DOB: Powerwater Systems et al - Hearing Decision

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IN THE MATTER OF:

POWERWATER SYSTEMS, INC.
   ("PSI")
 
DUNCAN CLEWORTH
   ("Cleworth")

POWERWATER USA, LTD
   ("PUL")

(Collectively, "Respondents")

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FINDINGS OF FACT,

CONCLUSIONS OF LAW

AND ORDER

DOCKET NO. CF-13-7869-S

INTRODUCTION

The Banking Commissioner ("Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act ("Act"), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies ("Regulations") promulgated under the Act.

The above-referenced matter was initiated upon charges brought by the Commissioner to issue an order to cease and desist and impose fines on Respondents.  On January 11, 2013, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine, and Notice of Right to Hearing against Respondents, ("Notice").  The Notice was sent by registered or certified mail, return receipt requested, to Respondents.  On January 30, 2013, Respondents requested a hearing on the Notice.

On February 1, 2013, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer stating that the hearing would be held on April 9, 2013, at 10 a.m. ("Hearing"), at the Department of Banking ("Department") and appointing Attorney Stacey Serrano as Hearing Officer.  Hearing Officer Serrano granted Respondents' request for a continuance of the Hearing and rescheduled the Hearing to June 26, 2013, at 10 a.m.  On June 26, 2013, a hearing was held at the Department.  Attorney Paul A. Bobruff represented the Department at the Hearing and Respondents failed to appear at the Hearing.  The Hearing was conducted in accordance with Chapter 54 of the Connecticut General Statutes, the "Uniform Administrative Procedure Act" and the Department's contested case regulations, Sections 36a-1-19 to 36a-1-57, inclusive, of the Regulations of Connecticut State Agencies.

Section 36a-1-31(b) of the Regulations of Connecticut State Agencies provides, in pertinent part, that:
    

          When a party fails to appear at a scheduled hearing, the allegations against the party may be deemed admitted.  Without further proceedings or notice to the party, the presiding officer shall submit to the commissioner a proposed final decision containing the relief sought in the notice, provided the presiding officer may . . . receive evidence from the department . . . concerning the appropriateness of the amount of any . . . fine . . . sought in the notice.

FINDINGS OF FACT

1. PSI is an Ontario, Canada corporation whose principal place of business last known to the Commissioner is 159 Main Street, Markham, Ontario, Canada L3P 1Y2. (HO Ex. 2, Tr. at 5.)
2. Cleworth is an individual whose address last known to the Commissioner is 8 Savanah Crescent, Markham, Ontario, Canada L3P 3C7.  From at least April 15, 2005, Cleworth has been the President of PUL and the Chairman of PSI. (HO Ex. 2; Division Ex. 4, Tr. at 22.)
3. PUL is a Connecticut corporation whose principal place of business last known to the Commissioner is One Pond Place, Avon, Connecticut 06001. (HO Ex. 2; Division Ex. 4.)
4. From at least September 17, 2004 to the present, PSI has been an issuer of securities in the form of common stock ("PSI Securities"). (HO Ex. 2; Division Ex. 1, Tr. at 16.)
5. From September 17, 2004 to the present, Cleworth, both individually and jointly with PUL, offered and sold PSI Securities on behalf of PSI in or from Connecticut to investors ("Investors").  PUL materially aided Cleworth and PSI in the offer and sale of PSI Securities to the Investors. (HO Ex. 2; Tr. at 22-23, 28-29.)
6. The Investors, at Cleworth's direction, paid PUL for the PSI Securities, which payments were deposited into a bank account that was controlled by Cleworth.  Cleworth withdrew some of the funds provided by the Investors from the PUL bank account and used money for his personal use. (HO Ex. 2; Tr. at 22-23, 25-27, 29.)
7. The PSI Securities offered and sold by Respondents were never registered in Connecticut under Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the Act, nor were they the subject of a filed exemption claim or claim of covered security status. (HO Ex. 2; Division Ex. 7, Tr. at 33.)
8. At no time were PUL or Cleworth registered in any capacity under the Act.  (HO Ex. 2; Tr. at 34-35.)
9. Cleworth has never been registered in Connecticut as an agent of issuer of PSI.  (HO Ex. 2; Division Ex. 8, Tr. at 33.)
10. In connection with the offer and sale of the PSI Securities, Respondents failed to disclose, inter alia, any financial information about Respondents, the registration status of the securities, that Cleworth was acting as an agent of issuer of PSI in Connecticut absent registration, the estimated cash proceeds of the PSI stock offering, any specific risk factors related to the investment, or that Cleworth would use some of the Investors' money for his personal use.  Each of these omitted items was material to the Investors and prospective PSI investors. (HO Ex. 2; Tr. at 30-32.)
11. At the hearing, the Department requested that a fine of $225,000 be imposed on PSI, $225,000 on Cleworth, and $200,000 on PUL. (Tr. at 40-41.)

