|Securities and Business Investments Division|
|Vol. XIII No. 3||Fall 1999|
- A Word from the Banking Commissioner
- Order Adopting the Modified Series 65 and Series 66 Examination for Investment Adviser Agents
- Regulatory Reminders to Investment Advisers
- Third Quarter Statistical Summaries
- Ralph Lambiase, Division Director
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
- Eric Wilder, Assistant Director
- Marge Kagan, Subscription Coordinator
- Cynthia Antanaitis, Assistant Director and Bulletin Editor
On October 12, 1999, I issued a joint press release with Connecticut Insurance Commissioner George M. Reider, Jr. warning local insurance agents about fraudulent schemes involving the marketing of "high yield, low risk" promissory notes and commercial paper. Over the past month, the Securities Division has received complaints from Connecticut residents involving over $3.5 million in such investments.
It appears that two Florida-based companies, under scrutiny by federal and state securities regulators, duped local insurance agents into marketing these investments by falsely telling the agents that the products were not securities and that the investments were fully backed by foreign surety companies, which now appear to be questionable enterprises.
Although there is no evidence of any involvement by local securities firms, the case does highlight the need for adequate supervision of salespeople who work independently outside of an office location, selling products over kitchen tables.
Technology has transformed our lives, making it easier to communicate and offering us unparalleled access to information. Unfortunately, it can be just as easy to erase some of that information. The division has noticed on several occasions during its examinations that officers and employees have hastily deleted information to avoid its discovery by examiners.
In some cases, the deleted information was entirely unrelated to securities activity, but considered embarrassing. In others, the deleted files only constituted minor violations. On the other hand, the very act of hurriedly erasing computer files can prove much more problematic than any information actually deleted. Such evasive and suspicious action has led to the initiation of administrative proceedings.
Year 2000, again emphasizing the essential role technology plays in our lives, is rapidly approaching. As part of an over-all response plan by the administration of Governor John Rowland, the Department of Banking will operate a command center on a 24-hour basis from Thursday, December 29 to Monday, January 3. Industry can contact the Division at any time during this period.
The financial services industry is well-prepared for Y2K, but it's important for government and the private sector to continue communicating with the public as the new century approaches. Accurate, up-to-date information dispels unfounded rumors.
John P. Burke
ORDER ADOPTING THE MODIFIED SERIES 65 AND SERIES 66 EXAMINATION
FOR INVESTMENT ADVISER AGENTS
WHEREAS the Commissioner of Banking (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act;
WHEREAS Section 36b-31(a) of the Act provides, in part, that: "The commissioner may from time to time make, amend and rescind such ... orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including ... orders governing ... applications ... and defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";
WHEREAS Section 36b-31(b) of the Act adds that: "In prescribing ... orders the commissioner may cooperate with the securities administrators of the other states ... with a view to effectuating the policy of ... [the Act] to achieve maximum uniformity in the form and content of ... applications ... wherever practicable";
WHEREAS Section 36b-31(b) of the Act also provides that: "No … order may be made, amended or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive";
WHEREAS the Commissioner finds that the issuance of this order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
WHEREAS Section 36b-15(b)(6) of the Act provides that "the commissioner may by regulation provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants, as well as persons who represent or will represent an investment adviser in doing any of the acts which make him an investment adviser";
WHEREAS pursuant to the authority granted under Section 36b-15(b)(6) of the Act, the Commissioner promulgated Section 36b-31-15e(e) of the Regulations which requires that, effective October 1, 1994, "each applicant for registration as an investment adviser agent ... supply evidence to the commissioner that such applicant has taken and successfully passed the [Series 65] Uniform Investment Adviser Law Examination or such other examination determined by the commissioner to be acceptable in lieu thereof";
WHEREAS Section 36b-31-31c of the Regulations provides that: "The commissioner may exempt a person ... from a specified provision of ... the regulations upon a finding that such exemption is in the public interest";
WHEREAS the Commissioner finds that granting the related exemptive relief set forth in this Order is in the public interest;
WHEREAS the North American Securities Administrators Association, Inc. (NASAA), an association of state and Canadian securities regulators, has been instrumental in developing a modified version of the Series 65 examination designed to test investment advisory competency (the "Modified Series 65 Examination"), which Modified Series 65 Examination is scheduled to be available on or after January 1, 2000;
WHEREAS NASAA has also been instrumental in developing the Series 66 Uniform Combined State Law Examination, which represents a combination of the Series 63 and Series 65 examinations;
NOW THEREFORE THE COMMISSIONER ORDERS AS FOLLOWS:
|Effective January 1, 2000, for purposes of Section 36b-31-15e(e) of the Regulations, the Modified Series 65 examination or the Series 66 examination shall be deemed an acceptable substitute in fulfillment of the Section 36b-31-15e(e) examination requirement for new investment adviser agent applicants;|
