|Securities and Business Investments Division|
|Vol. VIII No. 2||June 1994|
- A Word from the Banking Commissioner
- New Legislation Affects Licensing, Securities Registration,
- Policy Statement on Retail Sales by Depository Institutions
of Mutual Funds and Other Nondeposit Investment Products
- Securities Meeting the Philadelphia Stock Exchange Tier I
Listing Criteria Exempt from Connecticut Registration
- Quarterly Statistical Summary
- Ralph A. Lambiase, Division Director
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
- Eric J. Wilder, Assistant Director
Robert S. Rosenthal, Senior Administrative Attorney
- Louise Hanson, Subscription Coordinator
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
This past June, Governor Lowell Weicker Jr. signed into law Public Act 94-178 which amends the Banking Commissioner's powers under The Connecticut Uniform Securities Act. The Public Act, which becomes effective on October 1, 1994, provides the Commissioner with greater flexibility in licensing by permitting the department to impose conditions or restrictions on applicants and registrants, instead of its current ability to only deny, suspend or revoke registrations. Public Act 94-178 also amends various securities registration provisions and the enforcement powers section of the Act. More detailed information on the new legislation may be found elsewhere in this Bulletin issue.
Readers will have an opportunity to learn more about legislative and regulatory developments and to meet with Department of Banking representatives at the agency's sixth annual Securities Forum, which is planned for October 19, 1994 at the Stamford Marriott Hotel in Stamford, Connecticut.
Richard F. Syron, Chairman and CEO of the American Stock Exchange, is scheduled to be a main speaker at Securities Forum '94. An exceptional agenda of timely panel discussions, with encouraged audience participation, on topics such as regulatory issues, securities liability issues, investment adviser matters and banks' expanding securities and insurance activities should complete the notable program. This year's agenda for Securities Forum '94 will be structured with repeating and longer break-out sessions to provide attendees with extra flexibility in planning their days and an opportunity to attend multiple panel discussions of their choice.
Subscribers to the Bulletin should look for Securities Forum '94 conference registration materials in the mail later this summer.
-- Ralph M. Shulansky, Banking Commissioner
NEW LEGISLATION AFFECTS LICENSING,
SECURITIES REGISTRATION, ENFORCEMENT POWERS
On June 2, 1994, Governor Weicker signed into law Public Act 94-178, An Act Concerning the Commissioner's Powers Under The Connecticut Uniform Securities Act. The Public Act, which takes effect on October 1, 1994, amends the licensing, securities registration and enforcement powers sections of Chapter 662 of the Connecticut General Statutes, The Connecticut Uniform Securities Act.
The legislation amends Section 36-484(a) of The Connecticut Uniform Securities Act to allow the Commissioner, acting by order, to restrict or impose conditions on the securities or investment advisory activities of broker-dealer, investment adviser, agent and investment adviser agent applicants or registrants upon a finding that the applicant or registrant engaged in certain enumerated activities or was subject to certain sanctions. Presently, the department may only deny, suspend or revoke a registration in such instances.
In addition, the legislation amended Section 36-488(k) governing securities registration statements relating to securities issued by face-amount certificate companies and redeemable securities issued by an open-end management company or unit investment trust. Currently, such registration statements are effective for one year. Under the amendments, registration statements relating to redeemable securities issued by an open-end management company would remain in effect for two months following the end of the applicant's current fiscal year, without limitation as to the number of shares or aggregate amount. In addition, a renewal registration for such open-end management company securities would be effected by the applicant filing a $500 renewal fee no later than two months following the end of its fiscal year, with renewal becoming effective upon order of the Commissioner.
Public Act 94-178 also augmented the department's administrative enforcement powers under Section 36-496 of The Connecticut Uniform Securities Act to allow for restitutionary relief and disgorgement. Disgorgement and restitution would also extend to control persons of those found liable.
DEPARTMENT OF BANKING POLICY STATEMENT
RE RETAIL SALES BY DEPOSITORY INSTITUTIONS OF
MUTUAL FUNDS AND OTHER NONDEPOSIT INVESTMENT PRODUCTS
Many depository institutions both in Connecticut and throughout the country are moving rapidly to broaden and diversify the range of financial products available to their customers. In light of the increasing interest of depository institutions in retail sales of mutual funds and other nondeposit investment products, the Department of Banking (the "Department") believes this to be an opportune time to discuss initially the principal state banking, securities and insurance law requirements applicable to such activities. These expanding activities involve issues of safety and soundness, competitive equality and the need to assure adequate disclosures and other attention to the interests of depositors and customers of depository institutions. This statement is intended to give guidance to the industry on an interim basis, it being the Department's expectation that more comprehensive regulations will be promulgated as various marketplace and federal regulatory developments occur.
Due to the historical separation of retail banking and securities activities, the requirements of the regulatory agencies at the federal level are still evolving. The four federal banking regulators issued, on February 15, 1994, an Interagency Statement setting forth certain guidelines from their perspective regarding the provision of mutual fund and other investment services. Similarly, the National Credit Union Administration ("NCUA") has issued a set of general guidelines regarding these matters for the benefit of federally-chartered credit unions. The Securities and Exchange Commission ("SEC") also has made a number of comments regarding the conduct of such activities by banking institutions and suggested some additional federal legislation. Since the federal agency statements and guidelines discuss the requirements of state law in a very limited fashion and there are specific existing state law requirements, the Department believes it is appropriate to issue this interim policy statement.
This statement is divided into four principal parts, as follows: (1) a general description of the existing jurisdiction of state agencies with respect to such activities; (2) identification of existing state licensing and registration requirements; (3) a discussion of the principal operational issues presented; and (4) the Department's proposed examination procedures in connection with such activities. To the maximum extent practicable, the Department intends to operate consistently with federal regulators under the Interagency Statements and other federal guidelines. It is important to emphasize the evolutionary nature of the regulatory issues posed by such activities. The Department expects that there may well be changes in the approaches of the various federal regulatory agencies and even further legislation providing for regulation on more functional, rather than industry, bases. There are many areas of well-established state securities and insurance law bearing on the proposed activities, however, which require compliance efforts by banking institutions and credit unions in Connecticut proposing to offer such investment products.
