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. XXXII  No. 1 - Spring 2018
Features
Enforcement and Other Highlights

NO-ACTION RELIEF GRANTED FOR OTCQX BEST AND OTCQB TRANSACTIONS

Text of No-Action Letter

March 23, 2018

Daniel Zinn, General Counsel
OTC Markets Group Inc.
304 Hudson Street
New York, New York 10013

Re: Request for Exemptive Relief Under Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the “Act”)

Dear Mr. Zinn:

This is a follow-up to your ongoing communications requesting that the State of Connecticut Department of Banking grant exemptive relief from the securities registration requirements in Section 36b-16 of the Act for transactions effected on the OTCQX Best and OTCQB Venture markets operated by OTC Markets Group Inc. and its Alternative Trading System affiliate OTC Link.  The information contained in your communications is incorporated by reference herein.

Section 36b-31(f) of the Act provides, in part, that:  “The commissioner, or employees of the Department of Banking authorized by the commissioner . . . may issue determinations that the commissioner will not institute a proceeding or an action under sections 36b-2 to 36b-34, inclusive, against a specified person for engaging in a specified act, practice or course of business if the determination is consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive.”

In your communications, you note that OTCQX and OTCQB companies are required to publicly disclose current information and that such disclosure obligations are satisfied in one of the following ways:  1) filing periodic reports with the Securities and Exchange Commission through the SEC’s EDGAR system; 2) making required filings under Tier 2 of federal Regulation A; 3) reporting to their applicable banking regulator; 4) as applicable, remaining current with their home country’s disclosure requirements and making the information available in English in the U.S. in compliance with Rule 12g3-2(b) under the Securities Exchange Act of 1934; or 5) following the OTCQX U.S. Disclosure Guidelines.  You add that OTC Markets Group monitors OTCQX and OTCQB company disclosure and that companies that have become delinquent in providing required information are removed from OTCQX or OTCQB.

OTC Markets Group maintains that the degree of disclosure is analogous to that contained in a recognized securities manual (see C.G.S. Section 36b-21(b)(2)).  Section 36b-21(b)(2) of the Act exempts from securities registration nonissuer transactions by a registered agent of a registered broker-dealer where, among other things, information concerning the affected issuers is contained in a “nationally recognized securities manual.”  As an alternative trading platform, OTC Markets Group, through OTC Link, differs in purpose from a recognized securities manual which focuses on capturing data on issuers whose securities have a ready trading market and making that information available to the public through online or print publications.  Thus, while OTC Markets Group also has an interest in disseminating information on issuers and establishing a market for their securities, nonissuer transactions effected in the OTCQX and OTCQB markets do not fall squarely within Section 36b-21(b)(2) of the Act.

However, in accordance with Section 36b-31(f) of the Act and based exclusively on the representations contained in your communications, this office will take no enforcement action at the present time if secondary market transactions of OTCQX and OTCQB securities are effected through a registered broker-dealer without registration under Section 36b-16 of the Act.  This position does not extend to OTC Pink Market transactions or transactions involving shell or blank check companies.  In addition, this position concerns the need for securities registration under Section 36b-16 of the Act only, and does not extend to any other provision of the Act, including, without limitation, the antifraud provisions.

This position concerns enforcement action only and does not represent a legal conclusion regarding the applicability of the statutory or regulatory provisions of the Act or any regulation or order thereunder.  Moreover, any material change in the facts presented may prompt a conclusion at variance from that contained herein.  This no-action letter may be modified, conditioned or withdrawn with respect to future securities transactions should circumstances so warrant.

Should you have any questions, please do not hesitate to contact the undersigned at (860) 240-8232.

Very truly yours,

JORGE L. PEREZ 
BANKING COMMISSIONER 
By   Lynn McKenna-Krumins
Director 



CE Capital Limited Fined $100,000

On January 31, 2018, the Banking Commissioner entered an Order Imposing Fine (Docket No. CRF-17-8212-S) against CE Capital Limited, now or formerly of 555 West Country Club Lane, C354, Escondido, California 92026 and Level 19, Two International Finance Centre, 8 Finance Street, Central Hong Kong.  The action had been preceded by a December 1, 2017 Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine alleging that CE Capital Limited and co-respondents Arthur Connolly, Trevor M. Allen, Sr. and Troy Rejda offered and sold unregistered securities in the form of participation agreements in or from Connecticut.  Under the terms of one such participation agreement, an investor's $50,000 outlay would result in a "Profit Participation" of $450,000 within 31 days as well as the guaranteed return of the investor's initial $50,000.  The investor's monies were not returned nor did he receive the $450,000 "Profit Participation." The action had also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by failing to disclose, among other things, how a $50,000 investment could yield an additional return of $450,000 in 31 days or less; financial and background information on CE Capital Limited and its principals; risk factors relating to the investment; and information on how the investment proceeds would be applied.  In addition, the action had alleged that CE Capital Limited had violated Section 36b-6 of the Act by employing Connolly, Allen and Rejda as unregistered agents of issuer.

