DOB: Fall 2017 Securities Bulletin

Securities and Business Investments Division

Securities Bulletin

Vol. XXXI  No. 3 
Fall 2017

Features

Enforcement and Other Highlights 


ADMINISTRATIVE ACTIONS

Robert Lawrence Gray (CRD No. 228103) Fined $200,000, Cease and Desist Order Made Permanent

On July 13, 2017, following a hearing, the Banking Commissioner entered Findings of Fact, Conclusions of Law and an Order (Docket No. CF-16-8301-S) against Robert Lawrence Gray of Boca Raton, Florida.  Respondent Gray did not appear at the March 8, 2017 administrative hearing regarding the matter and, as a result, the Order was entered by default.  The Order had been preceded by an October 20, 2016 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging that Gray persuaded a Connecticut investor to transfer the investor's brokerage account to Cantone Research Inc. where Gray had an arrangement with agent Victor Polakoff to direct trading in the account.  Respondent Gray also had an arrangement with the investor to share in the gains earned as a result of Gray's investment recommendations, and that Gray would reimburse the investor for losses incurred as a result of the recommended trades.  The arrangement with Cantone Research, Inc. allowed Gray to circumvent a July 15, 1977 permanent bar imposed by the NASD and to continue to be active in the securities industry without detection.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.
 

Adopting as findings the allegations in the October 20, 2016 Notice, the Commissioner determined that Gray 1) violated Section 36b-6(c)(1) of the Connecticut Uniform Securities Act by transacting business as an unregistered investment adviser; and 2) violated Section 36b-5(f) of the Act by engaging in dishonest or unethical practices in connection with the rendering of investment advice.
 

The July 13, 2017 Order rendered the October 20, 2016 Order to Cease and Desist permanent and fined Gray $200,000.
 


The Tirex Corporation and John L. Threshie, Jr.

On September 22, 2017, the Banking Commissioner entered a Consent Order (No. CO-17-8199-S) with respect to The Tirex Corporation, now or formerly of 1771 Post Road East, Westport, Connecticut, and John L. Threshie, Jr., its president, CEO and sole employee.   The Tirex Corporation held itself out as being involved in the tire recycling business.  The Consent Order alleged that from at least 2013, the respondents entered into investment agreements with investors promising that investors would receive restricted shares of The Tirex Corporation when The Tirex Corporation effected a share authorization.  The Consent Order also alleged that, in at least one instance, the respondents guaranteed the investment by representing that, if an investor wished to recover any of the investment, The Tirex Corporation would trade the shares and reimburse the investor.   The Consent Order stated that the securities involved were not registered and that the offering therefore violated Section 36b-16 of the Connecticut Uniform Securities Act.  The Consent Order also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Act by failing to disclose the risks associated with the investment and that the shares might never be issued if authorization failed to occur.
  

Respondent Threshie had also been the subject of a December 21, 2016 civil action filed by the Securities and Exchange Commission in the U.S. District Court for the District of Connecticut (SEC v. John L. Threshie, Jr., D. Conn. (Docket No. 3:16 CV 2013 (WWE)).  That action claimed that respondent Treshie sold hundreds of millions of shares of Tirex stock to at least 94 individuals in at least 9 states and in the process violated Sections 5(a) and 5(c) of the Securities Act of 1933.  On December 28, 2016, the court in that action entered a permanent injunction against Treshie and directed him to pay $581,815 in disgorgement, prejudgment interest of $140,446.57 and a $50,000 civil penalty.

  
The September 22, 2017 Consent Order acknowledged that Threshie had provided the Commissioner with a written financial affidavit demonstrating that, in light of the SEC civil action, neither he nor The Tirex Corporation was financially able to pay any restitution and/or fine that otherwise might have been assessed against them.
  

The Consent Order barred respondents for ten years from 1) transacting business in or from Connecticut as an agent, broker-dealer, broker-dealer agent, investment adviser or investment adviser agent; 2) maintaining a direct or indirect ownership interest in a broker-dealer or investment adviser registered or required to be registered in Connecticut; and 3) acting in any other capacity that would require a license or registration under laws administered by the Commissioner.  In addition, the Consent Order directed the respondents to cease and desist from regulatory violations.

