DOB: Summer 2017 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXXI  No. 2 
Summer 2017

Features

Enforcement and Other Highlights 


In June, 2017 the United States Attorney’s Office for the District of Connecticut presented a Certificate of Recognition to Principal Examiner Klem Klementon for his assistance in the prosecution of U.S. v. Ian Parker Bick.  On October 26, 2016, Bick had been sentenced to three years in federal prison, followed by three years of supervised release, for defrauding 15 investors of approximately $480,000.  Bick was found guilty of six counts of wire fraud and one count of money laundering and was also ordered to pay restitution.
 
According to a press release issued by the U.S. Attorney's Office for the District of Connecticut, Bick was a principal and/or managing member of various Danbury-based entities, including This Is Where It’s At Entertainment, LLC, Planet Youth Entertainment, W&B Wholesale, LLC, and W&B Investments, LLC.  Using these entities, Bick solicited investment funds by promising high investment returns over relatively short periods of time and falsely representing to investors that he could generate high investment returns by using investor funds to buy electronics and electronic devices and then resell the items for a substantial profit via the Internet.  However, the electronic resale business never actually began in earnest and did not return any meaningful profit.  Bick also falsely represented to certain investors that he could generate high investment returns by using investor funds to organize and promote concerts at various venues in Connecticut and Rhode Island.  In reality, Bick failed to invest the funds as represented and instead used the invested funds for unrelated and unsuccessful businesses, to pay personal expenses and to issue purported "interest payments" and "return of principal" payments to certain investors.


UPDATED ADVISORY COUNCIL MEMBERSHIP ANNOUNCED

The Banking Commissioner recently announced new appointments to the Securities Advisory Council, a body whose members are appointed by the Commissioner and voluntarily serve without compensation or other remuneration.  The purpose of the Securities Advisory Council is to provide nonbinding advice, recommendations and suggested technical assistance to the agency regarding securities and business opportunity regulation as well as investor education programs.


Donna Brooks, a partner at Shipman & Goodwin LLP and a long-serving member of the Advisory Council, will serve as Chairperson.  In addition, the following members were appointed:  Erik A. Bergman of Finn Dixon & Herling LLP, Stamford; Peter J. Bilfield of Shipman & Goodwin LLP, Stamford; Michael D. Blanchard of Morgan Lewis & Bockius LLP, Hartford; William W. Bouton III of Hinckley Allen, Hartford; Susan E. Bryant of Verrill Dana, LLP, Westport; Wendy A. Clarke of Kelley Drye & Warren LLP, Stamford; Jody J. Cranmore of Cranmore, FitzGerald & Meaney, Hartford; Harold B. Finn III of Finn Dixon & Herling LLP, Stamford; Marilyn Ford of Quinnipiac University School of Law, Hamden; Medina K. Jett of ICS Group, LLC, Hartford; Mark W. Klein of Brody Wilkinson PC, Southport; Willard F. Pinney, Jr. of Murtha Cullina LLP, Hartford; Justin J. Shigemi of Finn Dixon & Herling LLP, Stamford; Richard Slavin of Cohen and Wolf, P.C., Westport; Stephen H. Solomson of O'Connell, Attmore & Morris, LLC, Hartford; Katherine Vines Trumbull of Webster Bank, N.A., Waterbury; and Edward B. Whittemore of Murtha Cullina LLP, Hartford.


       


ADMINISTRATIVE ACTIONS

Barton W. Stuck, Signal Lake Management, LLC, Signal Lake Side Fund, L.P., Signal Lake Side Fund II, L.P., Signal Lake Side Fund IIA, L.P. and Signal Lake General Partner LLC (CRD No. 285438) – Order to Cease and Desist and Notice of Intent to Fine Issued

On June 27, 2017, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-17-8254-S) against Signal Lake Side Fund, L.P, Signal Lake Side Fund II, L.P. and Signal Lake Side Fund IIA, L.P., all of 606 Post Road East, Westport, Connecticut 06880.  Each of the investment funds was formed to invest in software and technologies companies.  Also named in the action was Signal Lake Management, LLC, investment manager of the funds, Signal Lake General Partner LLC, the general partner of an affiliated nonrespondent, and Barton W. Stuck of Norwalk, Connecticut, a managing member of the funds' investment manager as well as a control person of the funds.


The action alleged that, at various times between 2007 and 2014, Stuck and the fund respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and/or selling unregistered fund securities to investors.  The action also alleged that, from approximately 2008 to 2014, in providing investment advice to the funds on a compensated basis, Signal Lake Management, LLC transacted business as an unregistered investment adviser in contravention of Section 36b-6(c)(1) of the Act and engaged Stuck as an unregistered investment adviser agent in violation of Section 36b-6(c)(3) of the Act.  Stuck was also charged with violating Section 36b-6(c)(2) of the Act by transacting business as an unregistered investment adviser agent.
 

In addition, the action alleged that Stuck and Signal Lake Management, LLC violated the antifraud provisions in Section 36b-4(a) of the Act by falsely representing to an investor in Signal Lake Side Fund II, L.P. that millions of dollars in additional investor capital had been provided to finance the partnership's operations when no such monies had, in fact, been received.
 