GENERAL JURISDICTION OF STATE AGENCIES
The Connecticut Department of Banking is somewhat unique in that it regulates both banking and credit union activities as well as securities professionals and the sale of securities generally. The Bank Examination and Credit Union Divisions supervise state-chartered banking institutions and credit unions, respectively, among other entities. The Bank Examination Division oversees certain bank holding company activities as well. The Securities and Business Investments Division ("Securities Division") has broad jurisdiction, roughly parallel with that of the SEC, over (a) all sales of securities within Connecticut, including both registration of securities and general antifraud enforcement; (b) the licensing and supervision of broker-dealers and sales personnel effecting securities transactions in and from Connecticut; and (c) the licensing and supervision of investment advisers and their agents offering investment advisory services in and from Connecticut. While the Bank Examination Division's jurisdiction is limited to state-chartered entities, the Securities Division's jurisdiction is not. To the extent that subsidiaries or affiliates of state-chartered banks, national banks or federal credit unions are engaged in any of the cited activities, they are subject to the jurisdiction of the Securities Division.
The Banking Commissioner has broad enforcement powers in the event either of violations, or reason to believe violations have taken place, of either the banking, credit union or securities laws, including authority to revoke or suspend existing registrations, issue cease and desist orders, impose civil money penalties, and refer matters to the Chief State's Attorney office for criminal prosecutions, among other actions.
The Department of Insurance has general jurisdiction with respect to domestic and foreign insurance companies offering insurance products in Connecticut and the licensing of persons selling annuities and other insurance products.
CONNECTICUT REGISTRATION AND LICENSING REQUIREMENTS
Under Section 36-485 of the Connecticut General Statutes, no person may offer or sell any security in Connecticut unless the security either is registered under the Connecticut Uniform Securities Act or the security or the transaction is exempted specifically from registration. In the case of mutual funds shares to be offered, registration is required. The issuer-sponsor of each fund ordinarily undertakes the actions necessary to register the shares to be offered; however, any person or institution proposing to offer or sell such products also is responsible for assuring that the appropriate registration has been effected. For purposes of the Connecticut Uniform Securities Act, the term "security" does not include any insurance policy or annuity contract issued by an insurance company which is subject to regulation by the Insurance Commissioner. This exclusion thus covers both fixed and variable annuities to the extent subject to the Insurance Commissioner's regulation.
The most significant compliance requirements under Connecticut law relate to the registration and licensing of the entities and persons engaged in securities activities. Under the Connecticut Uniform Securities Act, registration generally is required of (1) persons or entities acting as "broker-dealers," i.e., persons engaged in the business of effecting transactions either for the account of others or for their own account; (2) "agents" who represent broker-dealers or issuers in "effecting or attempting to effect purchases or sales of securities"; (3) "investment advisers," persons who, for compensation engage in the business of advising others regarding the purchase or sale of securities; and (4) "investment adviser agents," which include most persons "employed, appointed or authorized by an investment adviser to solicit business ... for such investment adviser." There are various experience and competency requirements applicable to individuals licensed as securities professionals and, in the case of broker-dealers and investment advisers, minimum capital and other requirements. In addition, the Connecticut Uniform Securities Act, consistent with federal securities law, imposes supervisory staffing and other responsibilities on broker-dealers and investment advisers, with respect to the activities of their respective agents. Our Connecticut statute also requires the licensing, as a branch office, of any location other than the main office where a securities or investment advisory firm conducts business with the public.
Banks and credit unions are excluded from the respective Connecticut Uniform Securities Act definitions of the above professionals. Thus, to the extent a bank or credit union is lawfully authorized directly to conduct all securities activities within the institution, the securities compliance requirements described herein other than the general antifraud prohibition are not applicable. It is the Department's position that no Connecticut state-chartered institution has authority to engage in such activities directly. 1 Where the securities and investment advisory activities are performed by a separate entity, whether a service corporation or other subsidiary, affiliated brother or sister company or an independent third party marketing organization (TPM), any such entity is fully subject to all the foregoing registration and licensing requirements. The Department believes that it is generally more appropriate that all depository institutions not engage in such activities directly but rather utilize the services of a specialized subsidiary, affiliate or TPM.
The ability of banks and credit unions to engage in the sale of fixed and/or variable annuities in Connecticut presently is very limited. Section 38a-775 of the Connecticut insurance laws--the so-called "antiaffiliation" statute--generally prohibits "lending institutions" and their subsidiaries, affiliates and related holding companies (defined thusly to include state and national banks and credit unions among others) from being licensed to sell life, health and fire and casualty policies. (Savings bank life insurance policies or contracts issued pursuant to Section 36-142 are exempted from that prohibition.) Notwithstanding requests from the banking community during the last two legislative sessions, the Connecticut General Assembly has not removed that prohibition and the present law still prohibits licensing of lending institutions. Networking arrangements with insurance sales agencies are strictly limited. To the extent a bank or credit union wishes to explore what third party provider arrangements, if any, are permissible, it is urged to make inquiry directly to the Connecticut Department of Insurance, 153 Market Street, Hartford, Connecticut.
The Interagency Statement, other federal agency statements and the industry trade publications identify a wide variety of operational issues for the directors and senior management of banking institutions and credit unions to consider. The Department agrees with the various requirements mandated by the Interagency Statement and expects depository institutions and affiliated entities under its jurisdiction to follow the various procedures set forth in the Interagency Statement. The Department wishes to comment briefly further on six issues raised by the policy statements and guidelines issued to date: (1) the need or desirability of utilizing either a separate subsidiary or affiliate entity or a TPM; (2) concerns regarding adequacy of various disclosures to consumers and related suitability issues; (3) impact of various cross-marketing arrangements; (4) supervision requirements; (5) indemnification and other risk-shifting clauses in contracts with TPMs or other service providers; and (6) special issues with respect to fiduciary accounts and relationships.
(1) Separate broker-dealer and/or investment advisory organizations
Many professional advisers recommend that banks and credit unions conduct their mutual fund and other retail securities activities through a separate entity. In addition to the fact that state-chartered institutions lack explicit statutory authority, the Department also strongly encourages such an approach generally for two reasons: (1) to assure regulation on a functional and even handed basis; and (2) for safety and soundness considerations (i.e., to separate securities accounts and liabilities not meant to be covered by federal deposit insurance from the core banking activities related to an institution's deposit accounts which are protected ultimately by the FDIC's and NCUA's deposits insurance funds).
(2) Consumer disclosure and suitability issues
Much of the initial publicity and interest of the federal banking regulators has concerned the adequacy of customer's understandings regarding the nature of nondeposit investment products, particularly the non-insured status of those products. The Department is in full agreement with the Interagency Statement's admonition that banking institutions' disclosures must enable customers to comprehend the nature of nondeposit investment products, the fact that such are not covered by federal deposit insurance and that there are risks inherent in investment in such products. The Department also agrees that such disclosures must be presented clearly and concisely in a timely manner and will require the use of appropriate signed customer statements acknowledging receipt of those disclosures.