Cantone Research Inc. (CRD No. 26314) and Victor Polakoff (CRD No. 365011)


On August 28, 2017, the Banking Commissioner entered a Consent Order (Docket No. CRSRF-16-8108-S) with respect to Cantone Research Inc. and Victor Polakoff, a control person and Executive Vice President of the firm.  The firm, which is registered as a broker-dealer and an investment adviser under the Connecticut Uniform Securities Act, maintains its principal office at 766 Shrewsbury Avenue, Suite E-401, Tinton Falls, New Jersey 07724.  The Consent Order had been preceded by an October 20, 2016 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Suspend or Revoke Registrations as a Broker-dealer, an Investment Adviser and a Broker-dealer Agent and a Notice of Intent to Fine (Docket No. CRSRF-16-8108-S).  The October 20, 2016 action had alleged that the firm and respondent Polakoff permitted one Robert Lawrence Gray, an individual barred from the securities industry, to direct trading in the account of a Connecticut investor at a time when there was no written firm record evidencing the investorís acquiescence to the arrangement.  The action had also alleged that the respondents materially aided Gray's transacting business as an unregistered investment adviser, and that both respondents engaged in dishonest or unethical practices in the securities business.  Ultimately, the investor lost approximately $200,000 due to trades directed by Gray and effected through Cantone Research Inc. and agent Polakoff.
  

As a separate matter, the action had further alleged that 1) the respondents violated Section 36b-16 of the Act by selling unregistered shares of XenaCare Holdings, Inc.; 2) the firm failed to keep books and records that accurately characterized certain trades as solicited or unsolicited; 3) respondent Polakoff engaged in outside business activity with a client (the spouse of Robert Gray) without providing notice to the firm; and 4) the firm failed to enforce and maintain adequate supervisory procedures.
  

The August 28, 2017 Consent Order with respondents Cantone Research Inc. and Polakoff resolved the allegations in the October 20, 2016 action without the need for an administrative hearing on the issues.  The Consent Order acknowledged that respondent Polakoff filed to withdraw his Connecticut broker-dealer agent registration on August 25, 2017 and that Polakoff had represented that, upon effectiveness of the withdrawal, he would not reapply for registration as a broker-dealer agent for 18 months or engage in any activity that would require registration under the Act.  The withdrawal became effective on August 28, 2017.  The Consent Order also acknowledged that the respondents had paid $185,000 in restitution to the affected Connecticut investor.
  

The Consent Order directed the respondents to cease and desist from regulatory violations and fined them $20,000, jointly and severally.  The Consent Order reflected the firmís representation that, in light of the restitution paid to the Connecticut investor and $2.4 million in restitution and fines imposed by the Superior Court of New Jersey in an unrelated securities matter brought by the New Jersey Attorney General (Porrino v. Cantone Research, Inc. et al., Docket No. ESX-C-252-15 (6/13/2017)), the firm was financially unable to pay the maximum fine that might have been imposed as a term of the Consent Order or as a result of the October 20, 2016 Connecticut proceeding.
  

In addition, the Consent Order required the firm to 1) retain an independent consultant to review the firmís supervisory and compliance procedures and issue written recommendations; and 2) for a three year period, before offering or selling securities in or from Connecticut, retain legal counsel to advise it on securities law compliance and make required regulatory filings.  The Consent Order also restricted the firmís Connecticut securities business for 18 months to investment company shares, governmental securities and exchange-listed securities.  Transactions involving private placements and securities listed or traded on the OTC Bulletin Board, the OTCQB marketplace or the OTC Pink marketplace would not be allowed under the 18 month restriction.
 


Sovereign State Depository, Inc. and Walter B. Reddy, III Fined $500 for Unregistered Securities Sales

On July 18, 2017, the Commissioner entered into a Stipulation and Agreement (No. ST-17-8211-S) with Sovereign State Depository, Inc., a now defunct Delaware corporation located at 1201 North Orange Street, Suite 7016, Wilmington, Delaware 19801, and Walter B. Reddy, III of Weston, Connecticut.  Reddy was the Chief Executive Officer and President of Sovereign State Depository Inc.  The corporation was formed to develop a new monetary and depository system using gold and silver as a medium of exchange as opposed to the monetary system facilitated by the Federal Reserve System.
  

