In accordance with Governor Lamont's emergency declaration, employees and the public are asked to observe social distancing measures to ensure communal safety and to slow the spread of the novel coronavirus (COVID-19). People are asked to work from home and telecommute wherever possible. Adhering to these instructions, the Department of Banking has closed its offices to the public. However, agency staff will continue to provide services to consumers and industry through telework. When contacting the Department, please use electronic communication whenever possible. Agency staff will continue to check voicemails during this time. Consumers are encouraged to use our online form for complaints. If you are unsure where to send an inquiry, you may send it to Department.Banking@ct.gov and it will be routed appropriately. Thank you for your patience during this time.

Securities and Business Investments Division

Securities Bulletin

Vol. XXIV  No. 3
Fall 2010

Features

Enforcement and Other Highlights
Contributors

Ralph Lambiase, Division Director
Cynthia Antanaitis, Assistant Director and Bulletin Editor
Eric Wilder, Assistant Director


A WORD FROM THE BANKING COMMISSIONER

Securities Forum 2010, held on October 19, 2010 at the New Haven Lawn Club, received a positive response from the over 200 people attending.  Spotlighting the Dodd-Frank Wall Street Reform and Consumer Protection Act, the theme of this year’s program was Revolution in Reform.  David B. Fein, United States Attorney for the District of Connecticut, delivered the keynote address.

Just as the effects of a revolution cannot be assessed until after the dust clears, so it is with the Dodd-Frank legislation - particularly the bill's migration of advisers having less than $100 million in assets under management to state registration.  Prior to July 21, 2011 (the effective date of the Dodd-Frank bill), only advisers having less than $25 million in assets under management were subject to state (versus federal) registration requirements.  The extent to which Connecticut (and other states) will be able to marshal the resources to handle the larger registrant pool remains to be worked out.  In Connecticut, this will be one of the challenges facing the new Administration.  In addition, many of the provisions of the Dodd-Frank legislation must be clarified by Securities and Exchange Commission rule-making that will be occurring during the upcoming year.

I am pleased to announce that, on September 26, 2010, the National White Collar Crime Center (NW3C) Board of Directors presented the Connecticut Department of Banking’s Securities and Business Investments Division with NW3C’s Member Agency Award for Excellence for contributions involving the prevention, investigation and prosecution of economic and high-tech crime.  In the last several years, the country has become acutely aware of the extent of devastation wrought by white collar crime.  High profile examples include Bernard Madoff and the Bayou Funds.  Although not receiving the same level of notoriety, there are many other lower profiled investment schemes that have parted Connecticut residents from their hard earned monies. Our collective goal is to continue to ferret out such wrongdoing and bring the responsible individuals to justice.

Also of interest to readers of this Securities Bulletin, the Securities Division recently adopted revised Part 2 of Form ADV.  Many investment advisers use Part 2 of Form ADV as the disclosure document (or “brochure”) that they provide to prospective clients.  The revised form would be written in plain English using a narrative format to give clients a better picture of an adviser’s services, background and potential conflicts of interest.  More information on Part 2 of Form ADV is contained in this issue.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner


On July 28, 2010 the Securities and Exchange Commission released a revised Form ADV [SEC Release No. IA-3060; File No. S7-10-00].  The release amended Part 2 of Form ADV (also called the “brochure” or new Part 2).  To provide more meaningful disclosure to advisory clients, the amendment changed the format of Part 2 from a check-the-box form to a narrative brochure written in plain English.  The brochure must be filed electronically through the IARD System as a searchable text, portable document format (PDF) file.

The Securities and Business Investments Division is adopting the new Part 2 of Form ADV effective October 12, 2010.  New Part 2 of Form ADV is easier for advisory clients to understand.

Effective January 1, 2011, all new investment adviser applicants must file, through the IARD (Investment Adviser Registration Depository), the new Part 2 of Form ADV as part of their application. 

Effective January 1, 2011, all investment advisers registered on December 31, 2010 will need to incorporate new Part 2 of Form ADV into their next Form ADV amendment filing and (if they use Form ADV Part 2 as their brochure) into their next brochure delivery to clients.  This transition must be completed by June 1, 2011.  New Part 2 of Form ADV must be filed electronically through IARD.

Prior to January 1, 2011, the Division will accept new investment adviser applications and amendments using either old Part II or new Part 2.  Prior to January 1, 2011, these documents may be filed electronically through the IARD or in paper form with the department.


NATIONAL WHITE COLLAR CRIME CENTER HONORS
CONNECTICUT SECURITES DIVISION WITH AWARD FOR EXCELLENCE

NW3C

Left to right, NW3C Director Don Brackman,
Chairman Glen Gainer and Ralph Lambiase

The National White Collar Crime Center (NW3C) Board of Directors presented the Connecticut Department of Banking’s Securities and Business Investments Division with NW3C’s Member Agency Award for Excellence on September 26, 2010, during the North American Securities Administrators Association’s (NASAA) annual conference in Baltimore, Maryland.  West Virginia State Auditor Glen B. Gainer, III, who is Chairman of the NW3C Board of Directors, presented the award.

