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IN THE MATTER OF: POPPIN KETTLE (Collectively "Respondents") * * * * * * * * * * * * * * * * * |
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DOCKET NO. |
INTRODUCTION
The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672c, Sections 36b-60 to 36b-80, inclusive, of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act (“Act”).
The above-referenced matter was initiated upon charges brought by the Commissioner to issue a permanent order to cease and desist against Poppin Kettle Franchising, Inc. (“Poppin Kettle”), Chris T. Gregoris a/k/a Christos T. Gregoris a/k/a Christopher Gregoris (“Gregoris”) and YoFresh Yogurts Franchising, Inc. (“YoFresh Yogurts”) and impose a fine upon each Respondent. On June 12, 2014, 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 alleges that Respondents offered and/or sold Poppin Kettle and YoFresh Yogurts business opportunities absent registration under the Act, in violation of Section 36b-67(1) of the Act and that the conduct of Poppin Kettle and Gregoris constitutes, in connection with the offer or sale of a business opportunity, directly or indirectly 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, in violation of Section 36b-67(6) of the Act.
On July 8, 2014, Respondents requested a hearing. After due notice, a hearing was held at the Department of Banking (“Department”) on September 17, 2014. 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.
Having read the entire record, including testimony of the witnesses and documentary evidence, I make the following findings of fact and conclusions of law based on the preponderance of evidence in the record.
FINDINGS OF FACT
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Procedural Findings | |
| 1. | On June 12, 2014, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Respondents. (HO Ex. 1; Tr. at 7.) |
| 2. | On July 8, 2014, the Department received a written request for a hearing from Gregoris on behalf of Respondents. (HO Ex. 2; Tr. at 7-8.) |
| 3. | On July 9, 2014, the Commissioner appointed Attorney Stacey Serrano as Hearing Officer. (HO Ex. 1.) |
| 4. | On July 14, 2014, the Hearing Officer continued the hearing in the matter from July 24, 2014 to September 17, 2014. (HO Ex. 3; Tr. at 8.) |
| 5. | The hearing was held on September 17, 2014. (Tr. at 4.) |
| 6. | Attorney Elena Zweifler appeared at the hearing on behalf of the Department. (Tr. at 4.) |
| 7. | Gregoris appeared at the hearing on behalf of all Respondents. (Tr. at 5.) |
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Matters Asserted | |
| 8. | Poppin Kettle was in the business of selling Poppin Kettle business opportunities and is currently dissolved. (Tr. at 21, 77, 78.) Poppin Kettle sold flavored popcorn. (Tr. at 22.) |
| 9. | Gregoris was the owner of Poppin Kettle. (Tr. at 22, 77.) Gregoris was also the owner, President, Treasurer, Secretary and Director of Java’s Brewin Development Inc. (“Java”). (Tr. at 24-26, 81; Dept. Ex. 2.) Java sold coffee shops. (Tr. at 24.) |
| 10. | Java was dissolved by the State of Massachusetts on June 18, 2012 due to its failure to renew with the State. (Tr. at 27; Dept. Ex. 2.) |
| 11. | In 2008, the Commissioner issued an Order to Cease and Desist and Order Imposing Fine against Java for the offer and sale of unregistered business opportunities. (Tr. at 24, 29; Dept. Exs. 3A, 3B and 3C.) The fine was never paid to the Department. (Tr. at 30.) |
| 12. | Poppin Kettle advertised its website on Craigslist. The website was created by Gregoris and offered “new licensed stores, kiosks and carts in Connecticut” and assistance with site location, lease negotiations, and in-store training for Poppin Kettle business opportunities. (Tr. at 30-33; Dept. Ex. 4.) |
| 13. | There was a Poppin Kettle kiosk at the Meriden Mall, Meriden, Connecticut. (Tr. at 32-33, 36, 72; Dept. Exs. 4, 5.) |
| 14. | In May 2013, Poppin Kettle sold a business opportunity to a Connecticut resident for $19,500 (“Connecticut Resident”). (Tr. at 34, 37-38, 43, 65; Dept. Exs. 6, 8, 14.) |
| 15. | The Connecticut Resident became aware of Poppin Kettle business opportunities by doing research on the Internet. (Tr. at 69.) |
