which indicated that DeSteph was representing “All Respondents”.  (Tr. at 11; Hearing Off. Ex. 3.)
15. On April 16, 2009, the Notice sent to TDA, registered mail no. RB027869121US, was returned to the Department marked “Returned to Sender—Refused”.  (State Ex. 1.)
16. On April 16, 2009, the Notice sent to TDA, registered mail no. RB027869135US, was returned to the Department marked “Returned to Sender—Not Deliverable As Addressed”.  (State Ex. 1.)
17. On April 16, 2009, the Notice sent to DeSteph, registered mail no. RB027869152US, was returned to the Department marked “Returned to Sender—Undeliverable As Addressed”.  (State Ex. 1.)
18. On April 29, 2009, the Department, acting pursuant to Section 36b-33(h) of the Act, served TDA with a copy of the Notice by causing such copy to be served upon the Commissioner.  (Tr. at 26; State Ex. 2.)
19. On April 30, 2009, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to TDA in accordance with Section 36b-33(h) of the Act, at 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869245US; and 4 Summit Road, Keene, New Hampshire 03431, registered mail no. RB027869254US.  (State Ex. 2.)
20. By letter dated June 19, 2009, DeSteph filed a Motion to Restrict or Remove, Motion to Compel and Motion to Dismiss (collectively “Motions”).  (Tr. at 11 and 13; Hearing Off. Ex. 3.)
21. By letter dated June 25, 2009, Hearing Officer William Nahas, Jr., postponed any decision on the Motions pending the issuance of an amended Notice by the Commissioner.  (Tr. at 14, Hearing Off. Ex. 3.)
22. On July 16, 2009, the Commissioner issued an Amended and Restated Order to Cease and Desist (“Amended Order”) and Amended and Restated Notice of Intent to Fine (“Amended Fine Notice”) (collectively “Amended Notice”) against Respondents.  (Tr. at 28; State Ex. 3.)
23. On July 16, 2009, the Amended Notice was sent by registered mail, return receipt requested, to TDA at 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869308US.  (State Ex. 3.)
24. On July 16, 2009, the Amended Notice was sent by registered mail, return receipt requested, to DeSteph at 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869311US.  (State Ex. 3.)
25.
The Amended Notice asserted that:
a. TDA is a purported New Hampshire entity with its principal place of business last known to the Commissioner at 1 Dustin Lane, Jaffrey, New Hampshire 03452.
b. DeSteph is an individual whose address last known to the Commissioner is 1 Dustin Lane, Jaffrey, New Hampshire 03452.
c. From at least March 10, 2003, to the present, TDA has been an issuer of securities in the form of TDA Notes.
d. For all relevant periods, DeSteph owned and managed TDA, as well as the DeSteph Agency, an insurance and financial planner which claims that it uses innovative financial and insurance solutions that have pleased the most discerning clients and claims to be proficient in arranging or brokering such investments as tax-deferred annuities, individual retirement accounts, long-term care insurance polices, life insurance and group benefits.
e. In or about October 2002, DeSteph was referred by a mutual friend to a Connecticut investor (“Investor”) to provide investment advice in relation to a One Hundred Thousand Dollars ($100,000) inheritance the Investor had recently received from her mother’s estate.
f. DeSteph, on behalf of TDA, offered TDA Notes to the Investor claiming that while she would only get 5% interest on a traditional certificate of deposit, with a special investment in TDA Notes she would earn 6.15% with monthly payouts of Five Hundred Twelve and 50/100 Dollars ($512.50) on her investment of One Hundred Thousand Dollars ($100,000).
g. On or about March 10, 2003, DeSteph, on behalf of TDA, effected the sale of a TDA Note to the Investor in the amount of One Hundred Thousand Dollars ($100,000).
h. However, when the Investor actually received the TDA Note, it provided that TDA promised to:  (a) pay Four Hundred Twelve and 50/100 Dollars ($412.50) per month, not the Five Hundred Twelve and 50/100 Dollars ($512.50) previously promised, less a Twelve Dollar ($12) “service charge” for five years; (b) pay a “prorated share” of TDA’s profits over that five-year period; and (c) return the original principal plus all profits due on or before January 10, 2008.
i. The Investor did not receive any of the promised monthly payments.  In April 2003, the Investor asked DeSteph for her investment, and he informed her that the TDA Note would be followed “to the letter”.  DeSteph also stated that the monthly payments were being “reinvested” in TDA, which was “routine”.
j. The Investor did not receive any payment from TDA or DeSteph on or before January 10, 2008, as was provided for in the TDA Note.
k. Both TDA and DeSteph failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or DeSteph, that TDA and DeSteph would not make a single monthly payment or that DeSteph would use the Investor’s money to pay for his personal and household expenses.
l. To date, no funds have been returned to the Investor by TDA or DeSteph.
m. The TDA Note that was offered and sold by Respondents was never registered in Connecticut, nor was it exempt from registration, nor was it a covered security.