According to the NW3C, the Connecticut Securities and Business Investments Division was honored for funding financial crime training for law enforcement agents using fines imposed on violators of the Connecticut Uniform Securities Act and the Connecticut Business Opportunity Investment Act.  This funding strategy, innovative in the face of growing budgetary shortfalls, allowed NW3C to deliver training that otherwise would not have been available.

“Under the direction of Director Ralph Lambiase, the Connecticut Department of Banking’s Securities and Business Investments Division made a strong commitment to ensure that top-notch training was provided to law enforcement agencies throughout their state,” NW3C Board Chairman Glen B. Gainer remarked.  “Their dedication to this worthy cause and their willingness to use creative means to produce funding at a time when budget shortfalls are a common threat is something that should be considered by state governments throughout the country.”

Thanking NW3C, Securities Division Director Ralph Lambiase commented, “Our Division is honored to receive this recognition from the National White Crime Center and is proud to be an ongoing partner with The State of Connecticut’s Police Officer Standards and Training Council and the NW3C in the collaborative program to make available state-of–the-art education to Connecticut law enforcement officers and representatives of regulatory agencies in investigating and prosecuting white collar crime.”

NW3C is comprised of over 3,500 state, local and regulatory law enforcement agencies from across the country.  Each year, the NW3C Board of Directors presents the Member Agency Award for Excellence to one of its member agencies that has demonstrated excellence in the area of investigation, regulatory and/or community achievement to support law enforcement in the prevention, investigation and prosecution of economic and high-tech crime. Funded for over thirty years primarily by the Department of Justice through the Bureau of Justice Assistance, NW3C is a leader in the fight against economic and high-tech crime.


Salomon Whitney LLC (CRD # 145012) – Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine Issued 

On September 23, 2010, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. RCF-10-7792-S) against Salomon Whitney LLC of 15 Deer Park Avenue, Suite 1, Babylon Village, New York.  The action alleged that the firm violated the antifraud provisions in the Connecticut Uniform Securities Act and engaged in dishonest and unethical practices by not disclosing to Connecticut customers that a transactional “Handling Fee” charged to Connecticut customers included a profit to the firm, that certain customers paid lower fees and that the fee was not based on the costs of handling a particular transaction.  The action also alleged that the firm 1) violated Section 36b-14(a) of the Connecticut Uniform Securities Act by failing to maintain required books and records; 2) failed to provide agency staff with copies or computer printouts of records when so requested in contravention of Section 36b-14(d) of the Act and Section 36b-31-14f of the Regulations; and 3) failed to enforce and maintain adequate supervisory procedures.  Salomon Whitney LLC was afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine.

Daniel Morris Porter (CRD # 2032112) d/b/a D.P. Holdings Inc., J. Lawson & Associates, Inc. and Jason Alexander Lawson (CRD # 2712622) – Order to Cease and Desist and Notice of Intent to Fine Issued

On August 23, 2010, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-10-7399-S) against Daniel Morris Porter d/b/a D.P. Holdings Inc. of 1390 Vespucci Avenue, Copiague, New York and 109 Maple Parkway, Staten Island, New York; and J. Lawson & Associates, Inc. and Jason Alexander Lawson, both of 134-25 Franklin Avenue, #303, Flushing, New York.  The action alleged that respondents participated in a transaction involving procuring funds from a Connecticut investor for the purported purpose of investing in securities of Ionic Water Technologies Inc.  In reality, the investor’s monies were deposited into a J. Lawson & Associates, Inc. bank account established by respondents Daniel Morris Porter and Jason Alexander Lawson who used the investor’s money for their personal use and not for the purchase of securities.  According to the action, the investor did not receive either Ionic Water Technologies Inc. securities or a return of funds paid to the respondents.  The action alleged that 1) respondents Porter and J. Lawson & Associates, Inc. transacted business as broker-dealers in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act and that respondent Jason Alexander Lawson materially aided in such violation; and 2) respondents Porter and J. Lawson & Associates, Inc., with the material assistance of respondent Jason Lawson, violated the antifraud provisions in Section 36b-4(a) of the Act.  Each of the respondents was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.  Since respondent Daniel Morris Porter did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent as to him on September 11, 2010.

Itradedirect.com Corp. (CRD # 18281) Fined $45,000; Broker-dealer Registration Revoked, Order to Cease and Desist Made Permanent

On August 23, 2010, the Banking Commissioner entered an Order revoking the broker-dealer registration of Itradedirect.com and fining the firm $45,000 (Docket No. RCF-10-7699-S).  The firm maintains its principal office at 1600 NW Boca Raton Boulevard, Suite 22, Boca Raton, Florida.  The Order Revoking Registration as Broker-dealer and Order Imposing Fine had been preceded by a June 3, 2010 Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine (Docket No. RCF-10-7699-S) alleging that the firm violated the antifraud provisions in the Connecticut Uniform Securities Act and engaged in dishonest and unethical practices by not disclosing to Connecticut customers that a $65 per transaction “Handling Fee” was not based on actual handling costs but included a profit to the firm.  The June 3, 2010 action had also alleged that the firm 1) violated Section 36b-6(b) of the Act by employing at least five unregistered agents; and 2) violated Section 36b-31-6f of the Regulations under the Act by allowing its agents to use unapproved sales scripts in their communications with the public.  Since the firm had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on July 23, 2010.

