|Securities and Business Investments Division|
|Vol. IX No. 1||March 1995|
- Ralph A. Lambiase, Division Director
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
- Eric J. Wilder, Assistant Director
Jeffrey P. Halperin, Senior Administrative Attorney
- Louise Hanson, Subscription Coordinator
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
As one of the reforms arising out of the stock market crash of 1987, the Securities and Exchange Commission in 1993 adopted a rule to establish three business days after trade (known as T+3 for trade day plus three days) as the new standard settlement time frame for most broker-dealer trades.
The SEC's regulatory intent was to promote industry safety and soundness. Advocates for the change expressed concern that delays in clearing transactions during periods of severe market volatility might result in unacceptable uncertainty or pose systemic risks if large securities traders reneged on transactions and precipitated a panic.
When T+3 becomes effective on June 7, 1995, it will change the way many individual investors in Connecticut across the country transact business. With only three (versus the former five) business days available to deliver checks or shares to brokers, investors will no longer be able to wait for written confirmations of trades. The approximate 20% of retail investors who do not maintain brokerage cash accounts and who prefer to hold their actual stock certificates will be particularly affected. When making purchases, investors without active accounts will need to determine from salespeople over the phone what they owe and immediately mail checks or wire funds.
Brokers should be well aware of the onset of T+3 and should clearly communicate its impact, and the potential for any associated late payment fees, to investors. A failure to adequately warn and alert investors will risk an adverse customer reaction and a loss of customer confidence.
Continuing education, the most important industry initiative in recent years, will soon be implemented, beginning with the regulatory element on July 1, 1995. A failure to complete the required regulatory element computer-based training during the prescribed time period will result in a person's registration becoming inactive.
The New York Stock Exchange recently released Information Memo Number 95-011, and the NASD released Special Notice to Members 95-13 regarding continuing education requirements. Both notices include a status report on continuing education, a content outline for the regulatory element, guidelines for firm element training and a question and answer section. Registrants are urged to contact either self-regulatory organization to discuss their specific needs or to obtain further information on the continuing education program.
-- John P. Burke, Banking Commissioner
Lady Luck Marketing Systems, Inc. (d/b/a Lucky Lady Greeting Cards) and Mary Margaret Lapp
On February 23, 1995, the Commissioner issued an Order to Cease and Desist and Notice of Right to Hearing (Docket number CD-94-672-B) under the Connecticut Business Opportunity Investment Act against Lady Luck Marketing Systems, Inc. ("LL"), now or formerly of 1893 West New Haven Avenue, #131, West Melbourne, Florida; 520 East Haven Avenue, Melbourne, Florida; 614 East Haven Avenue, Melbourne, Florida; 1923 North Wickham Road, #1214, Melbourne, Florida; P.O. Box 819, Melbourne, Florida; and P.O. Box 8000-513, Abbotsford, British Columbia, Canada. Also named in the cease and desist order was Mary Margaret Lapp, president of LL.
The cease and desist order alleged that from September through November 1993, the respondents sold greeting card inventory, display racks and other related items to Connecticut residents to enable those persons to start a business; that respondents offered a 100% money back guarantee in connection with the sales; that the arrangement was a business opportunity which was neither registered under the Act nor exempt from registration; and that the respondents violated Section 36b-63(a) of the Act by not providing purchasers with a written disclosure document. Since neither respondent requested a hearing within the prescribed time period, the cease and desist order became permanent as to both respondents on April 4, 1995.
William S. Brewster and Brewster Marketing Associates
On January 19, 1995, the Banking Commissioner entered a Consent Order with respect to William S. Brewster of 109 Lakeside Drive, Andover, Connecticut and with respect to Brewster Marketing Associates ("BMA") of 20 Westbrook Street, East Hartford, Connecticut (No. CO-94-2628-S). The Consent Order followed a Securities and Business Investments Division investigation which revealed indications that 1) in July 1992, while acting under the auspices of BMA, William Brewster solicited investor funds for the purpose of importing Club Beer from Ghana, West Africa and establishing distribution channels for the sale of the beer to local vendors; 2) that the solicitation was made to at least five Connecticut residents; 3) that William Brewster received $60,000 in actual proceeds from such solicitation; 4) that the $60,000 invested was evidenced by Investment Certificates; 5) that William Brewster used a portion of such investor funds for his personal expenses; and 6) that, in engaging in such activity, William Brewster offered and sold unregistered non-exempt securities in violation of former Section 36-485 of The Connecticut Uniform Securities Act and failed to make proper disclosures to investors in contravention of former Section 36-472 of the Act.
The Consent Order required that William Brewster and BMA cease and desist from regulatory violations. In addition, the Consent Order required that William Brewster refrain from soliciting or accepting funds for investment purposes from public or private investors within or from Connecticut without consulting with legal counsel on the securities issues involved and notifying the agency of such proposed activities at least thirty days prior to the solicitation or acceptance of funds, whichever first occurred. The Consent Order also precluded William Brewster from transacting business as an investment adviser or as an investment adviser agent for seven years, with leave to apply for registration after five years had elapsed.