|2.||Effective January 1, 2000, for purposes of Section 36b-31-15e(e) of the Regulations, the Modified Series 65 examination or the Series 66 examination shall be deemed an acceptable substitute in fulfillment of the Section 36b-31-15e(e) examination requirement for new investment adviser agent applicants;The following individuals shall be "grandfathered" from having to pass the examination described in paragraph (1) of this Order: (a) Any individual registered under the Act as an investment adviser agent or an investment adviser on January 1, 2000; or (b) Any individual who has passed the previous version of the Series 65 or the Series 66 examination and who has been continuously registered as an investment adviser agent or as an investment adviser in any other state, as defined in Section 36b-3(19) of the Act, for the immediately preceding two years. Notwith- standing the provisions of this paragraph, the Commissioner may require that any individual otherwise "grandfathered" take either the Modified Series 65 examination or the Series 66 examination if retaking such examination is necessary in light of the individual's disciplinary history or limited areas of knowledge or expertise;|
|3.||Effective January 1, 2000, the Commissioner may waive the examination requirement described in paragraph (1) of this Order for any investment adviser agent who: (a) has received the Chartered Investment Counselor (CIC) designation conferred by the Investment Counsel Association of America (ICAA); (b) has been designated as a Chartered Financial Analyst (CFA) by the Association for Investment Management and Research; (c) is a certified public accountant and has earned the Personal Financial Specialist (PFS) designation conferred by the American Institute of Certified Public Accountants; or (d) has earned the Certified Financial Planner (CFP) designation awarded by the International Board of Standards and Practices for Certified Financial Planners, Inc.;|
|4.||Nothing in this Order shall preclude the Commissioner from granting discretionary relief from the examination requirements of this Order based upon a comprehensive evaluation of the applicant's prior employment, educational background, professional designations and disciplinary history, or from imposing such additional conditions on registration as may be necessary in the public interest.|
|5.||The terms and conditions of this Order shall become effective on January 1, 2000 and shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.|
|So Ordered at Hartford, Connecticut
this 2nd day of December, 1999.
|John P. Burke|
Follow These Easy Steps for Fast, Efficient Renewal of Your Registration or Notice Filing
|1.||Review the information on your renewal invoice to make sure it is correct.|
|2.||If a particular investment adviser agent is missing from the invoice, or you spot another error, call us at (860) 240-8254 or fax us at (860) 240-8295.|
|3.||To delete an investment adviser agent listed on the invoice, just cross off the individual's name and adjust the fee you remit. You do not have to file a Form U-5 for the deleted investment adviser agent.|
|4.||Return a copy of the invoice plus your check payable to "Treasurer, State of Connecticut" to the Securities and Business Investments Division, State of Connecticut Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800.|
THE DEADLINE FOR RENEWING IS DECEMBER 31, 1999.
|5.||Keep a copy of the invoice for your records. Your canceled check confirms that the renewals for your firm and your investment adviser agents have been processed.|
COMPLIANCE DOESN'T STOP WITH RENEWAL ….
|1.||State Registered Investment Advisers: Remember to file your firm's financial statements within 60 days following the close of the firm's fiscal year and include an executed Registrant's Certificate. Also don't forget to report material changes to your Form ADV by submitting an originally executed Page 1 and the pages being amended. Circling or highlighting the changes takes the guesswork out of amendments.|
|2.||SEC Registered Investment Advisers Filing Notice: DON'T file financial statements. DO file your most recent Schedule I plus an executed page 1 of Form ADV. Only file those Form ADV amendments affecting your Connecticut operations (e.g. change in branch office reported on Schedule E; name, address and contact changes). If you relocate or acquire a branch office in Connecticut, amend Schedule E and include a non-refundable $100 fee payable to "Treasurer, State of Connecticut" for each acquired or relocated office.|
Empire Investment Group; Jeffrey Groppi and Antonio M. Minichino Ordered to Cease and Desist from Purportedly Fraudulent Forex Transactions
On August 31, 1999, the Banking Commissioner entered an Order to Cease and Desist and Notice of Right to Hearing (Docket No. CD-99-5298-S) against Empire Investment Group of 200 College Street, Suite 208, New Haven, Connecticut; Jeffrey Groppi of 7 Loop Road, Clinton, Connecticut and Antonio M. Minichino of 909 13th Court, Deerfield Beach, Florida. Minichino was the president of Empire Investment Group. The Commissioner claimed that from at least July 1998 to December 1998, Empire Investment Group effected transactions in unregistered foreign currency options contracts ("Forex Investments") for at least 37 clients; that the firm failed to register as a broker-dealer under the Connecticut Uniform Securities Act and that the firm employed at least eight unregistered agents, including Groppi. The Order to Cease and Desist also alleged that Empire Investment Group, Groppi and Minichino violated the Act's antifraud provisions by falsely representing that investor monies would be invested in Forex Investments when, in fact, those sums were used to pay the personal expenses of the firm's officers and agents, including Groppi. The Order to Cease and Desist also charged Empire Investment Group and Groppi with charging unreasonable commissions of at least 25 percent, a practice that the Commissioner deemed dishonest or unethical.