| 16. | Gregoris, on behalf of Poppin Kettle, executed a Franchise Agreement with the Connecticut resident effective May 22, 2013. (Dept. Ex. 8.) |
| 17. | The Connecticut Resident received the Franchise Agreement and Franchise Disclosure Document prior to his purchase of Poppin Kettle. (Tr. at 49, 71, 73; Dept. Exs. 8, 9.) |
| 18. | Poppin Kettle’s Franchise Disclosure Document (“Franchise Disclosure Document”) did not contain information regarding the business experience of its owners, including that Gregoris had been involved in Java. (Tr. at 53-55; Dept. Ex. 9.) |
| 19. | The Franchise Disclosure Document did not mention the Order to Cease and Desist and Order Imposing Fine issued against Java by the Banking Commissioner. (Tr. at 57-58; Dept. Ex. 9.) |
| 20. | The Franchise Disclosure Document did not discuss any risks, nor did it have a risk disclosure section. (Tr. at 59-60; Dept. Ex. 9.) |
| 21. | Poppin Kettle was never registered as a business opportunity in Connecticut. (Tr. at 61; Dept. Ex. 11.) |
| 22. | It was the Connecticut Resident’s understanding that he would receive assistance in finding a location for the Poppin Kettle store, designing and formatting the store, training, support and ongoing assistance. (Tr. at 72.) |
| 23. | The Connecticut Resident received training, lease negotiations and everything that had been promised in connection with his purchase of Poppin Kettle. (Tr. at 74-75.) |
| 24. | The Connecticut Resident was unaware of Gregoris’ involvement in Java at the time he purchased the business opportunity from Poppin Kettle. (Tr. at 73.) |
| 25. | Gregoris met with the Connecticut Resident in Connecticut at least once to discuss Poppin Kettle. (Tr. at 84-85, 89-90.) |
| 26. | The Connecticut Resident failed to recall discussing the risks involved in purchasing a business opportunity with Gregoris. (Tr. at 74-75.) |
| 27. | Gregoris is currently employed by and the sole owner of YoFresh Yogurts. (Tr. at 76.) |
| 28. | Via Craigslist, YoFresh Yogurts offered business opportunities in Connecticut and assistance with site location, lease negotiations and in-store training. (Tr. at 39-42; Dept. Exs. 7A, 7B.) YoFresh Yogurts offered frozen yogurt stores. (Tr. at 41.) |
| 29. | Gregoris represented that there were no sales of the YoFresh Yogurts business opportunity to Connecticut residents. (Dept. Ex. 14.) |
| 30. | YoFresh Yogurts was never registered as a business opportunity in Connecticut. (Tr. 61; Dept. Ex. 12.) |
CONCLUSIONS OF LAW
The Commissioner is charged with the administration of Chapter 672c, Sections 36b-60 to 36b-80, inclusive, of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act. The Commissioner’s authority includes the power to issue orders to cease and desist against Poppin Kettle, Gregoris and YoFresh Yogurts, individually, pursuant to Section 36b-72(a) of the Act, and impose fines upon Poppin Kettle, Gregoris and YoFresh Yogurts, individually, pursuant to Section 36b-72(b) of the Act.
Standard of Evidence
The applicable standard of proof in Connecticut administrative cases, including those involving fraud and severe sanctions, is the preponderance of the evidence standard. Goldstar Medical Services v. Department of Social Services, 288 Conn. 790, 819 (2008). “[I]t is the exclusive province of the trier of fact to make determinations of credibility, crediting some, all, or none of a given witness’ testimony . . . . [A]n agency [is not] required to use in any particular fashion any of the materials presented to it as long as the conduct of the hearing is fundamentally fair.” Id. at 830 (internal citations omitted).
“Review of an administrative agency decision requires a court to determine whether there is substantial evidence in the administrative record to support the agency’s findings of basic fact and whether the conclusions drawn from those facts are reasonable.” Id. at 833. “An administrative finding is supported by substantial evidence if the record affords a substantial basis of fact from which the fact in issue can be reasonably inferred.” Id. “There is no distinction between direct and circumstantial evidence so far as probative force is concerned . . . . In fact, circumstantial evidence may be more certain, satisfying and persuasive than direct evidence.” Id. at 834 (internal citations omitted).