Williams, Buchanan & Company, Inc. (CRD # 22704)
On February 10, 1995, the Banking Commissioner entered a Consent Order with respect to Williams, Buchanan & Company, Inc. ("WBC") (No. CO-94-2662-S) of 12221 Merit Drive, Suite 200, Dallas, Texas. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to former Sections 36-476 and 36-495 of the Connecticut Uniform Securities Act. That investigation uncovered evidence that from at least October 1993 through March 1994, WBC effected securities transactions on behalf of Connecticut customers absent registration as a broker-dealer under former Section 36-474(a) of the Act and employed unregistered agents in alleged contravention of former Section 36-474(b) of the Act.
In furtherance of its desire to resolve the matter informally, WBC furnished proof to the Division that it had offered to affected Connecticut purchasers the opportunity to rescind securities transactions effected while the firm was not registered as a broker-dealer under the Act.
The Consent Order required that WBC refrain from regulatory violations and review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and its regulations. In addition, the Consent Order required that the firm pay $2,000 to the agency as a civil penalty, and reimburse the Division $250 for the Division's costs of investigation.
CC Investment Services, Inc. (CRD # 28681)
On February 21, 1995, the Banking Commissioner entered a Consent Order with respect to CC Investment Services, Inc. ("CCIS") (No. CO-94-2702-S) of 701 Mount Lucas Road, Princeton, New Jersey. The Consent Order followed an investigation by the Securities and Business Investments Division pursuant to former Section 36-495 of the Connecticut Uniform Securities Act. That investigation revealed indications that from 1991 through 1994, CCIS 1) transacted business as a broker-dealer absent registration under Section 36b-6 (formerly codified as Section 36-474(a)) of the Act and employed unregistered agents in contravention of subsection (b) of that section. In addition, the investigation uncovered evidence that the firm offered and sold interests in The Directors Fund Limited Partnership at a time when those interests were neither registered under Section 36b-16 of the Act nor the subject of a filed claim of exemption under Section 36b-21(b)(9) of the Act.
The Consent Order required that CCIS refrain from regulatory violations and review, revise and implement supervisory and compliance procedures designed to prevent and detect violations of the Act and its regulations. In addition, the Consent Order required that the firm pay $6,500 to the agency; $5,000 of that amount represented a civil penalty, $1,000 represented uncollected registration fees during the period of unregistered activity and the remaining $500 constituted reimbursement to the Division for its investigative costs.
Washington Square Securities, Inc. (CRD # 2882)
On February 27, 1995, the Banking Commissioner entered a Consent Order with respect to Washington Square Securities, Inc. ("WSSI") (No. CO-95-2709-S) of 20 Washington Avenue, South Minneapolis, Minnesota. The Consent Order followed an investigation by the Securities and Business Investments Division under the Connecticut Uniform Securities Act. That investigation uncovered evidence that from at least June 1993, the firm transacted business from two places of business in Connecticut without registering those locations as branch offices in alleged contravention of Section 36b-6(d) of the Act.
The Consent Order required that WSSI review, revise and implement supervisory and compliance procedures designed to achieve regulatory compliance and that it pay a $3,500 civil penalty to the department.
The Shemano Group, Inc. (CRD # 35528)
On February 27, 1995, the Banking Commissioner entered into a Stipulation and Agreement with The Shemano Group, Inc. (No. ST-95-2715-S) of 601 California, 18th Floor, San Francisco, California. The Stipulation and Agreement followed a Securities and Business Investments Division investigation conducted pursuant to the Connecticut Uniform Securities Act. That investigation revealed that from approximately November 1994 to January 1995, the firm had effected securities transactions for Connecticut accounts at a time when the firm was not registered as a broker-dealer under Section 36b-6(a) of the Act, and that the firm had employed an unregistered agent in alleged contravention of Section 36b-6(b) of the Act.
Pursuant to the Stipulation and Agreement, the firm agreed to refrain from engaging in violative conduct and to review, revise and implement supervisory and compliance procedures designed to prevent and detect regulatory violations. In addition, the firm agreed to pay $4,000 to the agency, $3,500 of which represented disgorgement of commissions earned during the period of unregistered activity and $500 of which represented a civil penalty.
Genesis Merchant Group Securities, L.P. (CRD # 23857)
On March 8, 1995, the Banking Commissioner entered into a Stipulation and Agreement with Genesis Merchant Group Securities, L.P. (No. ST-95-2699-S) of 909 Montgomery Street, Suite 600, San Francisco, California. The Stipulation and Agreement followed a Securities and Business Investments Division investigation conducted pursuant to The Connecticut Uniform Securities Act. That investigation suggested that in October 1994, the firm sold convertible notes of Ryko Corp. to two Connecticut purchasers at a time when the firm was not registered as a broker-dealer under former Section 36-474(a) of the Act. In furtherance of its desire to resolve the matter informally with the department, the firm furnished proof that it had offered to each of the Connecticut purchasers the opportunity to rescind his or her $50,000 purchase of the notes.