All three respondents were afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist.
Andrew R. Flagg (CRD # 1140635) Fined $1,000; Prohibited from Supervisory Activity for Two Years
On September 16, 1999, the Banking Commissioner entered a Consent Order (Docket No. CO-99-5349-S) with respect to Andrew R. Flagg, a broker-dealer agent and investment adviser agent under the Connecticut Uniform Securities Act. The Consent Order followed a Securities and Business Investments Division investigation which uncovered evidence that Andrew R. Flagg made unsuitable investment recommendations to clients.
The Consent Order 1) directed that Flagg pay a $1,000 fine; 2) prohibited him from being involved in the day-to-day supervision of broker-dealer agents for two years; 3) restricted his investment advisory activities for two years to exchange and NASDAQ-NMS listed securities, corporate debt, municipal securities, investment company securities, governmental securities and insurance products subject to regulation by the Connecticut Insurance Commissioner; and 4) required that, for two years, Flagg submit quarterly reports to the Division concerning any securities- related complaints, actions or proceedings.
Merit Capital Associates, Inc. (CRD # 30576) Fined $75,000 Merit Capital Management, Inc. Fined $3,000
On September 16, 1999, the Banking Commissioner entered a Consent Order (File No. CO-99-5380-S) under the Connecticut Uniform Securities Act with respect to Merit Capital Associates, Inc., a registered broker-dealer, and its affiliate Merit Capital Management, Inc., a registered investment adviser. Both entities maintain their principal office at 1221 Post Road East in Westport, Connecticut. The Consent Order followed a Securities and Business Investments Division investigation which revealed indications that 1) Merit Capital Associates, Inc. employed unregistered broker-dealer agents; 2) that certain broker-dealer agents of Merit Capital Associates, Inc. based in Florida used sales material that had not been properly reviewed by the firm's compliance department; 3) that Merit Capital Associates, Inc. failed to exercise adequate supervisory controls over agent activity; and 4) that Merit Capital Management, Inc. employed unregistered investment adviser agents. In furtherance of its desire to resolve the matter informally with the agency, Merit Capital Associates, Inc. demonstrated that an independent consultant retained on the firm's own initiative following initiation of the division's investigation had conducted a review of the firm's internal supervisory and compliance procedures to ensure regulatory compliance.
The Consent Order fined Merit Capital Associates, Inc. $75,000 and required that Merit Capital Management, Inc. pay a $3,000 fine. In addition, the Consent Order required that Merit Capital Associates, Inc. submit a copy of the consultant's report to the division, together with a summary of implemented recommendations, and pay the costs of one or more examinations to be conducted within twenty four months. The Consent Order also mandated that both firms submit quarterly reports for two years describing any securities-related complaints, actions or proceedings involving Connecticut residents.
Mark Honigsfeld Fined $100,000 for Misleading Internet Postings
On August 31, 1999, the Banking Commissioner entered a Consent Order (Docket No. CO-99-5359-S) with respect to Mark Honigsfeld of 969 East End, Woodmere, New York. Honigsfeld was the chairman, chief executive officer and secretary of Compu-DAWN, Inc., an entity in whose stock the brokerage firm of Morgan Taylor and Associates, Inc. (f/k/a E.C. Capital, Inc.) made a market.
