The Department of Banking News Bulletin 

Bulletin # 1935
Week Ending March 23, 2001

This bulletin constitutes the only official notification you will receive from this office concerning any of the following applications. Any observations you may have are solicited. Any comments should be in writing to John P. Burke, Commissioner of Banking, at the Connecticut Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800 or via E-mail to john.burke@ct.gov. Written comments will be considered only if they are received within ten days from the date of this bulletin.

NEWS BULLETIN BY E-MAIL

As a means to improve customer service, the Department of Banking is considering whether to establish a free service to deliver the News Bulletin and other publications directly to you by E-mail. Subscribers would receive the Bulletin on the day that it is issued as an E-mail attachment - at no cost. Please take a moment to tell us if you would find this service beneficial. Would you subscribe to a Department of Banking E-mail list? If so, what computer file format would be preferable for publications (Microsoft Word, HTML, PDF, other)? As a subscriber, would you still wish to receive printed Bulletin copies by postal mail? Please respond by E-mail to jeanne.charbonneau@ct.gov or complete a brief on-line survey.

STATE BANK ACTIVITY
Branch Activity

Section 36a-145 of the Connecticut General Statutes requires that each application for a branch, or for a limited branch at which loans will be made, be accompanied by a plan detailing how adequate services to meet the banking needs of all community residents will be provided. Plans are submitted when such applications are filed and are available for public inspection and comment at this Department for a period of 30 days. Questions concerning branch activity should be directed to the Bank Examination Division, (860) 240-8180.
Note: dates are listed in month/day/year format.

CREDIT UNION DIVISION ACTIVITY

On March 21, 2001, pursuant to Section 36a-470 of the Connecticut General Statutes, approval was granted to Sikorsky Financial Credit Union, Inc., Stratford, Connecticut, to merge Danbury Municipal Federal Credit Union, Danbury, Connecticut, with and into Sikorsky Financial Credit Union, Inc.

CONSUMER CREDIT DIVISION ACTIVITY
Mortgage Broker License Revoked

On March 19, 2001, the Commissioner of Banking issued Findings of Fact, Conclusions of Law and an Order revoking the first mortgage lender/broker license of Homefn Mortgage Corporation. The entity is located at 1000 Parkwood Circle, Suite 500, Atlanta, Georgia. The agency's action was based on findings that the entity failed to file a new bond or a replacement bond with the Commissioner as required by Section 36a-492 of the Connecticut General Statutes.

SECURITIES AND BUSINESS INVESTMENTS DIVISION ACTIVITY
Notice of Intent to Revoke Agent Registration;
Order to Cease and Desist and Notice of Intent to Fine Issued

On March 15, 2001, the Commissioner of Banking issued a Notice of Intent to Revoke the registration of Vincent J. Esposito, Jr. as a broker-dealer agent of Jefferson Pilot Securities Corporation. On the same day, the Commissioner issued an Order to Cease and Desist and Notice of Intent to Fine with respect to respondent Esposito. The actions were based on claims that the respondent violated the antifraud provisions of the Connecticut Uniform Securities Act and engaged in dishonest or unethical practices by misleading a brokerage customer on multiple occasions as to the value of the customer's account. The alleged misconduct occurred in 1999 when the respondent was associated with Legg Mason Wood Walker, Incorporated, a broker-dealer. In addition, the agency's action alleged that the respondent engaged in dishonest or unethical practices by intercepting and destroying faxed customer complaints and failing to bring them to the attention of the branch manager at Legg Mason Wood Walker, Incorporated in violation of that firm's procedures.

The respondent was afforded an opportunity to request a hearing on the Notice of Intent to Revoke and the Order to Cease and Desist. A hearing on the Notice of Intent to Fine has been scheduled for May 8, 2001.

Texas Corporation Fined $20,000

On March 22, 2001, the Commissioner of Banking entered an Order Imposing Fine against Redbank Petroleum, Inc. of 16901 Dallas Parkway, Suite 111, Dallas, Texas. The action was based on findings that from at least April 1998, the corporation sold unregistered non-exempt notes to Connecticut investors through several unregistered agents of issuer in violation of the Connecticut Uniform Securities Act. Redbank Petroleum, Inc. had been the subject of a November 7, 2000 Order to Cease and Desist that was uncontested by Redbank Petroleum, Inc. and that became permanent on January 16, 2001.

Texas Corporation Fined $20,000

On March 22, 2001, the Commissioner of Banking entered an Order Imposing Fine against Ameritech Petroleum, Inc. of 16775 Addison Road, #335, Addison, Texas, and 16901 Dallas Parkway, Suite 111, Dallas, Texas. The action was based on findings that from at least November 1996, the corporation sold unregistered non-exempt notes to Connecticut investors through several unregistered agents of issuer in violation of the Connecticut Uniform Securities Act. Ameritech Petroleum, Inc. had been the subject of a November 7, 2000 Order to Cease and Desist that, being uncontested by the respondent, became permanent on January 16, 2001.