The Interagency Statement suggests disclosures regarding the various fees, penalties or surrender charges which may be involved. Commissions, redemption fees and other charges with respect to mutual funds and annuity products are both more substantial and complex than those with which bank and credit union customers may be familiar. The Department believes the likelihood of later customer dissatisfaction will be minimized if customers are fully informed about all the commissions, fees and other charges which they may incur as well as any other differentiating feature of the particular investment product. Under federal and state securities law, such information is required to be included in the prospectus or other applicable disclosure document deliverable by the entity, whether a TPM or otherwise, offering the investment products for sale.
The Department also shares the concerns expressed in the Interagency Statement that depository institutions should not market nondeposit investment products with a name identical or substantially similar to that of the depository institution. To the extent that a depository institution markets such products with advertising and other materials emphasizing the affiliation with or sponsorship by the depository institution, many customers may assume that the depository institution stands behind in some manner the investment returns expected by the customers, notwithstanding express disclaimers to the contrary.
The Department is even more concerned with the issue of suitability, the most central concept in securities law designed to protect the interests of consumers. Persons and entities engaged in selling securities must have reasonable grounds for believing any specific product recommended for a particular customer is suitable based upon the investment objectives and other financial information available from that customer. In order to satisfy the applicable standards of securities law, careful attention has to be given not only to assure that all appropriate information is obtained from customers, but also that the investment representative personnel involved with the customer are adequately trained to evaluate such information and make appropriate recommendations and that the broker-dealer has adequate supervisory procedures in place. The personnel of a TPM contracting with a depository institution to sell investment products obviously must meet the applicable examination and other requirements of the Connecticut Uniform Securities Act. Bank personnel required to be licensed under the Act, including, in appropriate circumstances, platform personnel consulting with customers for purposes of recommending investments, also would have to satisfy such requirements. See further discussion under "Cross-marketing issues" below. Other bank personnel who may have some responsibilities or functions related to the investment activities need to be appropriately trained, e.g., as to the requirements under the Interagency Guidelines and this policy statement.
(3) Cross-marketing issues
One of the key attractions of nondeposit investment products for many depository institutions is the potential ability to cross-market products to existing customers using the bank or credit union network. There are at least three concerns that the Department wants to address with respect to prospective cross-marketing efforts.
Many banks and credit unions will desire to tap their existing customer/depositor base as potential purchasers of their mutual funds and other investment products. Some caution is appropriate. Confidentiality of a customer's financial information is governed in part by Section 36-9k of the Connecticut General Statutes which provides, in pertinent part, that: "A financial institution may not disclose to any person, except to the customer or his duly authorized agent, any financial records relating to such customer unless the customer has authorized disclosure to such person ...." The term "financial records" is defined at Section 36-9j(3) of the Connecticut General Statutes to mean:
Any original or any copy of: (A) a document granting signature authority over a deposit or share account with a financial institution; (B) a statement, ledger card or other record on any deposit or share account with a financial institution which shows each transaction in or with respect to that account; (C) any check, draft or money order drawn on a financial institution or issued and payable by such an institution, or (D) any item, other than an institutional or periodic charge, made pursuant to any agreement by a financial institution and a customer which constitutes a debit or credit to that person's deposit or share account with such financial institution if the item is not included in subdivision (C) of this subsection.
It is the Department's view that the release by a banking institution to a broker-dealer firm or other marketing organization of only customer names and addresses does not violate Section 36-9k of the Connecticut General Statutes since, in the absence of any account information, this information would not come within the definition of "financial records" under Section 36-9j(3). From a customer relations standpoint, each institution obviously needs to consider how its customers may view such actions. Financial information, on the other hand, derived from the deposit account records may not be released without the authorization of that customer. Customers' credit information available to a depository institution from some other account or information source is not subject presently to comparable statutory restrictions. The department strongly urges each depository institution planning to use, or make available to a third party, for marketing purposes information regarding the institution's customers, to review such proposed actions with their own counsel.
Secondly, the Interagency Statement recommends that the sale of securities and other nondeposit investment products be conducted in a physical location distinct from the areas of a banking institution where retail deposits are taken. The Department will make available to any institution seeking further guidance the Securities Division's prior advisory interpretations and the current provision of the National Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice bearing on these issues.
Perhaps the most difficult cross-marketing issues relate to the licensing of bank personnel who have marketing responsibilities or are compensated for participation in various cross-marketing efforts. Many marketing structures of which we are aware contemplate at least three different groups of employees having some contact with bank customers regarding the sale of mutual funds and other investment products--the investment representatives actually effecting transactions for customers, platform personnel reviewing alternative forms of products which a customer might wish to acquire (including traditional certificates of deposit or related interests), and bank tellers or other personnel referring a customer to one of the other two categories. At least where the sales of nondeposit investment products are conducted by a separate and distinct entity, there is no question that investment representatives are required to be licensed under the Connecticut Uniform Securities Act as agents. 2
The remaining discussion under this subparagraph (3) and subparagraph (4) pertains to the common scenario where a bank or credit union utilizes a separate entity-subsidiary, affiliate, or independent TPM--to engage in the investment activities. In light of Section 36-471(2) which defines an agent as "any individual ... who represents a broker-dealer ... in effecting or attempting to effect purchases or sales of securities" (emphasis added), the Department has taken the position for many years that a financial institution employee who performs any one or more of several specified activities may be acting as an agent for a third-party broker (whether affiliated with or independent from the institution) and thus required to be registered as an agent. Those activities include: (1) opening customer accounts and/or making suitability determinations regarding the purchase or sale of securities, except for merely collecting or verifying information for transmittal to and action by another person registered as an agent or a broker-dealer; (2) rendering investment advice or making investment recommendations in connection with the purchase or sale of securities; (3) soliciting orders to purchase or sell securities; (4) processing orders to purchase or sell securities; (5) regularly handling inquiries or engaging in the resolution of complaints regarding the purchase or sale of securities; and (6) supervising sales personnel either directly or indirectly or assuming responsibility for the day-to-day operation and supervision of any place of business of a broker-dealer in Connecticut. On the other hand, if an individual merely engages in the performance of clerical or ministerial functions, he or she would not be deemed an agent. Further, the referral of complaints and/or the mere transmittal of order forms or like information to another person registered as an agent or broker-dealer for action by that person would be deemed a clerical or ministerial function.