In revoking the firm’s broker-dealer registration and fining the firm $45,000, the Commissioner adopted as findings the legal and factual matters alleged in the June 3, 2010 action.  Itradedirect.com Corp. did not appear or contest the imposition of the fine or the revocation of its Connecticut broker-dealer registration.

Joel Torres Fined $75,000 in Conjunction with Unregistered Promissory Note Sales; Order to Cease and Desist Rendered Permanent

On August 23, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-10-7746-S) against Joel Torres of 149-27 84th Street, Howard Beach, New York.  The respondent previously maintained a residence at 256 Washington Boulevard, Unit 10, Stamford, Connecticut.  Respondent Torres had been the subject of a July 15, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-10-7746-S) alleging that from at least June 8, 2009, respondent Torres violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered promissory notes.  The July 15, 2010 action had also alleged that respondent Torres violated the antifraud provisions in Section 36b-4(a) of the Act by failing to disclose to investors the risks associated with the investment, background financial information on the respondent or factors relating to the respondent’s ability to meet the note obligations.  Since Joel Torres had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on August 11, 2010.

In fining respondent Torres $75,000, the Commissioner found that Joel Torres violated Sections 36b-16 and 36b-4(a) of the Act.  The respondent did not appear or contest the imposition of the fine.

Wadsworth Investment Co., Inc. (CRD # 5844), Portfolio Timing Service d/b/a PTS Asset Management (CRD # 111047), William F. Wadsworth (CRD # 456251) and William F. Wadsworth, Jr. (CRD # 1987068) – Revocation Proceedings Initiated; Order to Cease and Desist and Notice of Intent to Fine Issued

On August 11, 2010, the Banking Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CFNR-10-7779-S) against Wadsworth Investment Co., Inc., a registered broker-dealer located at 879 Church Street, Route 68, Wallingford, Connecticut; Portfolio Timing Service d/b/a PTS Asset Management, an SEC-registered investment adviser sharing the same address as Wadsworth Investment Co., Inc.; William F. Wadsworth, a control person of both Wadsworth Investment Co., Inc. and Portfolio Timing Service; and William F. Wadsworth, Jr., the national sales manager for Portfolio Timing Service.  The action also sought to revoke the registration of Wadsworth Investment Co., Inc. as a broker-dealer in Connecticut; the registrations of William F. Wadsworth as a broker-dealer agent and investment adviser agent; and the registration of William F. Wadsworth, Jr. as a broker-dealer agent.

The action alleged that Wadsworth Investment Co., Inc. and William F. Wadsworth, Jr. engaged in dishonest and unethical practices in the securities business by contacting a large mutual fund complex, which held assets of Wadsworth Investment Co., Inc. and Portfolio Timing Service clients, and posing, or permitting Wadsworth Investment Co., Inc. employees to pose, as employees of other registered firms in order to gain access to certain account information that otherwise would have been denied to them.  The action also alleged that William F. Wadsworth, Jr. violated Section 36b-23 of the Connecticut Uniform Securities Act by misrepresenting his involvement in this activity to Division staff during an investigation.  In addition, the action alleged that Wadsworth Investment Co., Inc. engaged in dishonest or unethical practices by maintaining in customer files pre-signed but otherwise blank securities liquidation forms and new account applications.

The action also alleged that Wadsworth Investment Co., Inc., William F. Wadsworth and Portfolio Timing Service violated the antifraud provisions in Section 36b-4 of the Act in recommending that clients transfer their Oppenheimer Fund Family holdings to the AIM Fund Family.  The respondents allegedly told clients that 1) the Oppenheimer Funds forced Portfolio Timing Service to wait an entire day to implement client trading instructions; 2) the Oppenheimer Funds refused to implement a major buy instruction of Portfolio Timing Service; 3) all other clients had agreed to exit the Oppenheimer Funds and enter the AIM Funds; and 4) William F. Wadsworth and his family would be switching to the AIM Funds from Oppenheimer.  According to the action, however, in reality 1) the Oppenheimer Funds were in the process of terminating their sales agreements with Wadsworth Investment Co., Inc. and Portfolio Timing Service due to troubling business practices at those entities; 2) the Oppenheimer Funds’ order procedure had been in use since 2002 and had often saved clients money; 3) the Oppenheimer Fund did not refuse to execute the buy instruction; 4) not every investor had signed documents to exit the Oppenheimer Funds and enter the AIM Funds; 6) investors would pay substantial fees to switch from the Oppenheimer Funds to the AIM Funds and 7) William F. Wadsworth and his family would not pay any fees to make the switch.

The action also alleged that 1) Wadsworth Investment Co., Inc., Portfolio Timing Service and William F. Wadsworth violated Section 36b-16 of the Act by selling unregistered securities of DECA ONE; and 2) Wadsworth Investment Co., Inc. failed to enforce and maintain adequate supervisory procedures and to maintain required books and records.

The respondents were afforded an opportunity to request a hearing on the matters alleged in the action.