Barton W. Stuck was also a managing director and majority owner of Signal Lake General Partner LLC, an exempt reporting adviser required to make a Form ADV filing with the Commissioner.  Signal Lake General Partner LLC was the general partner of nonrespondent Signal Lake Operations LLC.  The Order to Cease and Desist and Notice of Intent to Fine alleged that Stuck and Signal Lake General Partner LLC violated Section 36b-23 of the Act by making a misleading Form ADV filing with the agency.  More specifically, the action alleged that Stuck and Signal Lake General Partner LLC repeatedly overstated the gross asset value of Signal Lake Operations LLC on Form ADV; falsely represented that Signal Lake General Partner LLC's books and records were located at a Stamford, Connecticut accounting firm; and falsely stated that Signal Lake Operations LLC's financial statements were subject to an annual audit by that accounting firm.
 

Each of the respondents was afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist and Notice of Intent to Fine.

James Albert Pettit (CRD No. 733916) – Notice of Intent to Deny Registrations as a Broker-dealer Agent and an Investment Adviser Agent, Order to Cease and Desist and Notice of Intent to Fine Issued

On May 15, 2017, the Banking Commissioner issued a Notice of Intent to Deny Registrations as a Broker-dealer Agent and an Investment Adviser Agent, Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. NDCDF-17-8218-S) with respect to James Albert Pettit.  The respondent was previously associated with Janney Montgomery Scott, LLC as a broker-dealer agent and an investment adviser agent.  The action alleged that the respondent engaged in certain improprieties rising to the level of dishonest or unethical practices in the securities business.  These included 1) borrowing money from an account carried for a brokerage customer without the customer’s prior consent and without notice to Janney Montgomery Scott, LLC; 2) borrowing money from an advisory client of Janney Montgomery Scott, LLC; and 3) engaging in outside business activity involving a firm client absent notice to his employing firm.  The action also alleged that the respondent engaged in self-dealing in conjunction with a power of attorney he held over the account of an elderly client, since deceased.  The respondent allegedly failed to obtain firm approval prior to accepting the power of attorney and wrote checks to himself as remuneration, notwithstanding that the power of attorney did not provide for compensation.  Following the client’s death, the respondent allegedly paid himself $69,000 for acting as executor of the client’s estate.  Ultimately, the probate court denied all but $10,000 of the executor’s fees.  The action also alleged that the respondent violated Section 36b-23 of the Connecticut Uniform Securities Act by failing to provide the agency with accurate information concerning accounts over which he had signatory authority.  In addition, the respondent allegedly violated Section 36b-31-14e of the Regulations under the Act by failing to amend his registration filings to disclose the existence of several tax liens.
 

Respondent Pettit was afforded an opportunity to request a hearing on the allegations in the action. 
 


RPM Capital Management, LLC (CRD No. 164200) and Michele Mary Newland (CRD No. 6050190) Assessed $10,400 for Unregistered Investment Adviser Agent Activity

On June 19, 2017, the Banking Commissioner entered a Consent Order (No. CO-17-8290-S) with respect to RPM Capital Management, LLC, an investment adviser registered with the Securities and Exchange Commission.  The firm was formerly located at 2 Greenwich Office Park, Suite 300, Greenwich, Connecticut 06831 and was previously registered as an investment adviser in Connecticut.  Also named in the Consent Order was Michele Mary Newland, Chief Investment Officer and Co-CEO of the firm.
 

The Consent Order alleged that from June 2012 through March 8, 2016, when she applied for investment adviser agent registration under the Connecticut Uniform Securities Act, Newland transacted business as an unregistered investment adviser agent in violation of Section 36b-6(c)(2) of the Act and that the firm violated Section 36b-6(c)(3) of the Act by engaging an unregistered investment adviser agent.  The Consent Order also alleged that RPM Capital Management, LLC 1) failed to establish and maintain written supervisory procedures as required by Section 36b-31-6(f) of the Regulations under the Act; and 2) violated Section 36b-31-14(b) of the Regulations by failing to maintain adequate books and records.
 

The Consent Order directed RPM Capital Management, LLC and Michele Mary Newland to cease and desist from regulatory violations.  In addition, the Consent Order directed the firm to pay $10,400 to the department.  Of that amount, $10,000 constituted an administrative fine and $400 constituted reimbursement for past due registration fees for Michele Mary Newland.

Meyers Associates, L.P. (CRD No. 34171)


On May 15, 2017, the Banking Commissioner entered a Consent Order (No. CO-17-8342-S) with respect to Meyers Associates, L.P. now known as Windsor Street Capital, LP.  The action had been preceded by a December 5, 2016 Order to Cease and Desist, Notice of Intent to Revoke Registration as a Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-16-8342-S) against the firm.  Meyers Associates, L.P., a broker-dealer, maintains its principal office at 45 Broadway, New York, New York.
 