A bank officer who has responsibility for oversight of an institution's contractual arrangements with such a separate affiliate or TPM ordinarily will not be required to register as an agent or principal of the latter, provided that the affiliate or TPM itself has personnel who satisfy the supervisory requirements of the Connecticut Uniform Securities Act.
Based upon what we understand the role of many bank platform personnel to be in several of the proposed operating arrangements, such individuals often will perform one or more of the above functions and thus would be required to meet the qualification requirements and be registered as agents. Tellers and other persons who refer customers to others will be evaluated under the same standards. A mere referral, without any commentary or observations regarding the appropriateness or terms of a non-deposit investment product or non-deposit investment options, would not be sufficient activity ordinarily to bring the individual within the definition of a broker-dealer agent. 3
The Interagency Statement takes the position that depository institution employees "may receive a one-time nominal fee of a fixed dollar amount for each customer referral for nondeposit investment products," so long as payment does not depend upon whether the referral results in a transaction. The Department has questioned certain referral and other compensation arrangements which create significant incentives for bank employees to direct customers into various investment products. Departing partially from its past position, 4 the Department will not object henceforth to referral fee arrangements meeting the Interagency Statement criteria and other requirements of this policy statement, provided further that (1) the existence of such referral fee arrangements is disclosed clearly to each customer who is referred and (2) any employee who received compensation for referring customers to an investment adviser registers as an investment adviser agent of the entity to whom the customer is referred.
(4) Supervision and record-keeping
One of the principal responsibilities of securities broker-dealer and investment advisory firms is that of reasonably supervising the agents under the control of those firms. A failure to reasonably supervise may lead to denial, suspension or revocation of a firm's registration or expose the firm to civil liability on account of some violation by the agent, or both. The NASD Rules of Fair Practice include a more detailed exposition of various supervisory obligations.
It has been Department policy for many years that a key element of an adequate supervisory system is the presence of an on-site manager who, in the case of a broker-dealer, has passed an examination as a principal. 5 By reason of the Connecticut Uniform Securities Act's branch office registration provisions, the Securities Division requires that each full service branch office location be supervised by a full-time, on-site manager. The Department's prior practice, to be codified in the proposed regulations now under consideration, has been to permit, by waiver, limited relief from the one manager/branch office requirement for broker-dealer entities offering less than full service operations. The factors which the Securities Division considers in granting such waivers include: (A) the number of agents located at each branch office to be supervised by the designated manager; (B) the nature and variety of securities products offered or sold from each such branch office; (C) the number of customer accounts at each such branch office; (D) the daily volume of securities transactions initiated at each such branch office; (E) the adequacy of the broker-dealer's existing or proposed supervisory system and procedures; and (F) the broker-dealer's disciplinary history and the disciplinary history of the agents located at each such branch office.
The Department also has received inquiries regarding the status of bank branch office locations at which investment products may be offered by agents staffing those locations on less than a full-time basis. The Department's position has been that such offices are "branch offices" for purposes of the Connecticut Uniform Securities Act, but that some centralization of the record-keeping obligation for those offices may be permitted under the Commissioner's waiver authority.
(5) Contractual arrangements between depository institutions and providers of securities or investment advisory services
The Department believes that it is appropriate that any depository institution contracting with a separate entity to market or assist in the marketing of investment products do so by written agreement, clearly setting forth the respective responsibilities of each party. Further, the Board of Directors of each such institution is required, consistent with the Interagency Guidelines, both to perform an appropriate review of the credentials and systems of that entity and to establish an appropriate compliance and monitoring system for review of the latter's ongoing performance. The Department proposes that the depository institution itself maintain a file or record of complaints lodged by customers with either the separate entity or the depository institution regarding investment product activities. (A separate broker-dealer entity also has an independent obligation to maintain a complaint file.) Contractual agreements between the depository institution and other entity ordinarily should allocate various risks associated with investment product sales activities to the party responsible for conducting those activities. The Department is aware of instances where depository institutions have agreed to indemnify a broker-dealer firm for losses due to customers' failure to pay for securities purchased. In the Department's view, such risks, as well as the risks of customer claims against the broker-dealer arising out of the customer's dissatisfaction, appropriately should be borne by the broker-dealer and not by the depository institution. A depository institution's potential exposure or obligation under any such contracts will be reviewed by the Bank Examination Division as part of its regular examination activity.
(6) Issues relating to fiduciary accounts
The Interagency Statement and other recent federal agency guidelines do not address various issues relating to the sale of investment products and services to customers for which a bank acts in a fiduciary capacity. The SEC, on the other hand, has raised a number of issues it believes warrant further study and there are, of course, other existing federal banking law regulations concerning fiduciary accounts. The Department wishes to identify briefly some of those issues and to solicit comments from interested parties as to the appropriate actions to be taken.
The investment of assets held by a bank in a fiduciary capacity through a securities affiliate of the bank, or in a mutual fund in which the Bank has an interest (as advisor, custodian or otherwise), involves self-dealing and is, therefore, subject to strict common law constraints. At the very least, there should always be a disclosure to any fiduciary accounts of a bank's financial interest, or that of a bank employee, in any aspect of a transaction involving such an account, and, in most instances, it will be necessary to obtain a knowing consent, in writing, to such self-dealing from the beneficiaries of the account. Section 45a-209 of the Connecticut General Statutes, as amended by Public Act 93-399, requires a bank acting as an investment adviser to a mutual fund (so-called "proprietary fund") whose shares may be offered to a customer account for which the bank separately acts in a fiduciary capacity, to disclose to each current income beneficiary the provision of services to the proprietary fund and the compensation received therefor. The Department intends to follow banks' practices in collecting fees for acting in such dual capacities to determine if those disclosures are sufficient or whether further legislative or administrative action should be recommended.
Moreover, in the case of fiduciary accounts comprised of pension plan and similar assets, self-dealing transactions are also governed by, and, in some instances, prohibited by the Employee Retirement Income Security Act of 1974, as amended. These and other legal issues under statutory and common law should be reviewed with trust counsel and will be the subject of a continuing review by the Department.