Donald C. Lyle d/b/a Noirstar Financial Services Fined $45,000 for Selling Unregistered Securities, Engaging in Fraudulent Conduct

On July 8, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2010-7556-S) against Donald C. Lyle, now or formerly of 2346 Eutaw Place, Unit 2, Baltimore, Maryland.  Donald Lyle purportedly did business under various names, including Noirstar Financial Services of 1337 Dixwell Avenue, Hamden, Connecticut.  The respondent had been the subject of a May 7, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2010-7556-S) alleging that the respondent violated 1) Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities from November 29, 2007 forward; and 2) the antifraud provisions in Section 36b-4 of the Act by failing to disclose to investors, among other things, any risk factors related to the investment; financial information on the respondent or his businesses; the income sources from which the investments would be repaid or that the respondent had been the subject of three Chapter 13 bankruptcy proceedings filed in Connecticut bankruptcy court.  Since the respondent had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on May 27, 2010.

The respondent also did not request a hearing on the Notice of Intent to Fine.  Incorporating as findings the allegations in the May 7, 2010 action, the Commissioner concluded that respondent Lyle had committed three violations of Section 36b-16 of the Act and three violations of Section 36b-4(a) of the Act.  Accordingly, the Commissioner directed respondent Lyle to pay a $45,000 fine to the department.

Rogers Forman, III Fined $25,000 for Selling Unregistered Promissory Note Securities, Transacting Business as an Unregistered Agent of Issuer

On July 8, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2010-7554-S) against Rogers Forman, III of 125 Seymour Avenue, West Hartford, Connecticut.  The respondent had been the subject of a February 26, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2010-7554-S) alleging that the respondent violated 1) Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered promissory note securities on behalf of Forman Financial Services, LLC from at least December 21, 2007 through April 8, 2008; and 2) Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer.  Since the respondent had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on March 19, 2010.

The respondent also did not request a hearing on the Notice of Intent to Fine.  Incorporating as findings the allegations in the February 26, 2010 action, the Commissioner concluded that respondent Rogers Forman, III had committed two violations of Section 36b-16 of the Act and two violations of Section 36b-6(a) of the Act.  Accordingly, the Commissioner directed respondent Rogers Forman, III to pay a $25,000 fine to the department.

Forman Financial Services, LLC Fined $25,000 for Selling Unregistered Promissory Note Securities, Employing an Unregistered Agent of Issuer

On July 8, 2010, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2010-7554-S) against Forman Financial Services, LLC of 60 Gillett Street, Suite 204, Hartford, Connecticut.  The respondent had been the subject of a February 26, 2010 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2010-7554-S) alleging that the respondent violated 1) Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered promissory note securities from at least December 21, 2007 through April 8, 2008 through Rogers Forman, III who was also named as a respondent in the proceeding; and 2) Section 36b-6(b) of the Act by employing Rogers Forman, III as an unregistered agent of issuer.  Since the respondent had not requested a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on June 2, 2010.

The respondent also did not request a hearing on the Notice of Intent to Fine.  Incorporating as findings the allegations in the February 26, 2010 action, the Commissioner concluded that respondent Forman Financial Services, LLC had committed two violations of Section 36b-16 of the Act and two violations of Section 36b-6(b) of the Act.  Accordingly, the Commissioner directed respondent Forman Financial Services, LLC to pay a $25,000 fine to the department.


Advisors Capital Investments, Inc. (IARD # 104811), Advisor’s Capital Research, Inc. (IARD # 131887) and Robert Keith Mann (CRD # 318870) Assessed $3,500 for Form ADV Disclosure Deficiency

On September 27, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7835-S) with respect to Advisors Capital Investments, Inc., Advisor’s Capital Research, Inc. and Robert Keith Mann, president and a control person of each entity.  Advisors Capital Investments, Inc. and Advisor’s Capital Research, Inc., both of 17 Tripp Road, Woodstock, Connecticut, had applied for registration as investment advisers under the Connecticut Uniform Securities Act.  The Consent Order alleged that the Form ADV for Advisors Capital Investments, Inc. initially failed to disclose Robert Mann’s arbitration history, and that Robert Mann, in signing the Form ADV, certified its accuracy.  The Form ADV was subsequently amended.  The Consent Order directed Robert Mann to cease and desist from regulatory violations, and required that Advisors Capital Investments, Inc. and Advisor’s Capital Research, Inc. confer with an experienced securities compliance consultant for two years to ensure their compliance with the state’s securities laws.  The Consent Order also required that Advisors Capital Investments, Inc. and Advisor’s Capital Research, Inc., through Robert Mann, remit $3,500 to the department.  Of that amount, $3,000 constituted an administrative fine and $500 would be applied to defray the agency’s investigative costs.

Advisors Capital Investments, Inc. and Advisor’s Capital Research, Inc. each became registered as an investment adviser in Connecticut on September 27, 2010.