The firm had also been the subject of two prior revocation proceedings, each of which was informally resolved by Consent Order, the first Consent Order being entered on June 14, 2011 (Docket No. RCF-10-7817-S) and the second on March 24, 2015 (Docket No. CFNR-14-8132-S).  Both Consent Orders contemplated that the firm would implement remedial measures to prevent future regulatory violations.
 

The December 5, 2016 administrative action alleged that the firm failed to adhere to fundamental compliance principles.  More specifically, the action alleged that Meyers Associates, L.P. 1) violated Section 36b-14(d) of the Connecticut Uniform Securities Act and Section 36b-31-14f of the Regulations thereunder by failing to make required books and records available to agency staff; 2) failed to maintain true, accurate and current books and records; 3) violated the 2015 Consent Order by selling securities listed on the OTCQB; 4) failed to establish, enforce and maintain adequate supervisory procedures; 5) violated Section 36b-16 of the Act by offering and selling unregistered securities; and 6) made materially misleading statements to the Division.


The May 15, 2017 Consent Order resolved the matters alleged in the December 5, 2016 administrative action without the need for a hearing.  In addition to directing the firm to cease and desist from regulatory violations, the Consent Order fined the firm $25,000.  The Consent Order reflected the firm’s representation that, in light of over $1 million in fines potentially owed to FINRA and the SEC in conjunction with pending proceedings before those bodies, the firm was financially unable to pay the maximum fine that otherwise would have been ordered as a term of the Consent Order.

  
Meyers Associates, L.P. filed to withdraw its broker-dealer registration under the Connecticut Uniform Securities Act on February 10, 2017.  Pursuant to the Consent Order, the withdrawal became effective on May 15, 2017.

Ashleigh Cooper Swayze (CRD No. 4632543)

On April 21, 2017, the Banking Commissioner entered a Consent Order (No. CO-17-8290a-S) with respect to Ashleigh Cooper Swayze, the Chief Compliance Officer and a listed control person of RPM Capital Management, LLC (IARD No. 164200), an SEC-registered investment adviser that was formerly registered under the Connecticut Uniform Securities Act.  The Consent Order alleged that 1) as Chief Compliance Officer of the firm, Swayze did not adequately pursue measures to ensure that a third party was in compliance with the investment adviser agent registration requirements of the Connecticut Uniform Securities Act; 2) such conduct materially aided the firm's failure to abide by supervisory requirements regarding the registration status of its personnel; and 3) Swayze’s written representations to the agency concerning the third party's activities violated Section 36b-23 of the Act.
 
The Consent Order fined Swayze $10,000 and directed her to cease and desist from regulatory violations.

 


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered   2,180 2,177
  
  
Broker-dealer Agents Registered 164,522 166,491
  
  
Broker-dealer Branch Offices Registered 2,597 2,589
  
  
Investment Advisers Registered 528 523     
  
SEC Registered Advisers Filing Notice 2,141 2,180     
  
Investment Adviser Agents Registered 13,542 13,711    
  
Exempt Reporting Advisers
117
121
  
  
Agents of Issuer Registered 18 18     
  
Conditional Registrations
0
0
  
  
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 62 50
  
     112
Investment Company Notice Filings 568 638
  
     1,206
Exemptions and Exemptive Notices 945 994            1,939
 
 
Examinations
     
Broker-dealers 17 24
  
      41
Investment Advisers 26 31
  
     57
 
 
Securities Investigations
 
Opened 15 17     
  
32
Closed 23 10     
  
33
Ongoing as of End of Quarter 82 89     
  
Subpoenas issued 5 19           24
Matters referred from Attorney General 1 1           2
Matters referred from Other Agencies 0 1           1
 
 
Business Opportunity Investigations
 
Investigations Opened 1 0            1
Investigations Closed 1 0
  
     1
Ongoing as of End of Quarter 2 2               
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
1
  
     
1
Notices of Intent to Suspend (Licensing)
0
0
  
  
0
Notices of Intent to Revoke (Licensing)
0
0
  
  
0
Denial Orders (Licensing) 0 0
  
     0
Suspension Orders (Licensing) 0 0
  
  
0
Revocation Orders (Licensing) 1 0
  
     1
Notices of Intent to Fine 0 2
  
     2
Orders Imposing Fine 0 0
  
     0
Cease and Desist Orders 0 2
  
     2
Notices of Intent to Issue Stop Order 0 0
  
  
0
Activity Restrictions/Bars 1 0
  
  
1
Stop Orders 0 0           0
Vacating/Withdrawal/ Modification Orders 1 0               1
Restitutionary Orders 0 0
  
      0
Injunctive Relief Obtained 0 0           0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
1
2
  
     
3
Consent Orders
2
3
  
     
5
Stipulation and Agreements
1
0
   
     
1
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$23,500
$45,400
  
    
$68,900
Portion attributable to settlements
$23,500
$45,400
  
  
$68,900
Attributable to Court-Ordered Penalties
0
0
  
  
0
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$17,000
$25,000
   
       $42,000

*Cents eliminated

 

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal Matters
0
0
  
  
0
Civil (Attorney General)
0
0
  
  
0
Other Agency Referrals
0
0
  
  
0



Securities Division