The Stipulation and Agreement alleged that, at various times in 2010, the corporation and Reddy as its agent offered and sold unregistered promissory note securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act.  Pursuant to the Stipulation and Agreement, Sovereign State Depository, Inc. and Reddy agreed to pay a $500 fine to the department and to refrain from selling securities absent compliance with the state's securities laws.  In addition, both the corporation and Reddy agreed, for three years, to retain a securities attorney to advise them on Connecticut requirements and submit necessary regulatory filings. 

Benjamin F. Edwards & Company, Inc. (CRD No. 146936) Assessed $500 for Engaging Unregistered Investment Adviser Agents

  
On July 10, 2017, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-17-8384) with Benjamin F. Edwards & Company, Inc., a broker-dealer having its principal office at One North Brentwood Boulevard, Suite 850, St. Louis, Missouri.  The firm is also registered as an investment adviser with the Securities and Exchange Commission.  The Stipulation and Agreement alleged that, in contravention of Section 36b-6(c)(3) of the Connecticut Uniform Securities Act, the firm engaged two unregistered investment adviser agents whose workplace had been relocated to Connecticut in 2016.  The Stipulation and Agreement acknowledged that the individuals in question had since become registered as investment adviser agents under the Act.  In resolution of the matter, the firm agreed to pay a $500 fine and to refrain from engaging in conduct that would constitute a violation of the Act or any regulation or order thereunder.

 


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
2,173
  
Broker-dealer Agents Registered 164,522 166,491
169,340
  
Broker-dealer Branch Offices Registered 2,597 2,589
2,593
  
Investment Advisers Registered 528 523 527
  
SEC Registered Advisers Filing Notice 2,141 2,180 2,214
  
Investment Adviser Agents Registered 13,542 13,711 13,868
  
Exempt Reporting Advisers
117
121
124
  
Agents of Issuer Registered 18 18 17
  
Conditional Registrations
0
0
0
  
 
 

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 62 50
59
     171
Investment Company Notice Filings 568 638
425
     1,631
Exemptions and Exemptive Notices 945 994 879      2,818
 
 
Examinations
     
Broker-dealers 17 24
26
      67
Investment Advisers 26 31
33
     90
 
 
Securities Investigations
 
Opened 15 17 16
  
48
Closed 23 10 21
  
54
Ongoing as of End of Quarter 82 89 80
  
Subpoenas issued 5 19 6      30
Matters referred from Attorney General 1 1 1      3
Matters referred from Other Agencies 0 1 1      2
 
 
Business Opportunity Investigations
 
Investigations Opened 1 0  2       3
Investigations Closed 1 0
0
     1
Ongoing as of End of Quarter 2 2 4          
 
 
Enforcement: Remedies and Sanctions
 
Notices of Intent to Deny (Licensing) 0
1
0
     
1
Notices of Intent to Suspend (Licensing)
0
0
0
  
0
Notices of Intent to Revoke (Licensing)
0
0
0
  
0
Denial Orders (Licensing) 0 0
0
     0
Suspension Orders (Licensing) 0 0
0
  
0
Revocation Orders (Licensing) 1 0
0
     1
Notices of Intent to Fine 0 2
0
     2
Orders Imposing Fine 0 0
1
     1
Cease and Desist Orders 0 2
0
     2
Notices of Intent to Issue Stop Order 0 0
0
  
0
Activity Restrictions/Bars 1 0
2
  
3
Stop Orders 0 0 0      0
Vacating/Withdrawal/ Modification Orders 1 0 0       1
Restitutionary Orders 0 0
0
      0
Injunctive Relief Obtained 0 0 0      0
 
 

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
1
2
1
     
4
Consent Orders
2
3
2
     
7
Stipulation and Agreements
1
0
2
     
3
 
 

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$23,500
$45,400
$221,000
     $289,900
Portion attributable to settlements
$23,500
$45,400
$21,000
  
$89,900
Attributable to Court-Ordered Penalties
0
0
0
  
0
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$17,000
$25,000
$196,597
       $238,597

*Cents eliminated

 

Securities Referrals

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



Securities Division