n. DeSteph has never been registered in Connecticut as an agent of TDA, nor was he an associated person.
(State Ex. 3.)
26. The Amended Notice alleged that Respondents offered and sold an unregistered security to at least one Connecticut investor, which security was not registered in Connecticut under the Act.  The offer and sale of such security absent registration constitutes a violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the Act, and for the imposition of a fine against Respondents under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 3.)
27. The Amended Notice alleged that DeSteph acted as an agent of issuer on at least one occasion, absent registration, and that such conduct constitutes a violation of Section 36b-6a) of the Act, which forms a basis for an order to cease and desist to be issued against DeSteph under Section 36b-27(a) of the Act, and for the imposition of a fine against DeSteph under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 3.)
28. The Amended Notice alleged that TDA employed DeSteph as an agent of issuer on at least one occasion, absent registration, and that such conduct constitutes a violation of Section 36b-6(b) of the Act, which forms a basis for an order to cease and desist to be issued against TDA under Section 36b-27(a) of the Act, and for the imposition of a fine against TDA under Section 36b-27(d) of the Act in effect prior to October 1, 2003.  (State Ex. 3.)
29. The Amended Notice alleged that the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person.  Such conduct constitutes a violation of Section 36b-4(a) of the Act, as amended by Public Act 09-174, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the Act, and for the imposition of a fine against Respondents under Section 36b-27(d) of the Act prior to October 1, 2003.  (State Ex. 3.)
30. In the Amended Order the Commissioner ordered that TDA cease and desist from directly or indirectly violating the provisions of the Act, including without limitation:  (1) offering and selling unregistered securities; (2) employing an agent of issuer absent registration, and (3) in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person.  (State Ex. 3.)
31. In the Amended Order the Commissioner ordered that DeSteph cease and desist from directly or indirectly violating the provisions of the Act, including without limitation:  (1) offering and selling unregistered securities; (2) acting as an agent of issuer absent registration; and (3) in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person.  (State Ex. 3.)
32. The Amended Fine Notice stated that the Commissioner intended to impose a fine against Respondents, that a hearing would be held at a time to be determined by the designated Hearing Officer and that if Respondents failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Thirty Thousand Dollars ($30,000) be imposed on TDA and a maximum fine of Thirty Thousand Dollars ($30,000) be imposed on DeSteph.  (State Ex. 3.)
33. On July 15, 2009, DeSteph filed Respondent’s Motion to Recommence with Motion to Dismiss with the Department.  (Hearing Off. Ex. 3.)
34. On July 16, 2009, the Commissioner issued a Redesignation of Hearing Officer, appointing Attorney Doniel Kitt as Hearing Officer for the hearing concerning the allegations set forth in the Amended Notice.  (Tr. at 6; Hearing Off. Ex. 1.)
35. On July 18 and July 20, 2009, DeSteph filed Respondent’s Answer to Department’s Amended and Restated Preliminary Statement.  (Hearing Off. Ex. 3.)
36. On July 21, 2009, DeSteph received the Amended Notice.  (State Ex. 3.)
37. On July 24, 2009, the Amended Notice sent to TDA was returned to the Department marked “Returned to Sender-Refused”.  (State Ex. 3.)
38. By email dated July 27, 2009, Hearing Officer Kitt informed DeSteph that only the Commissioner had the authority to respond to his Motion to Restrict or Remove, Motion to Dismiss and Motion to Recommence with Motion to Dismiss.  (Hearing Off. Ex. 3.)
39. During a conference call on July 20 and by letter dated July 28, 2009, Hearing Officer Kitt rescheduled the hearing to September 21 and September 22, 2009 (“Hearing”).  (Tr. at 7; Hearing Off. Ex. 2.)
40. On July 29, 2009, the Department responded to Respondents’ request for the production of documents which rendered moot the need to rule upon the Motion to Compel.  (Tr. at 11 and 13, Hearing Off. Ex. 3.)
41. On September 21, 2009, the Hearing was held at the Department.  (Tr. at 5.)
42. DeSteph appeared at the Hearing on behalf of himself.  (Tr. at 8.)
43. Attorney Jesse Silverman appeared at the Hearing on behalf of the Department.  (Tr. at 8.)
44. No one appeared on behalf of TDA at the Hearing.  (Tr. at 8.)
45.
At the Hearing, DeSteph requested a dismissal of the Hearing stating, in pertinent part:
I’d like to object to these proceedings and ask that they be dismissed.  They are barred by the applicable statute of limitations under Public Company Accounting Reform and Investor Protection Act 2002, commonly called or known as Sarbanes-Oxley Act of 2002, Public Law 107-204 titled 8, Section 4 -- I’m sorry, that’s 804b of July 30th, 2002, allowing only five years to bring such actions.