Vining-Sparks IBG, L.P. (CRD # 27502) Fined $20,000 for Employing Unregistered Broker-dealer Agents

On September 27, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7851-S) with respect to Vining-Sparks IBG, L.P., a Connecticut-registered broker-dealer having its principal office at 775 Ridge Lake Boulevard, Memphis, Tennessee.  The Consent Order alleged that the firm violated Section 36b-6(b) of the Connecticut Uniform Securities Act by employing unregistered agents over an extended period of time.  The Consent Order fined the firm $20,000 and directed it to cease and desist from regulatory violations.

Stifel, Nicolaus & Company Incorporated (CRD # 793) Fined $8,512 in Connection With Auction Rate Securities Activity

On September 23, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7809-S) with respect to Stifel, Nicolaus & Company Incorporated, a Connecticut-registered broker-dealer located at 501 North Broadway, St. Louis, Missouri.  The settlement, which required the firm to offer to repurchase approximately $2,825,000 in auction rate securities (ARS) from eligible Connecticut investors, followed a multi-state investigation spearheaded by the Securities Division of the Missouri Secretary of State.  The Consent Order alleged that, in failing to adequately train its registered agents regarding the features and risks of ARS, the firm failed to reasonably supervise those agents who recommended ARS as safe and/or liquid investments to firm customers.  The Consent Order also fined the firm $8,512.73, and required that it cease and desist from regulatory violations.

Rockhouse Capital, LLC (CRD # 152806) Fined $3,990 for Unregistered Investment Adviser Activity

On September 20, 2010, the Banking Commissioner entered a Consent Order (No. CO-10-7845-S) with respect to Rockhouse Capital, LLC, an applicant for investment adviser registration located at 500 West Putnam Avenue, Greenwich, Connecticut.  The Consent Order alleged that, from August 2009 forward, the firm transacted business as an investment adviser and engaged unregistered investment adviser agents in contravention of Section 36b-6(c) of the Connecticut Uniform Securities Act.  The Consent Order acknowledged that the firm had provided the Division with documentation indicating that, during the period of unregistered activity, the firm’s investment advisory clients were domiciled outside the State of Connecticut.

In resolution of the matter, Rockhouse Capital, LLC agreed to implement revised supervisory and compliance procedures and to retain an experienced securities compliance consultant to assist it in fulfilling its compliance obligations under state law.  In addition, the firm agreed to pay $3,990 to the department.  Of that amount, $3,000 constituted an administrative fine; $490 represented past due investment adviser and investment adviser agent registration fees; and $500 would be applied to defray the agency’s investigative costs.  Rockhouse Capital, LLC became registered as an investment adviser in Connecticut on September 20, 2010.

Deutsche Bank Securities Inc. (CRD # 2525) Fined $343,481 in Connection With Auction Rate Securities Activity

On August 9, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7799-S) with respect to Deutsche Bank Securities Inc., a Connecticut-registered broker-dealer located at 60 Wall Street, New York, New York.  The Consent Order was executed in conjunction with a multistate settlement.  In connection with the Connecticut resolution, the firm offered to repurchase approximately $43,375,000 in auction rate securities (ARS) from eligible Connecticut investors.  The Consent Order alleged that 1) the firm engaged in dishonest and unethical conduct in the securities business in connection with the misrepresentation of ARS to clients; the failure to adequately disclose to clients the effect of the firm’s role as underwriter and broker-dealer for ARS issues; and the use of supporting bids to artificially prevent failed ARS auctions; and 2) the firm failed to exercise reasonable supervision over its operations in that it failed to provide its agents with adequate training on ARS; failed to create and maintain adequate written supervisory procedures concerning ARS; and failed to ensure that its agents adequately disclosed conflicts of interest and ARS characteristics to clients.  The Consent Order directed the firm to pay a fine of $343,481.09 to the department, representing Connecticut’s pro rata share of the $15 million total penalty the firm agreed to pay pursuant to the multistate settlement.

JPMorgan Chase & Co. Fined $543,445 in Connection With Auction Rate Securities Activity

On August 2, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7784-S) with respect to JPMorgan Chase & Co.  The Consent Order followed an investigation by a multistate task force into the auction rate securities (ARS) activities of certain JPMorgan Chase & Co. subsidiaries and affiliates, including J.P. Morgan Securities Inc. (CRD number 79), Chase Investment Services Corp. (CRD number 25574) and Bear Stearns & Co.  The Consent Order alleged that, in conjunction with the marketing of ARS, the JPMorgan Chase & Co. broker-dealers 1) failed to reasonably supervise their agents, and 2) engaged in unethical practices by failing to ensure that appropriate disclosures were made to customers.  In connection with the Connecticut resolution, the firm offered to repurchase approximately $386,740,751 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $543,445.82, representing Connecticut’s pro rata share of the multistate settlement, and directed it to cease and desist from regulatory violations.

Merrill Lynch, Pierce, Fenner & Smith Incorporated (CRD # 7691) Fined $3,274,445 in Connection With Auction Rate Securities Activity

On July 28, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7569-S) with respect to Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Connecticut-registered broker-dealer located at One Bryant Park, New York, New York.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firm.  The Consent Order alleged that, in conjunction with the marketing of ARS, the firm 1) failed to reasonably supervise its agents, and 2) engaged in dishonest and unethical practices by failing to ensure that appropriate disclosures were made to customers.  In connection with the Connecticut resolution, the firm offered to repurchase approximately $711,680,000 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $3,274,445.80, and directed it to cease and desist from regulatory violations.