CONCLUSIONS OF LAW

1. Pursuant to 36a-1-31(b) of the Regulations, the allegations made in the Notice against Respondents are deemed admitted.
2. Respondents offered and sold unregistered securities in or from Connecticut, in 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 upon Respondents under Section 36b-27(d) of the Act.
3. PUL materially aided PSI and Cleworth's violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against PUL under Section 36b-27(a) of the Act, and for the imposition of a fine upon PUL under Section 36b-27(d) of the Act.
4. The conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact 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, in violation of Section 36b-4(a) 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 upon Respondents under Section 36b-27(d) of the Act.
5. Cleworth received compensation directly or indirectly related to the purchase or sale of securities and transacted business as an agent of issuer in this state absent registration, in violation of Section 36b-6(a) of the Act, which forms a basis for an order to cease and desist to be issued against Cleworth under Section 36b-27(a) of the Act, and for the imposition of a fine upon Cleworth under Section 36b-27(d) of the Act.
6. PSI employed Cleworth as an unregistered agent of issuer in this state, in violation of Section 36b-6(b) of the Act, which forms a basis for an order to cease and desist to be issued against PSI under Section 36b-27(a) of the Act, and for the imposition of a fine upon PSI under Section 36b-27(d) of the Act.
7. The Notice, Hearing and this Findings of Fact, Conclusions of Law and Order comply with Sections 36b-31(b), 36b-27(a) and 36b-27(d) of the Act and Section 4-177 of the Connecticut General Statutes.
8. Based upon the nature of each Respondent's actions in violation of the Act and the absence of mitigating factors in the record regarding Respondents' violations, I find that the issuance of this order to cease and desist and order imposing a fine 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-34, inclusive, of the Act.
    
ORDER

Having read the record, I hereby ORDER that:

1. Pursuant to Section 36b-27(a) of the Act, the Order to Cease and Desist issued against PowerWater Systems, Inc., on January 11, 2013, be and is hereby made PERMANENT with respect to violations of Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act;
 
2. Pursuant to Section 36b-27(a) of the Act, the Order to Cease and Desist issued against Duncan Cleworth on January 11, 2013, be and is hereby made PERMANENT with respect to violations of Sections 36b-16, 36b-4(a) and 36b-6(a) of the Act;
  
3. Pursuant to Section 36b-27(a) of the Act, the Order to Cease and Desist issued against PowerWater USA Ltd., on January 11, 2013, be and is hereby made PERMANENT with respect to violations of Sections 36b-16 and 36b-4(a) and materially aiding in the violation of Section 36b-16 of the Act;
  
4. Pursuant to Section 36b-27(d) of the Act, a FINE of Two Hundred Twenty-Five Thousand Dollars ($225,000) be imposed against PowerWater Systems, Inc., 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 forty-five (45) days from the date this Order is mailed;
  
5. Pursuant to Section 36b-27(d) of the Act, a FINE of Two Hundred Twenty-Five Thousand Dollars ($225,000) be imposed against Duncan Cleworth, 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 forty-five (45) days from the date this Order is mailed;
  
6. Pursuant to Section 36b-27(d) of the Act, a FINE of Two Hundred Thousand Dollars ($200,000) be imposed against PowerWater USA Ltd., 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 forty-five (45) days from the date this Order is mailed; and
  
7. This Order shall become effective when mailed.



Dated at Hartford, Connecticut,       _______/s/____________
this 21st day of October 2013.      Howard F. Pitkin 
         Banking Commissioner 



This Order was sent by registered mail,
return receipt requested, to Duncan Cleworth
on behalf of all Respondents and hand delivered
to Paul A. Bobruff, Esq., on October 21, 2013.
 
Duncan Cleworth
c/o Douglas G. Edward Professional Corporation
21 Queen Street East, Suite 700
Brampton, Ontario L6W 3PI
Canada
    

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