I object to these proceedings citing Connecticut General Statute Section 42-110(b) of 2003.  The statute of limitations for Connecticut Unfair Trade Practices Act claim is three years only.  Connecticut General Statute Section 42-110(g) (f), you could see City of New Haven versus Commercial Union Insurance Company, 894f.2d -- I’m sorry, 540, 546 Second Circuit 1990, the Connecticut Unfair Trade Practices Act violation occurs when the misrepresentation is made in a statute of limitation, and a statute of limitation commences running the moment the act or omission complained of occurs.

Additionally, Connecticut Statute, General Statute Section 52-577 1989, Connecticut Unfair Trade Practices Act, Connecticut General Statute Section 42-110(g) (f).

The statute of limitations for oral contracts, which was just mentioned, is Connecticut General Statute Section 52-581, a breach of contract claim based on any oral promise must be brought within three years.

I object to these proceedings as they are barred in so much as the alleged security would be exempt under the de minimis exemption, Connecticut Uniform Security Act Sections 36b-21(b)15, Section 36b-21(b)10, and 36b-21(e) for the purpose of private placement, since there were no public offerings, less than 10 people were involved, and the amount of the security was under the amount defined by the law.

I object to these proceedings as the alleged security would be an exempt transaction under Rules 501 through 506, limited offers with noticing.

Additionally, Uniform Securities Act Section 402-B9 exempts limited or small offerings.  Section 36b-31-6(e) and Section 36b-31-21(b)-1 exempt for isolated noninsurer transactions also offers an exemption.