Alleged Violations of the Connecticut
Business Opportunity Investment Act
| 1. | The Department alleges that Respondents offered and/or sold Poppin Kettle and YoFresh Yogurts business opportunities absent registration, in violation of Section 36b-67(1) of the Act. Section 36b-67(1) of the Act states, in pertinent part, that:
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| At the outset, it must be determined whether Poppin Kettle and YoFresh Yogurts constituted business opportunities under the Act. In particular, the Notice alleges that Poppin Kettle and YoFresh Yogurts constituted business opportunities as a result of Gregoris, Poppin Kettle and YoFresh Yogurts representing that they would provide purchaser-investors with a sales program or a marketing program within the meaning of Section 36b-61(2)(D) of the Act. | |||||||||||||
Section 36b-61(2) of the Act states in pertinent part:
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| The terms “sales program” and “marketing program” are not further defined within the Act and have not been construed by Connecticut courts in such context. However, this Department has issued guidance on their meaning. In an opinion issued on July 31, 1990, published on the Department’s website and in the CCH Business Franchise Guide 5070.2, the Department took the position that the terms “sales program” or “marketing program” mean “advice or training pertaining to the sale of any products, equipment, supplies or services which advice or training is provided to the purchaser-investor by the seller or a person recommended by the seller, and which includes but is not limited to, preparing and providing (1) promotional literature, brochures, pamphlets or advertising materials; (2) training regarding the promotion, operation or management of the business opportunity, or (3) operational, managerial, technical or financial guidelines or assistance.” | |||||||||||||
| The evidence demonstrates that, indeed, sellers of Poppin Kettle provided purchaser-investors with advertising materials, training and operational assistance. | |||||||||||||
For example, the Franchise Agreement for Poppin Kettle executed by Gregoris and the Connecticut Resident provides, in pertinent part, that:
Dept. Ex. 8; see also, Tr. at 47. | |||||||||||||
| In addition, the Craigslist advertisement for Poppin Kettle offers in-store training and the Connecticut Resident testified that he received training, support and ongoing assistance in connection with his purchase of Poppin Kettle. Likewise, the Craigslist advertisement for YoFresh Yogurts offered in-store training. As a result, sellers of both Poppin Kettle and YoFresh Yogurts represented that sales programs or marketing programs would be provided to purchaser-investors, constituting “business opportunities” within the meaning of Section 36b-61(2)(D). | |||||||||||||
| Next, it must be determined whether offers or sales of Poppin Kettle and YoFresh Yogurts occurred within the meaning of Section 36b-67(1) of the Act. The terms “sale” and “offer” are further defined by the Act. | |||||||||||||
Section 36b-61(7) of the Act provides:
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| Both Poppin Kettle and YoFresh Yogurts business opportunities were offered via the Internet on Craigslist, and one Poppin Kettle business opportunity was sold to the Connecticut Resident. Gregoris clearly participated in the sale of Poppin Kettle by assisting in the development of its website, discussing the business opportunity with the Connecticut Resident and executing the Franchise Agreement. The record is less clear about Gregoris’ involvement in the offer of YoFresh Yogurts. Neither business opportunity was registered in Connecticut and no evidence was produced supporting a claim of exemption or exclusion. As a result, Poppin Kettle, Gregoris and YoFresh Yogurts offered business opportunities in violation of Section 36b-67(1) of the Act and Gregoris and Poppin Kettle sold a business opportunity in violation of Section 36b-67(1) of the Act. | |||||||||||||
| 2. | The Department alleges that the conduct of Poppin Kettle and Gregoris, constitutes, in connection with the offer or sale of a business opportunity, directly or indirectly 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, in violation of Section 36b-67(6) of the Act. | ||||||||||||
Section 36b-67(6) of the Act, states in pertinent part, that:
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| In particular, the Department alleged that Poppin Kettle failed to provide the Connecticut Resident with the disclosure statement containing the disclosures required by Section 36b-63 of the Act, including key information on the franchise, the seller and its principals and affiliates, risks associated with the purchase of the business opportunity, financial information on the seller, and relevant employment, disciplinary and litigation histories of the seller and its principals. The Department also alleged that Poppin Kettle and Gregoris failed to disclose to the Connecticut Resident, among other things, that Gregoris was a control person of Java, which was the subject of a Cease and Desist Order entered by the Commissioner on June 23, 2008, for violations of the Act; that on October 8, 2008, the Commissioner imposed a $30,000 fine against Java for the same violations of the Acts and that such fine remains unpaid. | |||||||||||||