PROPOSED EXAMINATION PROCEDURES
The Department expects all entities subject to its jurisdiction to develop their own internal monitoring and compliance efforts, to assure that all applicable requirements of federal and state law are being met. As noted earlier, the Department's Bank Examination and Credit Union Divisions have responsibility for supervising and examining the affairs of state-chartered banking institutions and credit unions. Those Divisions will review any nondeposit investment product activity conducted by such entities from the standpoint of both safety and soundness and depositor and consumer protection considerations. Those Divisions will ascertain the extent of compliance by the state-chartered depository institutions with the requirements of the Interagency Guidelines, this statement and any subsequently promulgated regulations relating to the direct activities of the depository institutions. To the extent that any such institution contracts with a third party, whether or not affiliated, the Divisions will review the institution's obligations thereunder in the same manner as other contractual commitments.
The Securities Division has responsibility for the registration of all securities sold within or from Connecticut and the licensing and supervision of all entities and persons engaged in either broker-dealer or investment advisory activities. The Securities Division has authority to examine all persons engaged in such activities, excluding banks and credit unions directly so engaged, but including any separate subsidiaries or affiliates of such depository institutions, whether state- or federally-chartered. The Securities Division also asserts supervisory and examination authority over any employees of a depository institution acting in dual capacities, i.e., as employees or agents not only of the depository institution, but also of a broker-dealer and/or investment adviser firm.
To the extent permitted by law, the Bank Examination, Credit Union and Securities Divisions of the Department intend to share with each other relevant information each receives in the course of any examination related to the nondeposit investment activities conducted by depository institutions within Connecticut and to otherwise work cooperatively in enforcing the Connecticut statutes under the jurisdiction of the Department.
This statement is intended to set forth the Department's present views regarding the requirements of the Connecticut laws for which it has jurisdiction. The Department anticipates that it may propose specific regulations as changes in the nature of the services offered and delivery mechanisms evolve. The Department welcomes any comments regarding either the interpretations set forth in this statement or additional issues which the industry or the public believe should be addressed.
May 12, 1994
As Revised June 30, 1994
Policy Statement Footnotes
1 There is no direct express statutory authorization for state-chartered banks to engage in a retail securities business, including the sale of mutual funds. Section 36-57(8) authorizes a state bank and trust company to act "as agent or attorney in fact for the holders of securities ...." Section 36-57(32) authorizes a state bank and trust company "[w]ith the approval of the Commissioner and upon such conditions and under such regulations as he may prescribe, [to] establish and maintain one or more mutual funds and offer to the public shares or participation therein." See Section 36-131f(a)(4) and (14) for comparable provisions relating to savings banks and Section 36-178(24)(F) and (I) with respect to savings and loan associations. National bank associations may claim that they may engage in the sale of mutual fund shares as an "incidental power." The Department does not believe that the "incidental powers" clause of the Connecticut statutes authorizes any state-chartered banking institutions to engage directly in these activities. State-chartered credit unions do not have an "incidental powers" statutory authorization.
2 To the extent that all securities activities are conducted only within a bank and do not utilize any separate entity, the bank and its employees are excluded from the definitions of broker-dealer, agent and investment adviser under, and hence the registration requirements of, the Connecticut Uniform Securities Act. Those activities would still remain subject to the antifraud provisions of that legislation, however. As noted above, the Department believes that such securities and investment activities should not be conducted through the bank, but rather be conducted through one or more separate entities, whether a service corporation, subsidiary, affiliate or independent third party. The present statutory exclusions for banks and their personnel from the registration requirements of the Connecticut Uniform Securities Act were enacted at a time when banks were not extensively engaged in securities activities. Were a substantial number of banks to elect to engage directly in retail securities activities, the Department would reevaluate the continued validity of those exclusions and whether or not to recommend further legislation to modify or remove those exclusions.
3 The definition of investment adviser agent is much broader and includes, as noted above, any individual who, for compensation, is "employed, appointed or authorized by an investment adviser to solicit business ...." Thus a teller or other person who may receive a fee or other compensation for referring a customer to an investment adviser firm, without more, would fall within the statutory definition and ordinarily be required to be registered as an investment adviser agent of that firm.
4 In a letter dated September 9, 1993 addressed to LINSCO/Private Ledger Financial Services, the Department took the position that any person who refers clients to a broker-dealer or investment adviser and receives a referral fee is an "agent" or "investment adviser agent." This policy statement rescinds that position of the LINSCO letter regarding a person referring clients to a broker-dealer offering non-deposit investment products in a bank environment, so long as (1) the criteria set forth herein are met and (2) such person does not perform any of the functions identified on page 7 of this policy statement.
5 See, e.g., Discussion on Supervisory Procedures, 1A Blue Sky Law Rep. (CCH), 14,522 (March, 1985).
ORDER PRESCRIBING THE INCLUSION OF SECURITIES
LISTED ON THE PHILADELPHIA STOCK EXCHANGE WHICH QUALIFY FOR TIER I LISTING AS EXEMPT SECURITIES IN ACCORDANCE WITH SECTION 36-490(a)(8) OF THE CONNECTICUT GENERAL STATUTES
|1)||The Banking Commissioner (the "Commissioner") is charged with the administration of Chapter 662 of the Connecticut General Statutes, The Connecticut Uniform Securities Act (the "Act");|
|2)||Section 36-500(a) of the Act provides that:
The commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of this chapter .... For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction and prescribe different requirements for different classes.
|3)||Section 36-490(a)(8) of the Act provides that the following securities are exempt from Sections 36-485 and 36-491 of the Act:
[a]ny security listed or approved for listing upon notice of issuance on the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange and such other securities exchanges as may be designated by the commissioner from time to time, any security appearing on the list of over-the- counter securities approved for margin by the Board of Governors of the Federal Reserve System or any security designated or approved for designation upon notice of issuance as a National Market System security on the National Association of Securities Dealers Automated Quotation System established pursuant to the Securities Exchange Act of 1934 if, in each case, quotations have been available and public trading has taken place for such class of security prior to the offer or sale of that security in reliance upon this exemption; any other security of the same issuer which is of senior or substan- tially equal rank; any security called by subscription rights or warrants so listed, approved or designated; or any warrant or right to purchase or subscribe to any of the foregoing ....
|4)||The Commissioner takes notice of the Memorandum of Understanding: The Uniform Model Marketplace Exemption from State Securities Exemption Requirements adopted by the North American Securities Administrators Association, Inc. on April 28, 1990 (the "NASAA MOU").|
|5)||The Commissioner further recognizes that the Philadelphia Stock Exchange has, through its rules 803 and 804, adopted the NASAA MOU listing standards for its Tier I listing criteria.|
|6)||The Commissioner finds that the issuance of this order 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 the Act.|
|7)||The Commissioner therefore orders that the Philadelphia Stock Exchange be a designated securities exchange on which listed securities will qualify for the exemption from securities registration under Section 36-485 of the Act and the exemption from filing marketing materials with the Commissioner under Section 36-491 of the Act, under the following limitations and conditions:
|So ordered this 30th day of June 1994.