The Commissioner found that Honigsfeld violated the antifraud provisions in Section 36b-4(a)(2) of the Connecticut Uniform Securities Act by failing to identify himself on securities-related Internet message board postings. Honigsfield had been the subject of a May 17, 1999 Order to Cease and Desist, Notice of Right to Hearing and Notice of Intent to Fine based on the same conduct. In informally resolving the matter, the Commissioner acknowledged that from April 1998 to November 1998, while a beneficial owner of securities of Compu-DAWN, Inc., Honigsfeld did not exercise a purchase or sales transaction in Compu-DAWN, Inc. securities.
The Consent Order fined Honigsfeld $100,000 and restricted his future activities for two years should be become employed by or affiliated with a publicly traded company. Specifically, the Consent Order required that, during that two year time frame, Honigsfeld 1) notify the public company that the Consent Order was issued; and 2) seek legal guidance before engaging in any securities-related activities that would impact the publicly held company's securities, including but not limited to, Internet postings and market maker contacts.
The Consent Order also vacated the May 17, 1999 Order to Cease and Desist and withdrew the May 17, 1999 Notice of Intent to Fine against Honigsfeld.
Millennium Securities Corp. (CRD # 31695) Assessed $15,000
On August 18, 1999, the Banking Commissioner entered a Consent Order (File No. CO-99-5300-S) with respect to Millennium Securities Corp., a broker-dealer with its principal office at 150 East 58th Street, 38th Floor, New York, New York. The Consent Order claimed that the firm had wilfully sold unregistered securities in violation of the Connecticut Uniform Securities Act and had paid monies to an unregistered person.
The Consent Order directed the firm to pay $15,000 to the agency, $7,000 of which consisted an administrative penalty, $500 of which represented disgorgement of commissions earned, $2,500 of which represented reimbursement for department investigative costs and $5,000 of which constituted a contribution to the agency's Investor Education Fund. The Consent Order also required that the firm implement revised supervisory procedures designed to improve regulatory compliance.
Milton Campis, Jr. (CRD # 2814437) Barred from Connecticut Securities Activity for One Year
On July 9, 1999, the Banking Commissioner entered a Consent Order (File No. CO-99-5363-S) with respect to Milton Campis, Jr., a former broker-dealer agent of National Securities Corp. The Consent Order was based on allegations that, in conjunction with an investigation, Campis made a materially false and misleading statement concerning securities sales related activity to the Commissioner. The Consent Order directed Campis to cease and desist from engaging in violative conduct; barred him from transacting business as a broker-dealer, investment adviser, broker-dealer agent, agent of issuer or investment adviser agent in Connecticut for one year; and restricted his Connecticut securities activity following the expiration of that one year period to investment company securities; governmental securities; exchange-listed options; and securities listed on the New York Stock Exchange, the American Stock Exchange and the National Market System of NASDAQ.
Brian Lenihan (CRD # 306567) Sentenced
On August 31, 1999, Brian Lenihan of Stamford, Connecticut was sentenced in Norwalk Superior Court to 8 years imprisonment, with execution suspended after two years, followed by five years of probation. Lenihan, an investment adviser, had pled guilty to two violations of the antifraud provisions of the Connecticut Uniform Securities Act; three counts of Larceny in the First Degree; and one count of Forgery in the Third Degree. According to the arrest warrant affidavit, Lenihan, d/b/a Lenihan Investments, failed to disclose material information to his advisory clients, filed false documents; and forged clients' signatures in a scheme to embezzle over $100,000 in client funds. The matter was prosecuted by the Economic Crime Unit of the Chief State's Attorney's Office, with investigative assistance provided by the Enforcement Section of the Securities and Business Investments Division of the Department of Banking; the Chief State's Attorney's Office, the Stamford Police Department and the Norwalk Police Department. As part of his sentence, Lenihan was ordered to make restitution during his probationary period to affected investment advisory clients.
Lenihan had been the subject of a March 19, 1998 Order to Cease and Desist (Docket Number CD-98-4027-S) issued by the Banking Commissioner. That Order to Cease and Desist, which became permanent on May 1, 1998, had been based, in part, on claims that Lenihan violated the antifraud provisions of the Connecticut Uniform Securities Act by causing investment advisory fees to be paid from the account of at least one Connecticut client absent the client's authorization or knowledge.