This Department has previously relied on federal securities laws to guide its interpretation of the business opportunity anti-fraud statutes. In Matter of: Silver Shots, decided on October 25, 1995, the Commissioner applied the following federal standards in his interpretation of “material” and “misleading” within the meaning of Section 36b-67(6):
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| Applying this standard in the Matter of: Silver Shots, the Commissioner found, among other items, that the failure to disclose risk factors to purchaser-investors constituted an omission of a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading for purposes of Section 36b-67(6) of the Act. | |||||||||||||
| Federal securities law also advises that failure to disclose information required to be disclosed by law gives rise to omissions of material facts. See, e.g., Morgan Stanley Information Fund Securities Litigation, 592 F.3d 347 (2010). Poppin Kettle and Gregoris omitted information required to be disclosed pursuant to Section 36b-63, such as Gregoris’ previous experience with Java, the 2008 Order to Cease and Desist and Order Imposing Fine issued by the Commissioner against Java and a “risk factors” section. | |||||||||||||
Pursuant to Section 36b-63(c) of the Act, disclosure documents must contain:
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| By failing to disclose this required information, Poppin Kettle and Gregoris omitted material facts necessary in order to make statements made, in the light of the circumstances under which they were made, not misleading, in violation of Section 36b-67(6) of the Act. | |||||||||||||
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Authority to Issue Order to Cease and Desist and Impose Fine | |||||||||||||
Section 36b-72 of the Act provides, in pertinent part, that:
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Notice and Public Interest | |||||||||||||
Section 4-177 of the Connecticut General Statutes provides, in pertinent part, that:
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| The Notice issued by the Commissioner complied with Sections 36b-72(a) and 36b-72(b) of the Act and Section 4-177 of the Connecticut General Statutes. | |||||||||||||
This case exemplifies disclosure issues meant to be addressed by the passage of the Connecticut Business Opportunity Investment Act. The United States Court of Appeals for the Second Circuit has stated:
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| Without full disclosure and knowledge of Poppin Kettle’s risk factors and Gregoris’ previous business experience, the Connecticut Resident was unable to make an informed purchase decision. The failure by Poppin Kettle and Gregoris to comply with the Act’s disclosure obligations and the failure by Poppin Kettle, YoFresh Yogurts and Gregoris to register business opportunities that were offered or sold in Connecticut represent conduct deserving to be deterred and duly sanctioned. | |||||||||||||
| Therefore, I conclude that it is necessary and appropriate in the public interest and for the protection of purchaser-investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-60 to 36b-80, inclusive, of the Act to enter the following order. |
ORDER
Having read the record, I hereby ORDER, pursuant to Sections 36b-72(a) and 36b-72(b) of the Act, that:
| 1. | The Order to Cease and Desist issued against Poppin Kettle Franchising, Inc., on June 12, 2014, be made PERMANENT; |
| 2. | The Order to Cease and Desist issued against Chris T. Gregoris a/k/a Christos T. Gregoris a/k/a Christopher Gregoris on June 12, 2014, be made PERMANENT; |
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The Order to Cease and Desist issued against YoFresh Yogurts Franchising, Inc., on June 12, 2014, be made PERMANENT; |
| 4. | A FINE of Seventy-Five Thousand Dollars ($75,000) be imposed against Poppin Kettle Franchising, Inc. and Chris T. Gregoris a/k/a Christos T. Gregoris a/k/a Christopher Gregoris, jointly and severally, 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 thirty (30) days after the date the Order is mailed; |
| 5. | A FINE of Ten Thousand Dollars ($10,000) be imposed against YoFresh Yogurts Franchising, 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 thirty (30) days after the date the Order is mailed; and |
| 6. | This Order shall become effective when mailed. |
| Dated at Hartford, Connecticut, | _____/s/_________________ | |
| this 27th day of February 2015. | Bruce H. Adams | |
| Acting Banking Commissioner |
This Order was sent by certified mail,
return receipt requested, to
Respondent Gregoris on behalf
of all Respondents and
hand delivered to Elena Zweifler, Esq.,
on February 27, 2015.
Chris Gregoris
8 Faneuil Hall Marketplace, 3rd Floor
Boston, MA 02109
Certified Mail No. 7013 3020 0000 4226 9746
Administrative Orders and Settlements