Robert B. Titus
Miroslaw Szocki (CRD # 1927825)
On April 25, 1994, following a Securities and Business Investments Division investigation, the Banking Commissioner issued a cease and desist order (CD-94-2385-S) against Miroslaw Szocki of Glastonbury, Connecticut. The Commissioner alleged that from at least November 1991 to May 1993, while employed as a broker-dealer agent of Investacorp Inc. and I.A. Rabinowitz & Co., Szocki violated the antifraud provisions in Section 36-472 of The Connecticut Uniform Securities Act. Specifically, the Commissioner alleged that, while employed by Investacorp Inc., Szocki failed to execute orders for the purchase of Dataram Corporation and Medical Technology Systems, Inc. securities yet provided investors with fictitious confirmations which purported to indicate the contrary. In addition, the Commissioner alleged that, while employed as an agent of I.A. Rabinowitz & Co., Szocki 1) executed unauthorized purchases of securities issued by Medical Technology Systems, Inc., Beverly Hills Fan Company, Financial Data Systems, Inc. and Moore Medical Corp.; and 2) failed to receive payment for such purchases, thus resulting in investor losses caused by such transactions being sold out for nonpayment. Since the respondent did not request a hearing within the prescribed time period, the Order became permanent on May 10, 1994.
First Fidelity Brokers, Inc. (CRD # 15225)
On April 6, 1994, the Banking Commissioner entered a Consent Order with respect to First Fidelity Brokers, Inc. ("FFB") (No. CO-94-2555-S) of 550 Broad Street, Newark, New Jersey. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with FFB's application for broker-dealer registration. That investigation revealed indications that from approximately July 1992 to November 1993, FFB transacted business as a broker-dealer absent registration under Section 36-474(a) of the Act and employed unregistered agents in contravention of Section 36-474(b) of the Act.
The Consent Order required that FFB cease and desist from regulatory violations and that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and the Regulations thereunder. In addition, the Consent Order required that the firm pay $4,000 to the agency; $3,500 of that amount represented a civil penalty, uncollected registration fees during the period of unregistered activity and the disgorgement of commissions earned while the firm was not registered as a broker-dealer under the Act. The remaining $500 represented reimbursement for the division's investigative costs.
LBS Capital Management, Inc. (CRD # 28445)
On April 11, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2564-S) with respect to LBS Capital Management, Inc. ("LBS") of 311 Park Place Boulevard, Suite 330, Clearwater, Florida. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with LBS' application for investment adviser registration. That investigation revealed indications that from approximately March 1991 through 1993, LBS transacted business as an investment adviser absent registration under Section 36-474(c) of the Act and engaged unregistered investment adviser agents in contravention of that section.
The Consent Order required that LBS cease and desist from regulatory violations and that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and the Regulations thereunder. In addition, the Consent Order required that the firm pay $6,100 to the agency; $5,000 of that amount represented a civil penalty and $600 represented uncollected registration fees during the period of unregistered activity. The remaining $500 represented reimbursement for the division's investigative costs.
H.N. Howard & Son, Inc.
On April 25, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2584-S) with respect to H.N. Howard & Son, Inc. ("Howard") of One Rockefeller Plaza, New York, New York. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with Howard's application for investment adviser registration. That investigation revealed indications that from approximately September 1993 through December 1993, Howard transacted business as an investment adviser absent registration under Section 36-474(c) of the Act and engaged unregistered investment adviser agents in contravention of that section.
The Consent Order required that Howard cease and desist from regulatory violations and that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and the Regulations thereunder. In addition, the Consent Order required that the firm pay $1,500 to the agency; $1,000 of that amount represented a civil penalty and uncollected registration fees during the period of unregistered activity. The remaining $500 represented reimbursement for the division's investigative costs.
Connecticut Mortgage & Loan Corporation, Edward T. Lockery and Virginia A. Lockery
On April 25, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2248-S) with respect to Connecticut Mortgage & Loan Corporation ("CM&L"), now or formerly of 9 Washington Avenue, Hamden, Connecticut, Edward T. Lockery, its president and Virginia A. Lockery, its secretary and treasurer (together, the "Respondents"). The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Section 36-495 of The Connecticut Uniform Securities Act into the Respondents' securities-related activities in Connecticut. That investigation indicated that CM&L was in the business of acting as a second mortgage loan broker; that from approximately November, 1987 through 1992, the Respondents offered and sold investments in their second mortgage business to at least sixty Connecticut residents; that such investments took the form of Servicing Agreements and Mortgage Trust Agreements; that the Respondents represented that investors would receive a high interest rate, liquidity, a guaranteed return and ongoing servicing with respect to their investment; that such investments constituted "securities" within the meaning of Section 36-471(13) of the Act; that such securities were not registered under Section 36-485 of the Act; and that the Respondents employed and paid commissions to unregistered agents in alleged contravention of Section 36-474(b) of the Act.
The Consent Order directed the Respondents to cease and desist from further regulatory violations. In addition, the Consent Order directed the Respondents to refrain from soliciting or accepting funds for investment purposes from public or private investors within or from Connecticut without 1) complying with the provisions of Chapter 649 governing trustees under mortgage; 2) consulting with legal counsel as to the applicability of, and compliance with, the securities and trustees under mortgage laws of the state; and 3) notifying the Securities and Business Investments Division in writing of such proposed activities at least thirty days prior to the solicitation or acceptance of funds, whichever occurred first. The Consent Order also required the Respondents to reimburse the agency five thousand dollars for the agency's investigative costs; Respondents would be jointly and severally liable for the payment of such sum.
R.C.S. Financial Services, Inc. (CRD # 35902)
On May 4, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2560-S) with respect to R.C.S. Financial Services, Inc. ("RCS") of 325 Center Street, P.O. Box 377, Chardon, Ohio. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with RCS' application for investment adviser registration. That investigation suggested that from approximately 1989 through December 1993, RCS transacted business as an investment adviser absent registration under Section 36-474(c) of the Act and engaged unregistered investment adviser agents in contravention of that section.
The Consent Order required that RCS cease and desist from regulatory violations and that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and the Regulations thereunder. In addition, the Consent Order required that the firm pay $3,500 to the agency; $3,000 of that amount represented a civil penalty and uncollected registration fees during the period of unregistered activity. The remaining $500 represented reimbursement for the division's investigative costs.