Pursuant to the Stipulation and Agreement, the firm agreed to review, revise and implement supervisory and compliance procedures designed to prevent and detect regulatory violations. In addition, the firm agreed to submit a quarterly report to the Division concerning any securities-related complaints it received for the period; the reporting requirement would conclude on July 1, 1996. Finally, the firm agreed to pay a $2,000 civil penalty to the agency.
FIDELITY INTERNATIONAL SECURITIES, INC. d/b/a CONSTITUTION CAPITAL CORP. (f/k/a ANTHONY LEWIS, INC.) (CRD # 36485) - REGISTRATION AS A BROKER-DEALER AND INVESTMENT ADVISER CONDITIONED
On February 27, 1995, the Banking Commissioner issued an Order conditioning the broker-dealer and investment adviser registrations of Fidelity International Securities, Inc. d/b/a Constitution Capital Corp. of 101 Merritt Seven, Norwalk, Connecticut. The firm consented to the Commissioner's entry of the Order.
The Order was based on the January 1994 one-month suspension of Louis Francis Albanese (CRD number 703647), the firm's secretary/treasurer and director, by the New York Stock Exchange. The conditioning Order imposed various restrictions on the firm's activities. The Order curtailed the firm's ability to service discretionary accounts, other than wrap fee accounts, for a two year period. The Order also imposed restrictions on the firm's customer options business and its ability to maintain custody of client funds or securities. In addition, the Order required that the firm notify the agency of securities-related complaints for a one year period, designate a principal acceptable to the Securities and Business Investments Division to supervise the firm's day to day operations and mail verification of client investment objectives to clients.
BARRETT DAY SECURITIES, INC. (CRD No. 17717), DAVID BERGER (CRD No. 1091794) AND BARRY LEONARD SCHWARTZ (CRD No. 1034556) - BROKER-DEALER AND AGENT REGISTRATIONS REVOKED; FIRM FINED $120,000
On March 10, 1995, following an administrative hearing, the Banking Commissioner ordered that the broker-dealer registration of Barrett Day Securities, Inc. ("Barrett Day") be revoked pursuant to former Section 36-484(a) of the Connecticut Uniform Securities Act, and that the firm pay a $120,000 civil penalty within 45 days following the entry of the order. The firm maintains its principal office at 42 Broadway, 19th Floor, New York, New York. Also on March 10, 1995, the Commissioner ordered that the agent registrations of David Berger, the firm's president, and Barry Leonard Schwartz, its vice president, be revoked.
The Commissioner's action was based on findings that the firm had wilfully violated the antifraud provisions in former Section 36-472 of the Act by 1) misrepresenting that the common stock of Panworld Minerals International, Inc. ("Panworld") would be listed on NASDAQ or on an exchange and would consequently rise in value; 2) failing to disclose to Connecticut investors material adverse information about Panworld contained in the corporation's Form 10-K report; and 3) falsely indicating to Connecticut investors that its agents would not receive a commission for sales of the Panworld stock. The Commissioner also found that the firm's failure to disclose the receipt of commissions was a dishonest or unethical business practice. In addition, the order found that that the firm acted in a dishonest or unethical manner when it provided at least one Connecticut investor with a copy of another customer's sales confirmation to convince the investor to buy Panworld stock. The order added that the firm, as well as Berger and Schwartz, failed to establish adequate supervisory procedures and a system for applying them which would reasonably be expected to prevent and detect regulatory violations, and that Berger and Schwartz both failed to reasonably supervise the agents subject to their oversight.
January 1, 1995 through March 31, 1995
|Total Coordination (Initial & Renewal)||1,843||n/a||1,843|
|-- (Investment Co. Renewals 1,425)|
|-- (All Other Coordinations 418)|
|Regulation D Filings||370||n/a||370|
|Other Exemption or Exclusion Notices||35||12||35 (SE)|
|Business Opportunity (Initial)||n/a||13||13|
|Business Opportunity (Renewal)||n/a||5||5|
Branch Office Registration
|Firm Initial Registrations Processed||70||47||n/a||70 (BD)|
|Firms Registered as of 3/31/95||1,803||1,021||n/a||n/a|
|Agent Initial Registrations Processed||7,617||698||19||7,617 (BD)|
|Agents Registered as of 3/31/95||68,556||9,161||199||n/a|
|Branch Offices Registered
as of 3/31/95
|Examinations Conducted||27||9||0||27 BD)|
|Investigations Opened||34||0||34 (SE)|
|Referrals from Attorney General||1||0||1 (SE)|
|Referrals from Other Agencies||3||0||3 (SE)|
|Investigations Closed||30||3||30 (SE)|
|Investigations in Progress
as of 3/31/95
|Subpoenas Issued||8||2||8 (SE)|
|Stipulation and Agreements||2||2||2/2|
|Cease and Desist Orders||0||0||0/0|
|Denial, Suspension & Revocation Orders||1||3||1/3|
|Conditional Licensing Orders||1||1||1/1|
|Other Notices and Orders||0||0||0/0|
|Cease and Desist Orders||1||2||1/2|
|Consent Orders and Stipulation and
|$ 138,250||$ 138,250|
|Public Reimbursement Following
Voluntary Restitution Offers;
|Securities||$ 349,189||$ 349,189|
|Totals||$ 349,189||$ 349,189|