And I ask that these hearings be dismissed immediately.
(Tr. at 18-21.)
46. In response to DeSteph’s oral request for dismissal, Hearing Officer Kitt informed DeSteph that in line with his prior ruling, matters to be dismissed can only be done by the Commissioner.  (Tr. at 21.)
47.
In accordance with Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, the factual allegations against TDA in the Amended Notice are deemed admitted due to TDA’s failure to appear at the scheduled hearing specified by the Hearing Officer.  (Tr. at 8; Hearing Off. Ex. 2.)
48. On January 28, 2010, Hearing Officer Kitt requested that DeSteph and the Department file briefs by February 18, 2010, on several issues raised by the record and allowed for the filing of reply briefs by March 4, 2010.
49. On February 18, 2010, the Department and DeSteph filed their respective briefs.
50.
On March 4, 2010, DeSteph filed Respondent’s Response to State’s Brief dated February 18, 2010.
51. DeSteph is an individual whose address is 1 Dustin Lane, Jaffrey, New Hampshire 03452.  (State Ex. 3.)
52. For all relevant periods, DeSteph owned and managed TDA, as well as The DeSteph Agency, an insurance and financial planner which claims that it uses innovative financial and insurance solutions that have pleased the most discerning clients and claims to be proficient in arranging or brokering such investments as tax-deferred annuities, individual retirement accounts, long-term care insurance polices, life insurance and group benefits.  (Tr. at 31-33, 35, 121 and 154; State Ex. 5.)
53. Prior to April 2003, DeSteph was referred by a mutual friend to a Connecticut investor (“Investor”) to provide investment advice in relation to an inheritance of One Hundred Thousand Dollars ($100,000) that the Investor had recently received from her mother’s estate.  (Tr. at 22, 30-31, 35 and 36.)
54. DeSteph, on behalf of TDA, offered the Investor an interest in a limited partnership that was later documented as a TDA Note, claiming that such investment would earn 6.15% with monthly payouts of Five Hundred Twelve and 50/100 Dollars ($512.50) on her investment of One Hundred Thousand Dollars ($100,000).  (Tr. at 35, 36, 38 and 39; State Exs. 7, 8 and 9.)
55. On or about March 10, 2003, DeSteph, on behalf of TDA, effected the sale of the investment to the Investor in the amount of One Hundred Thousand Dollars ($100,000).  (Tr. at 39 and 42, State Ex. 9.)
56. When the Investor actually received the TDA Note, it provided that TDA promised to:  (a) pay Four Hundred Twelve and 50/100 Dollars ($412.50) per month, not the Five Hundred Twelve and 50/100 Dollars ($512.50) previously promised, less Twelve Dollars ($12) per month service charge for 60 months; (b) share in the profits of TDA on a prorated basis at the time the note is paid; and (c) return the entire balanced [sic] owed on or before January 10, 2008 unless the Investor reinvests in the TDA Advantage Trust Club in increments of five year agreements.  (Tr. at 43-45; State Ex. 10.)
57.
The Investor did not receive any of the promised monthly payments or share in the profits of the TDA Advantage Trust or the entire balance owed on or before January 10, 2008.  (Tr. at 42, 45-47.)
58. The Investor did not receive any payment from DeSteph on or before January 10, 2008, as was provided for in the TDA Note.  (Tr. at 46-47.)
59. DeSteph failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or DeSteph, that TDA and DeSteph would not make a single monthly payment or that DeSteph would use the Investor’s money to pay for his personal and household expenses.
60. As of September 21, 2009, no funds had been returned to the Investor by TDA or DeSteph.  (Tr. at 46-47.)
61. The TDA Note that was offered and sold by DeSteph was never registered in Connecticut, nor was it exempt from registration, nor was it a covered security.  (Tr. at 30; State Ex. 4.)
62. DeSteph has never been registered in Connecticut as an agent of TDA, nor was he an associated person.  (State Ex. 4.)

 
CONCLUSIONS OF LAW

I.  Violation of Section 36b-16 of the Act -
Offer and Sale of Unregistered Securities

Section 36b-16 of the Act provides 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.

Section 36b-3(19) of the Act defines the term “security” to mean, in pertinent part:

[A]ny note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, interests of limited partners in a limited partnership . . . .

The record establishes that Respondents sold to at least one Connecticut investor an interest of a limited partner in a limited partnership that was later documented as a TDA Note, which is a “security” as defined in Section 36b-3(19) of the Act.  Such security was not registered in Connecticut under the Act as required by Section 36b-16 of the Act, nor was it exempt from registration under Section 36b-21 of the Act, nor was it a covered security.  The record further establishes that the offer and sale of such security absent registration constitutes a violation of Section 36b-16 of the Act.


II.  Violation of Section 36b-6 of the Act -
Unregistered Agent Activity

Section 36b-6 of the Act provides, in pertinent part, that:

(a) . . . No individual shall transact business as an agent in this state unless such individual is (1) registered as an agent of the . . . issuer whom such individual represents in transacting such business . . . .

(b)  No issuer shall employ an agent unless such agent is registered under sections 36b-2 to 36b-33, inclusive.

The record establishes that DeSteph acted as an agent of issuer on at least one occasion absent the required registration, which constitutes a violation of Section 36b-6(a) of the Act, and that TDA employed DeSteph as an agent of issuer on at least one occasion absent the required registration, which constitutes a violation of Section 36b-6(b) of the Act.