Credit Suisse Securities (USA) LLC (CRD # 816) Fined $196,070 in Connection With Auction Rate Securities Activity

On July 21, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7801-S) with respect to Credit Suisse Securities (USA) LLC, a Connecticut-registered broker-dealer located at 1 Madison Avenue, 9th Floor, New York, New York.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firm.

The Consent Order alleged that, in conjunction with the marketing of ARS, the firm 1) failed to reasonably supervise certain of its registered agents in their communication of material information concerning ARS, and 2) engaged in dishonest or unethical practices, through the activities of certain registered agents, by failing to adequately state complete facts concerning ARS.  In connection with the Connecticut resolution, the firm offered to repurchase approximately $44,525,000 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $196,070.59, and directed it to cease and desist from regulatory violations.

RBC Capital Markets Corporation (CRD # 31194) Fined $33,403 in Connection With Auction Rate Securities Activity

On July 19, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7808-S) with respect to RBC Capital Markets Corporation, a Connecticut-registered broker-dealer located at One Liberty Plaza, 165 Broadway, New York, New York.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firm.  The Consent Order alleged that, in conjunction with the marketing of ARS, the firm failed to reasonably supervise its agents and engaged in dishonest or unethical practices in the securities business by representing to certain customers that ARS were highly liquid, safe, cash alternative investments.   In connection with the Connecticut resolution, the firm offered to repurchase approximately $22,225,000 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $33,403.22, and directed it to cease and desist from regulatory violations.

Wachovia Securities, LLC n/k/a Wells Fargo Advisors, LLC (CRD # 19616) and Wachovia Capital Markets, LLC n/k/a Wells Fargo Securities, LLC (CRD # 126292) Together Fined $863,341 in Connection With Auction Rate Securities Activity

On July 15, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7568-S) with respect to Wachovia Securities, LLC (n/k/a Wells Fargo Advisors, LLC), a Connecticut-registered broker-dealer located at One North Jefferson Avenue, St. Louis, Missouri, and Wachovia Capital Markets, LLC (n/k/a Wells Fargo Securities, LLC), a Connecticut-registered broker-dealer located at 301 South College Street, Charlotte, North Carolina.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firms from January 1, 2006 through February 14, 2008.  The Consent Order alleged that, in conjunction with the marketing of ARS, the firms failed to supervise their employees, and that the firm engaged in dishonest or unethical practices in the securities business by mischaracterizing or failing to adequately explain ARS to customers.  In connection with the Connecticut resolution, the firms offered to repurchase approximately $219,455,646 in ARS from eligible Connecticut investors.  The Consent Order fined the firms $863,341.30, and directed them to cease and desist from regulatory violations.

Banc of America Securities LLC (CRD # 26091) and Banc of America Investment Services, Inc. (CRD # 16361) Together Fined $865,290 in Connection With Auction Rate Securities Activity

On July 9, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7787-S) with respect to Banc of America Securities, LLC, a Connecticut-registered broker-dealer, and Banc of America Investment Services, Inc.  Banc of America Investment Services, Inc. had been registered as a broker-dealer in Connecticut prior to its merger with Merrill Lynch, Pierce, Fenner & Smith Incorporated.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firms from approximately August 1, 2007 through February 11, 2008.  The Consent Order alleged that 1) in conjunction with the marketing of ARS from October 1, 2007 to February 11, 2008, the firms failed to supervise their agents, and 2) from August 1, 2007 through February 11, 2008, the firms engaged in a dishonest or unethical practice by inappropriately marketing and selling ARS without adequately informing their customers of the increased risks of illiquidity associated with the product.  In connection with the Connecticut resolution, the firms offered to repurchase approximately $253,355,020 in ARS from eligible Connecticut investors.  The Consent Order fined the firms $865,290.80, and directed them to cease and desist from regulatory violations.

Citigroup Global Markets Inc. (CRD # 7059) Fined $1,014,486 in Connection With Auction Rate Securities Activity

On July 8, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7777-S) with respect to Citigroup Global Markets Inc., a Connecticut-registered broker-dealer located at 390-388 Greenwich Street, New York, New York.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firm.  The Consent Order alleged that, in conjunction with the marketing of ARS, the firm failed to supervise its employees and engaged in dishonest or unethical practices in the securities business.   In connection with the Connecticut resolution, the firm offered to repurchase approximately $404,038,220 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $1,014,486.84, and directed it to cease and desist from regulatory violations.

Morgan Stanley & Co. Incorporated (CRD # 8209) Fined $909,094 in Connection With Auction Rate Securities Activity

On July 7, 2010, the Banking Commissioner entered a Consent Order (Docket No. CO-10-7505-S) with respect to Morgan Stanley & Co. Incorporated, a Connecticut-registered broker-dealer located at 1585 Broadway, New York, New York.  The Consent Order followed an investigation by a multistate task force into the marketing and sale of auction rate securities (ARS) by the firm.  The Consent Order alleged that, in conjunction with the marketing of ARS, the firm failed to supervise its employees, and engaged in dishonest or unethical practices in the securities business by mischaracterizing ARS to customers.  In connection with the Connecticut resolution, the firm offered to repurchase approximately $68,580,000 in ARS from eligible Connecticut investors.  The Consent Order fined the firm $909,094.71, and directed it to cease and desist from regulatory violations.