Gerbro Securities, Inc. (CRD # 1989)
On May 23, 1994, the Banking Commissioner entered a Consent Order with respect to Gerbro Securities, Inc. ("GSI") (No. CO-94-2595-S) of 26 Broadway, New York, New York. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with GSI's application for broker-dealer registration. That investigation revealed indications that from approximately 1987 through December, 1993, GSI transacted business as a broker-dealer absent registration under Section 36-474(a) of the Act and employed unregistered agents in contravention of Section 36-474(b) of the Act.
The Consent Order required that GSI cease and desist from regulatory violations and that the firm review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and the Regulations thereunder. In addition, the Consent Order required that the firm pay $3,000 to the agency; $2,600 of that amount represented a civil penalty and uncollected registration fees during the period of unregistered activity. The remaining $400 represented reimbursement for the division's investigative costs.
Chester John Dudzik, Jr. (CRD # 1325508)
On May 23, 1994, the Banking Commissioner entered a Consent Order with respect to Chester John Dudzik, Jr. ("Dudzik") (No. CO-94-2606-S) of Greenwich, Connecticut. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with Dudzik's application for registration as an agent of Gilford Securities, Incorporated in Connecticut. That investigation revealed indications that from at least January 1994 through March 1994, while under the supervision and control of Gilford Securities, Incorporated, Dudzik represented the firm in transacting business as an agent absent registration in violation of Section 36-474(a) of the Act.
The Consent Order directed Dudzik to refrain from further regulatory violations and required that, for three years, he not solicit or recommend any securities transactions unless they involved 1) equity or debt securities listed on the New York Stock Exchange, the American Stock Exchange or on NASDAQ-NMS, or 2) fixed income securities, mutual fund shares or professionally managed accounts. The Consent Order also required that, for three years, Dudzik 1) submit to the agency, or procure from his employing broker-dealer for submission, a written report each calendar quarter describing any securities-related complaints against him; 2) refrain, absent prior written approval from the agency, from exercising discretionary trading authority or control over client funds or securities; and 3) refrain from acting in a proprietary or supervisory capacity with respect to any broker-dealer or investment adviser transacting business in Connecticut. In addition, the Consent Order required that Dudzik pay $1,000 to the agency as a civil penalty.
Roger W. Goetz (CRD # 1063460)
On June 6, 1994, the Banking Commissioner entered a Consent Order with respect to Roger W. Goetz ("Goetz") (No. CO-94-2586-S) of Westport, Connecticut. The Consent Order followed an investigation by the Securities and Business Investments Division which uncovered evidence 1) that from approximately October 1991 through August 1992, while under the supervision and control of Fairport Asset Management Corp. ("FAM"), a Connecticut registered investment adviser, Goetz, FAM's president and sole shareholder, employed a bank signature guarantee stamp that he had purchased without the knowledge or consent of the bank and of FAM's clients; 2) that the stamp was used to effect 788 client mutual fund redemptions totalling $221,317.85 that FAM's clients previously authorized to pay account management fees owed to FAM by such clients; and 3) that, in so doing, Goetz wilfully violated Section 36-473(f) of The Connecticut Uniform Securities Act.
On May 16, 1994, the Securities and Exchange Commission (the "SEC") had entered an Order Instituting Proceedings, Making Findings, Imposing Remedial Sanctions and Issuing a Cease and Desist Order (together, the "SEC Order") against Goetz and FAM based on similar facts (SEC Administrative Proceeding No. 3-8363).
The Connecticut Consent Order required that Goetz cease and desist from regulatory violations and accept a letter of censure from the department. In addition, the Consent Order suspended Goetz from acting as an agent of a broker-dealer, issuer or investment adviser for a period of ninety days commencing on the second Monday following the entry of the SEC Order and concluding on the conclusion of the SEC suspension or the date the SEC received from Goetz the civil penalty imposed by the SEC Order, whichever was later. The Consent Order also subjected Goetz to a two year period of administrative probation, and required that he comply with the undertakings relating to him contained in the SEC Order. In addition, the Consent Order required that Goetz provide the agency with a copy of the affidavit furnished to the SEC pursuant to the SEC Order indicating that Goetz had complied with the terms of his suspension and had paid the civil penalty imposed by the SEC Order. Failure to provide such affidavit to the agency within five business days after it had been submitted to the SEC would result in the imposition of a $25 penalty for every business day the affidavit was late. Failure to remit the late penalty would extend the Connecticut suspension until the late penalty was paid in full. The Consent Order also required that Goetz employ counsel familiar with The Connecticut Uniform Securities Act to ensure compliance with regulatory requirements, and that Goetz pay $2,000 to the agency as a civil penalty.
Fairport Asset Management Corp. (CRD # 30680)
On June 6, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2586-S) with respect to Fairport Asset Management Corp. ("FAM") of Westport, Connecticut. The Consent Order followed an investigation by the Securities and Business Investments Division which uncovered evidence that, in allowing Roger W. Goetz, FAM's president, to employ a bank signature guarantee stamp without authorization, FAM wilfully violated Section 36-473(a) of The Connecticut Uniform Securities Act. The investigation also uncovered indications that FAM 1) wilfully violated Section 36-473(c) of the Act by failing to notify the agency that it had custody of client funds; 2) failed to observe the account verification requirements imposed by Section 36-500-15(a)(2)(H)(iii) of the Regulations; and 3) wilfully violated Sections 36-482(c) and 36-492 of the Act and Section 36-500-13(c) of the Regulations by failing to disclose or amend its investment adviser registration to disclose that it had custody. The investigation also suggested that FAM wilfully violated Section 36-473(a) of the Act and Section 36-500-15(a)(2)(H)(ii)(aa)(eee) of the Regulations by 1) publishing and distributing advertisements to prospective clients and referral agents which stated that the track records of FAM's subadvisor had been confirmed by an independent public accounting firm when, in actuality, the literature did not clearly indicate that the confirmation was limited to the two oldest accounts continuously managed by a subadvisor of FAM; and 2) failing to disclose that such accounts belonged to parties affiliated with the subadvisor.
On May 16, 1994, the Securities and Exchange Commission (the "SEC") had entered an Order Instituting Proceedings, Making Findings, Imposing Remedial Sanctions and Issuing a Cease and Desist Order (together, the "SEC Order") against Goetz and FAM based on similar facts (SEC Administrative Proceeding No. 3-8363).