|1st Quarter||2nd Quarter||3rd Quarter||4th Quarter||Year |
|Securities Registrations by Coordination|
|Initial Filings Received||28||35||51||114|
|Renewal Filings Received||8||9||17||34|
|Securities Registrations by Qualification|
|Initial Filings Received||0||3||5||8|
|Renewal Filings Received||0||0||0||0|
|Post-Sale Filings Received||0||0||0||0|
|Investment Company Notice Filings|
|Initial open-end received||177||176||195||548|
|Renewal open-end received||111||10||27||148|
|Unit investment trusts received||169||202||180||551|
|Renewal UIT received||11||1||1||13|
|Initial closed-end received||5||1||2||8|
|Renewal closed end received||5||0||4||9|
|Exemptions and Notices|
|Private Placement Filings||487||530||593||1,610|
|Other Exemption Notices||5||6||87||98|
|Initial Registrations Received||73||108||84||265|
|Successor Registrations Received||0||0||0||0|
|Renewal Registrations Processed||2,183||0||0||2,183|
|Broker-dealers Registered 9/30/99||2,394|
|Initial Registrations Received||10,836||9,056||8,646||28,538|
|Mass Transfers Received||454||994||378||1,826|
|Renewal Registrations Processed||89,127||0||0||89,127|
|Broker-dealer Agents Registered 9/30/99||94,665|
|Broker-Dealer Branch Offices|
|Branch Offices Registered 9/30/99||1,520|
|Investment Adviser Firms|
|Initial Registrations Received||14||12||10||36|
|Successor Registrations Received||1||1||1||3|
|Renewal Registrations Processed||121||2||(1)
|Investment Advisers Registered 9/30/99||400|
|SEC Registered Adviser Notices Received||44||35||18||97|
|SEC Registered Adviser Notices Renewed||88||0||0||88|
|SEC Registered Advisers Filing Notice 9/30/99||910|
|Investment Adviser Agents|
|Initial Registrations Received||217||241||194||652|
|Mass Transfers Received||1||0||81||82|
|Renewal Registrations Processed||553||33||(3)
|Investment Adviser Agents Registered 9/30/99||4,207|
|Investment Adviser Branch Offices|
|Branch Offices Registered 9/30/99||431|
|SEC Adviser Branch Notices Received||14||29||11||54|
|SEC Advisers Filing Branch Notice 9/30/99||160|
|Agents of Issuer|
|Initial Registrations Received||12||10||4||26|
|Renewal Registrations Received||1||0||0||1|
|Agents of Issuer Registered 9/30/99||171|
|1st Quarter||2nd Quarter||3rd Quarter||4th Quarter||Year to Date|
|Ongoing as of 9/30/99||82|
|Cases referred from Attorney General||2||2||1||5|
|Cases referred from other agencies||2||2||2||6|
|Notices of Intent to Deny (Licensing)||2||2||0||4|
|Notices of Intent to Suspend (Licensing)||0||0||0||0|
|Notices of Intent to Revoke (Licensing)||1||0||0||1|
|Denial Orders (Licensing)||3||1||0||4|
|Suspension Orders (Licensing)||0||0||0||0|
|Revocation Orders (Licensing)||2||1||0||3|
|Notices of Intent to Fine||0||1||0||1|
|Orders Imposing Fine||0||0||0||0|
|Cease and Desist Orders||6||3||3||12|
|Notices of Intent to Issue Stop Order||0||0||0||0|
|Stipulation and Agreements||0||4||0||4|
|Criminal (Chief State's Attorney)||1||1||1||3|
|Civil (Attorney General)||0||0||0||0|
|Other Agency Referrals||0||0||0||0|
The Securities and Business Investments Division is also charged with
administering the Connecticut Business Opportunity Act.
|1st Quarter||2nd Quarter||3rd Quarter||4th Quarter||Year to Date|
|Initial Registrations Received||0||8||7||15|
|Initial Registrations Effective||5||7||7||19|
|Renewal Registrations Received||1||11||1||13|
|Renewal Registrations Effective||0||8||2||10|
|Exemption and Exclusion Notices||8||3||11||22|
|Post-Sales Registrations Received||0||1||0||1|
|Post-Sale Registrations Effective||0||0||0||0|
|Investigations ongoing as of 9/30/99||11|
|Cases referred by Attorney General||0||0||0||0|
|Cases referred by other agencies||0||2||0||2|
|Cease and Desist Orders||1||0||0||1|
|Notices of Intent to Issue Stop Order||1||0||0||1|
|Notices of Intent to Fine||0||0||0||0|
|Orders Imposing Fine||0||0||0||0|
|Monetary Sanctions Imposed||0||0||0||0|
|Criminal Referrals (Chief State's Attorney)||0||0||0||>||0|
|Civil Referrals (Attorney General)||0||0||0||0|
|Other Agency Referrals||0||0||0||0|