III.  Violation of Section 36b-4(a) of the Act -
Fraud in Connection with the Offer and Sale of any Security

Section 36b-4(a) of the Act provides that:

No person shall, in connection with the offer, sale or purchase of any security, directly or indirectly:  (1) Employ any device, scheme or artifice to defraud; (2) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or (3) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

The record establishes that Respondents failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or DeSteph, that TDA and DeSteph would not make a single monthly payment or that DeSteph would use the Investor’s money to pay for his personal and household expenses.  Further, the Investor was promised a monthly installment payment of $412.50, minus $12 per month service charge for 60 monthly payments on her investment; a share in the profits of TDA on a pro rata basis at the time the TDA Note was to be paid and a return of the entire balance owed on or before January 10, 2008, which amounts were never paid.  The record further establishes that the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making of untrue statements of material facts or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon a person.  Such conduct constitutes a violation of Section 36b-4(a) of the Act.


IV.  Authority to Issue Order to Cease and Desist and Impose Fine

Section 36b-27(a) of the Act provides, in pertinent part:

Whenever it appears to the commissioner after an investigation that any person has violated, is violating or is about to violate any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . or that the further sale or offer to sell securities would constitute a violation of said sections . . . the commissioner may, in the commissioner’s discretion, order (1) the person . . . to cease and desist from the violations . . . of the provisions of said sections . . . or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections . . . .  After such an order is issued, the person named in the order may, within fourteen days after receipt of the order, file a written request for a hearing.  Any such hearing shall be held in accordance with the provisions of chapter 54.

Section 36b-27(d) of the Act, prior to October 1, 2003, provided, in pertinent part, that:

(1)  Whenever the commissioner finds as the result of an investigation that any person or persons have violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may send a notice to such person or persons by registered mail, return receipt requested . . . .  Any such notice shall include:  (A) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (B) a short and plain statement of the matter asserted or charged; (C) the maximum fine that may be imposed for such violation; and (D) the time and place for the hearing.  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 or persons fail to appear at the hearing.  Said hearing shall be held in accordance with the provisions of chapter 54.  After the hearing if the commissioner finds that the person or persons have violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . 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 ten thousand dollars per violation be imposed upon such person or persons.  If such person or persons fail to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding ten thousand dollars per violation be imposed upon such person or persons.  The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested, . . . to any person or persons named in such order.

Section 36b-27(d) of the Act at the time the Amended Notice was issued provided, in pertinent part, that:

(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, . . . 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 . . . any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . 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. 


V.  Notice and Public Interest

Section 4-177 of the Connecticut General Statutes provides, in pertinent part, that:

(a)  In a contested case, all parties shall be afforded an opportunity for hearing after reasonable notice.

(b)  The notice shall be in writing and shall include:  (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the statutes and regulations involved; and (4) a short and plain statement of the matters asserted.

The Amended Notice issued by the Commissioner complied with the then applicable Section 36b 27(d) of the Act and Section 4-177 of the Connecticut General Statutes.

Section 36b-31(a) of the Act provides, in pertinent part, that:

The 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[.]

Section 36b-31(b) of the Act provides, in pertinent part, that:

No . . . 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.