Since CE Capital Limited failed to request a hearing on the Order to Cease and Desist and Order to Make Restitution, the Order to Cease and Desist and Order to Make Restitution became permanent as to it on January 3, 2018.  Likewise, CE Capital Limited failed to request a hearing on the Notice of Intent to Fine.  Therefore the January 31, 2018 Order Imposing Fine was entered by default.  Finding that CE Capital Limited violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, the Commissioner fined CE Capital Limited $100,000, with payment due within 45 days.

Arthur Connolly Fined $100,000

On January 31, 2018, the Banking Commissioner entered an Order Imposing Fine (Docket No. CRF-17-8212-S) against Arthur Connolly of Kent, Connecticut.  Connolly was the Risk Management Officer of CE Capital Limited, an entity with purported offices in Escondido, California and Hong Kong.  The action had been preceded by a December 1, 2017 Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine alleging that Arthur Connolly and co-respondents CE Capital Limited, Trevor M. Allen, Sr. and Troy Rejda offered and sold unregistered securities in the form of participation agreements in or from Connecticut.  Under the terms of one such participation agreement, an investor's $50,000 outlay would result in a "Profit Participation" of $450,000 within 31 days as well as the guaranteed return of the investor's initial $50,000.  The investor's monies were not returned nor did he receive the $450,000 "Profit Participation." The action had also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Connecticut Uniform Securities Act by failing to disclose, among other things, how a $50,000 investment could yield an additional return of $450,000 in 31 days or less; financial and background information on CE Capital Limited and its principals; risk factors relating to the investment; and information on how the investment proceeds would be applied.  In addition, the action had alleged that Connolly transacted business as an unregistered agent of issuer in violation of Section 36b-6 of the Act.

Since Connolly failed to request a hearing on the Order to Cease and Desist and Order to Make Restitution, the Order to Cease and Desist and Order to Make Restitution became permanent as to him on January 3, 2018.  Likewise, Arthur Connolly failed to request a hearing on the Notice of Intent to Fine.  Therefore the January 31, 2018 Order Imposing Fine was entered by default.  Finding that Arthur Connolly violated Sections 36b-16, 36b-4(a) and 36b-6(a) of the Act, the Commissioner fined Connolly $100,000, with payment due within 45 days. 


CONSENT ORDERS

Matthew Charles Woodard (CRD No. 5699485) and Toppikgink 539, LLC d/b/a Titan Brokerage Services

On March 23, 2018, the Banking Commissioner entered a Consent Order (No. CO-17-8279-S) with respect to Matthew Charles Woodard, a former broker-dealer agent of ProEquities, Inc.  Woodard was also associated with First Allied Securities, Inc. in an unregistered capacity.  Also named in the Consent Order was Toppikgink, a Texas limited liability company and insurance brokerage agency located at 1031 Farmington Avenue, Floor 3, Farmington, Connecticut 06032.  Woodard was a founding member and the treasurer of Toppikgink.

The Consent Order alleged that, while he was associated with ProEquities, Inc., Woodard offered or sold unregistered Series A Preferred Debt securities of Toppikgink to a ProEquities, Inc. client without notice to ProEquities, Inc.  Although the accompanying offering documents stated that the offering proceeds would be used to invest in private distressed debt opportunities, Woodard and Toppikgink actually used the investor’s monies to pay a portion of Woodard’s personal expenses and Toppikgink’s business expenses.  In addition, the Consent Order alleged that Woodard, on behalf of Toppikgink, borrowed approximately $220,000 from the investor and that, between investments and loans, the amount the investor tendered to Woodard was $325,000.  Ultimately, the investor moved his account to First Allied where Walter J. Dubiel (CRD No. 4234689), who shared office space with Woodard, exercised discretionary trading authority over the account.  The Consent Order alleged that Dubiel shared his First Allied confidential client account log-in credentials with Woodard who then used the credentials to access the investor’s account and place several liquidating securities transactions without the investor’s knowledge or consent.

The Consent Order alleged that both Woodard and Toppikgink violated Section 36b-16 of the Connecticut Uniform Securities Act and the antifraud provisions in Section 36b-4(a) of the Act.  In addition, the Consent Order alleged that Woodard  1) violated Section 36b-6(c)(2) of the Act by transacting business as an unregistered investment adviser agent of First Allied; 2) engaged in dishonest or unethical practices within the meaning of Section 36b-4(b) of the Act and Sections 36b-31-15b(a)(2) and 36b-31-15b(c) of the Regulations thereunder; and 3) violated Section 36b-31-6e of the Regulations by participating in private securities transactions without providing prior written notice to his employing broker-dealer.