Diamcor Mining, Inc. Fined $650 for Late Rule 506 Notice Filing

On September 30, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7824-S) with Diamcor Mining, Inc., an issuer of securities located at 630-1620 Dickson, Kelowna, British Columbia, Canada.  The Stipulation and Agreement alleged that the company had been delinquent in making a Regulation D Rule 506 notice filing under Section 36b-21(e) of the Connecticut Uniform Securities Act with respect to an offering of units consisting of common stock and warrants.  After making the requisite filing, Diamcor Mining, Inc. agreed to pay a $650 fine and to refrain from offering or selling securities in or from Connecticut absent compliance with Section 36b-16 of the Act.

Joseph P. Lucia & Associates, LLC Assessed $1,500 for Unregistered Investment Adviser Activity

On August 9, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7818-S) with Joseph P. Lucia & Associates, LLC, a New York investment adviser located at 888 Route Six Plaza, Mahopac, New York.  The Stipulation and Agreement alleged that, in applying for Connecticut registration as an investment adviser, the firm disclosed that, commencing in 2009, it had rendered investment advisory services to Connecticut residents absent registration.  The firm submitted documentation to the Division indicating that it had relied on a third party filing service in making its state registration filings.  Pursuant to the Stipulation and Agreement, Joseph P. Lucia & Associates, LLC agreed to refrain from violative conduct and to remit $1,500 to the department.  Of that amount, $700 constituted an administrative fine, $300 represented reimbursement for past due registration fees and $500 would be applied to defray the Division’s investigative costs.  In addition, the firm agreed to confer with an experienced securities compliance consultant periodically for two years to ensure that the firm remained in compliance with Connecticut law.   The firm became registered as an investment adviser under the Connecticut Uniform Securities Act on August 9, 2010.

The Advisory Council, Inc. Assessed $1,300 for Delinquent Rule 506 Notice Filing

On July 30, 2010, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-10-7750-S) with The Advisory Council, Inc., an issuer of securities now or formerly located at 191 Joppa Hill Road, Bedford, New Hampshire and 1 Stiles Road, Suite 105, Salem, New Hampshire.  The Stipulation and Agreement alleged that, during 2002, the company offered and sold common stock in Connecticut at a time when no registration, exemption or claim of covered security status had been filed under the Connecticut Uniform Securities Act.  On May 12, 2010, The Advisory Council, Inc. made a corrective Rule 506 notice filing under Section 36b-21(e) of the Act for the prior offering of its common stock.  Pursuant to the Stipulation and Agreement, The Advisory Council, Inc. agreed to refrain from offering or selling securities in or from Connecticut absent regulatory compliance and to pay a $1,300 fine to the department.


Blue Coast Financial Group, Inc., Shawn Hull, Lindsay Hull and Brian Felderstein Agree to Entry of Permanent Injunction Following Claims of Unregistered Business Opportunity Sales 

On July 15, 2010, the Superior Court for the Judicial District of Hartford granted the Banking Commissioner’s Motion for Judgment in Accordance With Stipulation against defendants Blue Coast Financial Group, Inc.; Shawn Hull, Chief Executive Officer of Blue Coast Financial Group, Inc.; Lindsay Hull, President of the company; and Brian Felderstein, the firm’s Vice President of Business Development (Pitkin v. Blue Coast Financial Group, Inc. et al.; No. HHD-CV09-5033958-S).  The Commissioner’s October 13, 2009 civil complaint seeking injunctive relief had alleged that, from at least 2007 to 2008, the defendants offered and sold unregistered business opportunities in violation of the Connecticut Business Opportunity Investment Act.

The defendants consented to the entry of a judgment permanently enjoining them from violating the state’s business opportunity law.  In addition, under the terms of the stipulated judgment, 1) Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull agreed to jointly and severally pay a $25,000 fine no later than 30 business days following the entry of judgment by the court; 2) Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull were barred for six years from acting in Connecticut in any capacity that would require registration or licensure by the Commissioner and from offering or selling any business opportunity or security to or from Connecticut; 3) for seven years, Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull would file a sworn affidavit with the Commissioner each calendar year verifying that the respective defendant was in compliance with the terms of the Stipulation for Judgment; and 4) Brian Felderstein was barred for one year from acting in Connecticut in any capacity requiring registration or licensure by the Commissioner and from offering or selling any business opportunity or security to or from Connecticut.  After one year, Brian Felderstein could conduct business regulated by the Department of Banking in Connecticut, but only if he did not act as an agent for, or in connection with, Blue Coast Financial Group, Inc. or any business opportunity in which Shawn Hull and/or Lindsay Hull had an interest, financial or otherwise.  The bar against Brian Felderstein relating to the activities of Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull would last only so long as the bar against the other defendants remained in place.