Section 36b-31(b) of the Act requires that the Commissioner find that an order 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 33b-33, inclusive.  Although the Commissioner is not required to make all these findings to make an order, since Section 36b-31(b) is clearly in the disjunctive, all of these elements are present in this case.  While the term “public interest” is not defined in the Act, courts have determined that words of wide generality, like “public interest”, must take their meaning from the substantive provisions and purposes of the legislation and the words must be interpreted in the context of the regulatory scheme, see NAACP v. Federal Power Comm’n, 425 U.S. 662 (1975); N.Y. Central Sec. Corp. v. United States, 287 U.S. 12 (1932); and “it is for the legislature to determine what is in the public interest . . .”.  Brosnan v. Sacred Heart Univ., 1997 Conn. Super. Lexis 2815, *47 (1997) (internal quotation marks omitted) (quoting West v. Egan, 18 Conn. Supp. 447, 450 (1953)).  “‘[T]he primary purpose behind [CUSA] was to institute comprehensive registration requirements and thereby improve surveillance of securities trading.’  (Internal quotation marks omitted.)  State v. Andresen, 256 Conn. 313, 329, 773 A.2d 328 (2001).  ‘[S]tate securities laws, or “blue sky laws,” are remedial statutes . . . see also Securities & Exchange Commission v. C.M. Joiner Leasing Corp., 320 U.S. 344, 353, 64 S.Ct. 120, 88 L.Ed. 88 (1943) (noting that state securities laws have “dominating purpose to prevent and punish fraudulent floating of securities”); Connecticut National Bank v. Giacomi, 233 Conn. 304, 320, 659 A.2d 1166 (1995) (noting that state securities laws contain antifraud provisions, require registration of brokers and sellers of securities and registration of securities themselves); People v. Landes, 84 N.Y.2d 655, 660, 645 N.E.2d 716, 621 N.Y.S.2d 283 (1994) (“purpose of [New York securities] statute is remedial: to protect the public from fraudulent exploitation in the offering and sale of securities”).  In 1977, the Connecticut legislature formally adopted the Uniform Securities Act (Uniform Act).”  (Citation omitted; footnote omitted; internal quotation marks omitted.)  State v. Andresen, supra, 256 Conn. at 322-23.”  Papic, 2007 Conn. Super. LEXIS 820.  Thus, the “public interest” as it relates to the purposes of the Act includes requiring registration of securities and protecting the public from fraudulent exploitation in the offering and sale of securities, which are both key elements in the network of safeguards the legislature has enacted to protect the public investor.

In this case, Respondents’ actions in violation of the Act involved disregarding a regulatory prohibition on offering and selling an unregistered security, and in connection with the offer and sale of such unregistered security, directly or indirectly, making an untrue statement of material fact or omitting to state a material fact necessary in order to make the statement made, in light of the circumstances under which they are made, not misleading in Respondents’ written and oral communications with the Investor, and failure to provide material facts regarding Respondents’ intended use of the money.  In addition, Respondents disregarded regulatory prohibitions on acting as an unregistered agent and employing an unregistered agent.  Consequently, the Commissioner to find that based upon the nature of Respondents’ actions in violation of the Act, the facts require the imposition of a fine against (1) Respondent TDA for TDA’s violations of Sections 36b-16, 36b-6(b) and 36b-4(a) of the Act in an amount equal to the maximum permitted by Section 36a-27(d) of the Act in effect prior to October 1, 2003, and (2) Respondent DeSteph for DeSteph’s violations of Sections 36b-16, 36b-6(a) and 36b-4(a) of the Act in an amount equal to the maximum permitted by Section 36a-27(d) of the Act in effect prior to October 1, 2003.

The Commissioner finds that the issuance of an order to cease and desist and imposition of a fine against Respondents 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

Having read the record, I hereby ORDER, pursuant to Section 36b-27(a) of the Act, the then applicable Section 36b-27(d) of the Act and Section 36b-27(d)(2) of the Act prior to October 1, 2003, that:

1. The Amended and Restated Order to Cease and Desist issued against TDA Advantage Trust on July 16, 2009, be made PERMANENT;
2. The Amended and Restated Order to Cease and Desist issued against Thomas F. DeSteph on July 16, 2009, be made PERMANENT;
3. A fine of Thirty Thousand Dollars ($30,000) be imposed against TDA Advantage Trust, to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 30 days from the date the Order is mailed;
4. A fine of Thirty Thousand Dollars ($30,000) be imposed upon Thomas F. DeSteph, to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 30 days from the date the Order is mailed; and
5. This Order shall become effective when mailed.

Dated at Hartford, Connecticut       ________/s/________ 
this 4th day of June 2010.   Howard F. Pitkin 
    Banking Commissioner 


This Order was mailed by registered mail,
return receipt requested, to Respondents
on June 4, 2010.


TDA Advantage Trust 
1 Dustin Lane
Jaffrey, NH 03452
Registered Mail No. RB028037147US

Thomas F. DeSteph 
1 Dustin Lane
Jaffrey, NH 03452
Registered Mail No. RB028037147US


Administrative Orders and Settlements