The Consent Order acknowledged that, under the oversight of Woodard’s legal counsel, Woodard had partially repaid the investor $58,000 and that Woodard had forwarded to his legal counsel $267,000 in good funds to be deposited into the attorney's client funds account for the purpose of repaying the balance Woodard owed to the investor.

The Consent Order directed Woodard and Toppikgink to cease and desist from regulatory violations, and directed Woodard, through his legal counsel, to repay the investor the balance due no later than the date the Consent Order was entered.  The Consent Order also fined Woodard $20,000 and permanently barred him from 1) transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; 2) acting in any other capacity requiring a license or registration from the Commissioner; 3) serving as an officer, director or control person of a broker-dealer, investment adviser, issuer and/or any other entity requiring a license or registration from the Commissioner; and 4) soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut.

John W. Evans (d/b/a Evans Technology Holding Company) and Bonnie A. Evans

On January 2, 2018, the Banking Commissioner entered a Consent Order (Docket No. CRF-16-8209-S) with respect to John W. Evans and Bonnie A. Evans of Sharon, Connecticut.  John W. Evans did business under the name Evans Technology Holding Company.  John W. Evans purportedly held himself out as having rights to certain intellectual property, including cooling system related patents, and that Evans Technology Holding Company, an unincorporated entity controlled by John Evans, was purportedly organized for the purpose of holding the intellectual property.  Evans Technology Holding Company was variously described by John Evans as a limited liability company to be formed and as a general partnership.  The Consent Order had been preceded by a September 22, 2016 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-16-8209-S) alleging that the respondents, through two individuals, since deceased, offered and sold percentage interests in Evans Technology Holding Company to investors located in Connecticut and other states, and raised a total of $141,000.  The investors had no special expertise in the Evans intellectual property and were passive and totally dependent on respondents in achieving an investment return.  The September 22, 2016 action had also alleged that the respondents violated 1) Section 36b-16 of the Connecticut Uniform Securities Act by offering and selling unregistered securities; 2) the antifraud provisions in Section 36b-4 of the Act by, among other things, failing to disclose to investors the investment’s risks, the registration status of the securities and the basis for income projections; and 3) Section 36b-6(b) of the Act by employing unregistered agents of issuer.

The Consent Order acknowledged that the respondents had provided evidence to the agency indicating that the respondents had extended a $214,895 rescission offer to sixteen investors who held interests in Evans Technology Holding Company, and that the respondents had paid approximately $200,258 in restitution to those investors electing to accept the rescission offer.  The amounts included accrued interest.

The Consent Order resolved the allegations in the September 22, 2016 action, and directed the respondents to cease and desist from regulatory violations.  In addition, the Consent Order barred the respondents for three years from 1) transacting business in or from Connecticut as an agent, broker-dealer, broker-dealer agent, investment adviser or investment adviser agent; 2) maintaining a direct or indirect ownership interest in a broker-dealer or investment adviser registered or required to be registered under Connecticut's securities laws; and 3) acting in any other capacity that required a license or registration under laws administered by the Commissioner.  The Consent Order also fined the respondents $5,000.


STIPULATION AND AGREEMENTS

SF Investments, Inc. (CRD No. 6564)

On March 21, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8367-S) with SF Investments, Inc., a Connecticut registered broker-dealer.  The firm maintains its principal office at 799 Central Avenue, Highland Park, Illinois 60035.  The Stipulation and Agreement alleged that, in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act, the firm employed an unregistered agent who effected sales of securities issued by St. Teresa Medical, Inc.  The agent has since become registered in Connecticut.

The Stipulation and Agreement acknowledged that the firm had extended a $25,000 rescission offer to the affected Connecticut investor, and that the investor had opted not to accept the offer but to retain his investment in St. Teresa Medical, Inc.

In resolution of the matter, the firm agreed to refrain from regulatory violations and to pay $1,800 to the department.  Of that amount, $1,500 constituted an administrative fine and $300 represented reimbursement for past due agent registration fees.

Pearson and Associates, LLC (IARD No. 130143)

On March 19, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8409-S) with Pearson and Associates, LLC, an investment adviser having its principal office at 586 Main Street, Dennis, Massachusetts 02638.  The firm was restructured under new ownership in 2015, and applied for registration as an investment adviser in Connecticut in 2017.  The Stipulation and Agreement noted that the firm's registration application indicated that, for several years, it had transacted business as an investment adviser in the state while unregistered and had employed an unregistered investment adviser agent.