Blue Coast Financial Group, Inc. had been the subject of a November 5, 2008 Notice of Intent to Issue Stop Order denying the company’s business opportunity registration, Order to Cease and Desist and Notice of Intent to Fine (Docket No. CSF-2008-859-B).  Also on November 5, 2008, the Commissioner had issued an Order to Cease and Desist and Notice of Intent to Fine against Shawn Hull and Lindsay Hull (Docket No. CSF-2008-859-B).  A previous business opportunity registration by Blue Coast Financial Group, Inc. had been denied by the Commissioner on May 5, 2008 following a hearing (Docket No. SO-2007-846-B).


Verition Securities LLC (CRD # 150918) – Consent Order Conditioning Effectiveness of Withdrawal of Application for Registration as a Broker-dealer Issued 

On July 19, 2010, the Banking Commissioner issued a Consent Order Conditioning Effectiveness of Withdrawal of Application for Registration as a Broker-dealer (No. CO-10-7819-S) with respect to Verition Securities LLC.  The firm, which filed for registration as a broker-dealer under the Connecticut Uniform Securities Act, maintains its principal office at One American Lane, Greenwich, Connecticut.  The action alleged that 1) in filing a Form U-4 for a control person, the firm had not disclosed that the control person had been a defendant in two civil suits filed in 2007; and 2) in signing the Form U-4, the firm had represented that it had taken appropriate steps to verify the accuracy and completeness of the information on the form.   Following a discussion with the Division, the Form U-4 in question was subsequently amended to make the proper disclosure.  Citing changes in its business plan, Verition Securities LLC filed an application to withdraw its Connecticut broker-dealer registration application on April 21, 2010.

The Consent Order rendered the withdrawal effective on July 19, 2010, subject to certain conditions.  First, Verition Securities LLC consented not to reapply for registration as a broker-dealer in Connecticut until such time as it had employed, and identified in writing to the Division Director, a full time Chief Compliance Officer, a full time Chief Financial Officer and a full time Chief Operating Officer each of whom had passed the appropriate principal’s examination.   Second, in the event the firm reapplied for broker-dealer registration in Connecticut, the firm agreed to notify the Division Director in writing at least fourteen days prior to any proposed change in its Chief Compliance Officer, Chief Financial Officer and/or Chief Operating Officer and to identify the individual(s) succeeding to those positions.  Finally, Verition Securities LLC agreed to remit $2,500 to the department.  Of that amount, $1,500 constituted an administrative fine and $1,000 would be applied to defray the Division’s investigative costs.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,465  2,509  2,521    
Broker-dealer Agents Registered 136,757 140,300   143,332
Broker-dealer Branch Offices Registered 2,741  2,715  2,708
Investment Advisers Registered 483  496  503
SEC Registered Advisers Filing Notice 1,839  1,871  1,892
Investment Adviser Agents Registered 9,824 9,947   10,189
Agents of Issuer Registered 25 25   26
Conditional Registrations
0
0
0

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 45 44 
38
127
Investment Company Notice Filings 781  511
488
  1,780
Exemptions and Exemptive Notices 666  658  545   1,869
Examinations      
Broker-dealers 21 22 
14
57
Investment Advisers 4 16 
11
31
Securities Investigations
Opened 48 29  31 108
Closed 63 36  33 132
Ongoing as of End of Quarter 141 134  131
Subpoenas issued 6 10  25 41
Matters referred from Attorney General 2  3 10
Matters referred from Other Agencies 7  0 8
Business Opportunity Investigations  
Investigations Opened 3 2 2 7
Investigations Closed 4 2 1 7
Ongoing as of End of Quarter 3 3 4
Enforcement: Remedies and Sanctions
Notices of Intent to Deny (Licensing) 1
0
0
1
Notices of Intent to Suspend (Licensing)
0
0
0
0
Notices of Intent to Revoke (Licensing)
0
1
2
3
Denial Orders (Licensing) 0 0
0
0
Suspension Orders (Licensing) 0 0
0
0
Revocation Orders (Licensing) 0 0
1
1
Notices of Intent to Fine 2 4
4
10
Orders Imposing Fine 4 3
5
12
Cease and Desist Orders 3 4
4
11
Notices of Intent to Issue Stop Order 0 0
0
0
Activity Restrictions/Bars 2 3 1 6
Stop Orders 0 0 0 0
Vacating/Withdrawal/ Modification Orders 1 0 1 2
Restitutionary Orders 0 0
0
0
Injunctive Relief Obtained 1 0 1 2

Proceedings and Settlements

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
7
7
8
22
Consent Orders
5
5
13
23
Stipulation and Agreements
1
2
3
6

Monetary Relief*

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$571,630
$2,273,592
$8,325,007
$11,170,229
Financial Literacy
0
0
0
0
Law enforcement protecting public
(voluntary contribution
acknowledged)
0
$300,000
0
$300,000
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$34,265
$575,204,111
$2,157,490,709
$2,732,729,085
*Cents eliminated

Securities Referrals

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal (Chief State's Attorney)
0
0
1
1
Civil (Attorney General)
0
0
1
1
Other Agency Referrals
1
3
4
8



Securities Division