Pursuant to the Connecticut Consent Order, FAM agreed to cease and desist from regulatory violations and to accept a letter of censure from the agency. In addition, the Consent Order required that FAM review, revise and implement supervisory and compliance procedures to prevent and detect regulatory violations and that the firm comply with the undertakings relating to it contained in the SEC Order. The Consent Order also subjected FAM to a two year period of administrative probation. Pursuant to the Consent Order, FAM would also be required to employ counsel familiar with the Act to 1) review all advisory advertisements for two years to ensure compliance with regulatory requirements and 2) review the firm's signature guarantee and payment practices and procedures. Finally, the firm would be required for two years to submit a written report each calendar quarter describing any securities-related complaints, including their disposition, against it or Roger Goetz.
G.W. & Wade, Inc.
On June 29, 1994, the Banking Commissioner entered a Consent Order (No. CO-94-2613-S) with respect to G.W. & Wade, Inc. ("Wade") of 62 Walnut Street, Wellesley, Massachusetts. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to Sections 36-476 and 36-495 of The Connecticut Uniform Securities Act in connection with Wade's application for investment adviser registration. That investigation suggested that from approximately 1993 through 1994, Wade transacted business as an investment adviser absent registration under Section 36-474(c) of the Act and engaged unregistered investment adviser agents in contravention of that section.
The Consent Order required that Wade cease and desist from regulatory violations, and that the firm engage an independent reviewer familiar with the Act to conduct a review of the firm's supervisory and compliance procedures relating to the regulation of investment advisers and investment adviser agents in Connecticut. A report summarizing the results of that review would be submitted to the agency. In addition, the Consent Order required that the firm pay $3,000 to the agency; $2,500 of that amount represented a civil penalty, and $500 represented reimbursement for the division's investigative costs.
Barrett Day Securities, Inc. (CRD # 17717) - Notice of Intent to Revoke Broker-dealer Registration and to Fine Issued
On June 29, 1994, the Banking Commissioner issued a Notice of Intent to Revoke the broker-dealer registration of Barrett Day Securities, Inc. (Docket No. NR-94-2360-S). The firm maintains its principal office at 42 Broadway, 19th Floor, New York, New York. The Commissioner's action was based on the following: 1) a March 1, 1994 sanction by the National Association of Securities Dealers (the "NASD") censuring, fining and ordering the firm to disgorge funds in connection with alleged violations of Article III, Sections 1, 4, 18 and 27 of the NASD Rules of Fair Practice (No. C10930037); 2) a March 1, 1994 sanction by the NASD (No. C10930037) censuring, fining and suspending David Berger (CRD No. 1091794) and Barry Leonard Schwartz (CRD No. 1034556), both officers of the firm, for alleged violations of Article III, Sections 1, 4, 18 and 27 of the NASD Rules of Fair Practice; 3) alleged wilful violations of the antifraud provisions of Section 36-472 of The Connecticut Uniform Securities Act in connection with the offer and sale of Panworld Minerals International, Inc. ("PMII"); 4) alleged dishonest or unethical conduct, including the failure to disclose commissions in connection with transactions in PMII stock, providing a customer with a copy of another sales confirmation to induce a sale and failing to supervise the firm's agents; and 5) an alleged failure to exercise supervisory controls.
On the same day, the Commissioner issued a Notice of Intent to Fine the firm (Docket No. NF-94-2360-S) for alleged violations of the antifraud provisions of Section 36-472 of the Act. The firm was given an opportunity to request a hearing on the allegations in both the Notice of Intent to Revoke and the Notice of Intent to Fine.
David Berger (CRD No. 1091794) and Barry Leonard Schwartz (CRD No. 1034556) - Notice of Intent to Revoke Registration as Agents Issued
On June 29, 1994, the Banking Commissioner issued a Notice of Intent to Revoke the agent registrations of David Berger and Barry Leonard Schwartz, both officers of Barrett Day Securities, Inc. (Docket No. NR-94-2360A-S). The Commissioner's action was based on: 1) a March 1, 1994 sanction by the National Association of Securities Dealers (the "NASD") (No. C10930037) censuring, fining and suspending Berger and Schwartz for alleged violations of Article III, Sections 1, 4, 18 and 27 of the NASD Rules of Fair Practice; and 2) the alleged failure by Berger and Schwartz to exercise adequate supervisory controls over Barrett Day Securities, Inc. agents in connection with alleged violations involving the securities of Panworld Minerals International, Inc. Both respondents were given an opportunity to request a hearing on the allegations in the Notice.
April 1, 1994 through June 30, 1994
|Total Coordination (Initial & Renewal)||1,564||n/a||3,268|
|-- (Investment Co. Renewals 897)|
|-- (All Other Coordinations 667)|
|Regulation D Filings||405||n/a||841|
|Other Exemption or Exclusion Notices||72||12||145 (SE)|
|Business Opportunity (Initial)||n/a||11||18|
|Business Opportunity (Renewal)||n/a||20||25|
Branch Office Registration
|Firm Initial Registrations Processed||73||64||n/a||136 (BD)|
|Firms Registered as of 6/30/94||1,779||958||n/a||n/a|
|Agent Initial Registrations Processed||7,133||651||12||15,781 (BD)|
|Agents Registered as of 6/30/94||68,465||7,959||178||n/a|
|Branch Offices Registrations
|Branch Offices Registered
as of 6/30/94
|Examinations Conducted||6||8||0||13 BD)|
|Investigations Opened||50||13||100 (SE)|
|Referrals from Attorney General||0||0||1 (SE)|
|Referrals from Other Agencies||7||0||7 (SE)|
|Investigations Closed||47||21||92 (SE)|
|Investigations in Progress
as of 6/30/94
|Subpoenas Issued||4||0||10 (SE)|
Administrative Enforcement Actions
|Stipulation and Agreements||0/0||0/0||1/2 (SE)|
|Consent Orders||8/8||0/0||16/18 (SE)|
|Cease and Desist Orders||1/1||0/0||3/5 (SE)|
|Denial, Suspension & Revocation Orders||0/0||n/a||1/1 (SE)|
|Other Notices and Orders||3/4||0/0||3/4 (SE)|
|Referrals (Civil)||0/0||0/0||0/0 (SE)|
|Referrals (Criminal)||3/5||0/0||1/2 (SE)|
|Consent Orders and Stipulation and Agreements|
|- Securities||$29,100||$ 703,535|
|- Business Opportunities||0||0|
|Public Reimbursement Following
Voluntary Restitution Offers;
|Totals||$296, 624||$ 379,733|