In resolution of the matter, the firm agreed to pay $6,110 to the department and to refrain from regulatory violations.  Of the amount assessed, $2,610 represented reimbursement for past due investment adviser and investment adviser agent registration fees and $3,500 constituted an administrative fine.

Pearson and Associates, LLC became registered as an investment adviser in Connecticut on March 19, 2018.

Augment Securities Inc. (CRD No. 28373)

On March 19, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8377-S) with Augment Securities Inc.  The firm maintains its principal office at 1140 Avenue of the Americas, 9th Floor, New York, New York 10036.  The Stipulation and Agreement alleged that the firm 1) violated Section 36b-6(b) of the Connecticut Uniform Securities Act by failing to promptly file a Form U5 for a terminated agent; 2) violated Section 36b-31-14e of the Regulations under the Act by not ensuring consistency between Form BD and Form U4 with respect to an officer’s title; 3) failed to sufficiently verify the accuracy of an agent’s Form U4 with respect to a civil judgment entered against the agent; and 4) failed to timely renew its 2018 broker-dealer registration.

In resolution of the matter, the firm agreed to pay a $2,500 fine to the department and to refrain from regulatory violations.  In addition, the firm agreed to retain a regulatory consultant to perform two on-site compliance reviews and to provide written verification to the agency that the consultant's remedial recommendations were implemented by the firm.

Hanley & Associates, LLC (IARD No. 164916)

On February 23, 2018, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8375-S) with Hanley & Associates, LLC, an investment adviser having its principal office at 449 Pittsfield Road, Suite 203-B, Lennox, Massachusetts 01240.  The Stipulation and Agreement alleged that, since at least 2013, the firm transacted business as an investment adviser in Connecticut while unregistered and employed an unregistered investment adviser agent, all in contravention of Section 36b-6(c) of the Connecticut Uniform Securities Act.  The firm and the agent subsequently became registered in Connecticut.  In resolution of the matter, the firm agreed to refrain from violative conduct and to pay $5,075 to the agency.  Of that amount, $3,500 constituted an administrative fine and $1,575 represented reimbursement for past due investment adviser and investment adviser agent registration fees.


STATISTICAL SUMMARY

Licensing At A Glance
at the end of the quarter

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Broker-dealers Registered 2,127     
  
  
Broker-dealer Agents Registered 168,467      
  
  
Broker-dealer Branch Offices Registered 2,568      
     
  
Investment Advisers Registered 509          
  
SEC Registered Advisers Filing Notice 2,192           
 
Investment Adviser Agents Registered 14,113               
      
Exempt Reporting Advisers
130
    
   
   
Agents of Issuer Registered 17             
   
Conditional Registrations
0
           
  

Securities and Business
Opportunity Filings

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Offerings Reviewed 44                 44
Investment Company Notice Filings 494     
    494
Exemptions and Exemptive Notices 961               961
Examinations      
Broker-dealers 32     
  
     32
Investment Advisers 39                 39
Securities Investigations
Opened 20                  20
Closed 13                13
Ongoing as of End of Quarter 77           
  
  
Subpoenas issued 6                6
Matters referred from Attorney General 0                0
Matters referred from Other Agencies 3                 3
Business Opportunity Investigations  
Investigations Opened 0       0
Investigations Closed 2       2
Ongoing as of End of Quarter 1           
Enforcement: Remedies and Sanctions
Notices of Intent to Deny (Licensing) 0             
0
Notices of Intent to Suspend (Licensing)
0
       
0
Notices of Intent to Revoke (Licensing)
0
   
   
0
Denial Orders (Licensing) 0              0
Suspension Orders (Licensing) 0         
0
Revocation Orders (Licensing) 0             0
Notices of Intent to Fine 0              0
Orders Imposing Fine 2             2
Cease and Desist Orders 0                   0
Notices of Intent to Issue Stop Order 0                
    
0
Activity Restrictions/Bars 2               
   
2
Stop Orders 0                      0
Vacating/Withdrawal/ Modification Orders 0                    0
Restitutionary Orders 0                   0
Injunctive Relief Obtained 0                    0

Proceedings and Settlements

 

 

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Administrative Actions
2
    
             
2
Consent Orders
2
    
             
2
Stipulation and Agreements
4
                 
4

Monetary Relief*

 

 

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Monetary Sanctions Imposed
$240,485
    
    
       $240,485
Portion attributable to settlements
$40,485
                    
$40,485
Attributable to Court-Ordered Penalties
0
      
    
      
0
Restitution or Other Monetary Relief
(includes rescission offer amounts)
$874,895       
    
       $874,895
*Cents eliminated

Securities Referrals

 

 

1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
to Date
Criminal Matters
1
    
             
1
Civil (Attorney General)
0
                   
0
Other Agency Referrals
0
                   
0