SECTION 36a-425 APPLICATION

On March 21, 2001, an application was filed by Citigroup Inc., a Delaware corporation, to maintain an office of EAB Mortgage Company, Inc. ("EAB Mortgage") and EAB Credit Corp. ("EAB Credit"), both New York corporations and subsidiaries of European American Bank ("EAB"), a New York chartered bank, after the consummation of the merger of EAB with and into Citibank, N.A., a national banking association which is a subsidiary of Citigroup Inc. EAB Mortgage and EAB Credit will continue to operate at 101 Merritt 7 Corporate Park, Norwalk, Connecticut.

MERGER

On March 23, 2001, pursuant to Sections 36a-412(b) and 36a-125 of the Connecticut General Statutes, the Commissioner of Banking approved the merger of Resource Trust Company, a Minnesota banking corporation, with and into U.S. Trust Company, a Connecticut bank.

CONVERSION

On March 23, 2001, pursuant to Section 36a-137 of the Connecticut General Statutes, Southington Savings Bank, Southington, Connecticut, filed an application to convert from a capital stock savings bank to a bank and trust company.

POLICY STATEMENT

Attached to this Bulletin is a memorandum of the Commissioner of Banking dated March 21, 2001, rescinding the Department of Banking's policy statement re retail sales by depository institutions of mutual funds and other nondeposit investment products.

MEMORANDUM

On June 30, 1994, the Department of Banking ("Department") issued a revised policy statement entitled "Department of Banking policy statement re retail sales by depository institutions of mutual funds and other nondeposit investment products." The policy statement was amended in part on May 5, 1999. The June 30, 1994 policy statement and its May 5, 1999 amendment ("Policy Statement") aimed to give banks and credit unions ("Banking Institutions") guidance on state regulatory requirements concerning retail sales of nondeposit investment products. The regulatory landscape has changed dramatically in the interim, particularly with the enactment of federal legislation such as the National Securities Markets Improvement Act of 1996 and the Gramm-Leach-Bliley Financial Modernization Act of 1999. Connecticut, too, has amended its banking and securities laws to respond to federal legislative changes and to offer state-chartered institutions new opportunities. Currently, the Connecticut General Assembly is considering at least two legislative proposals that would further affect the powers of Banking Institutions. As a result, many portions of the Policy Statement are or may become obsolete.

Accordingly, I am hereby rescinding the Policy Statement effective immediately.

Notwithstanding this action, certain positions taken by the Department concerning the status of Banking Institution personnel as "agents" and "investment adviser agents" under Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act ("CUSA"), remain unaffected until further notice. Bear in mind that these positions apply only where a Banking Institution uses a separate entity-subsidiary, affiliate or independent third-party marketer such as a broker-dealer or investment adviser to offer securities-related products and services. Two examples follow.

The Department will continue to require Banking Institution personnel to register as agents of a third-party broker-dealer if they perform one or more of these functions: (1) opening customer accounts and/or making suitability determinations regarding securities purchases or sales (this function would not cover individuals who merely collect or verify information for transmittal to and action by another person who is registered as an agent or a broker-dealer under CUSA); (2) rendering investment advice or making investment recommendations in connection with securities purchases or sales; (3) soliciting orders to purchase or sell securities; (4) processing orders to purchase or sell securities; (5) handling inquiries or engaging in the resolution of complaints regarding securities purchases or sales; or (6) supervising sales personnel either directly or indirectly or assuming responsibility for the day-to-day operation and supervision of any broker-dealer place of business in Connecticut. Note that Banking Institution personnel who only perform clerical or ministerial functions would not be agents of the third-party broker-dealer, and that referring complaints and/or merely transmitting order forms or like information to another person who is registered as an agent or a broker-dealer under CUSA for action by that person would be considered clerical or ministerial.

Next, Banking Institution support personnel who are bona fide employees of the Banking Institution and who are not acting as broker-dealer agents under CUSA may make compensated referrals to an investment adviser with whom the Banking Institution has a marketing arrangement without registering as investment adviser agents of that investment adviser where certain conditions are met. Specifically: (1) The referral must only be accompanied by a nominal referral fee of a fixed dollar amount per referral; (2) The Banking Institution, rather than the investment adviser to whom the referral is directed, must pay the referral fee to the support person; (3) The referral fee arrangement must be clearly disclosed to each customer who is referred; (4) The investment adviser to whom the prospect is referred must be registered under CUSA or eligible for an exemption from registration (e.g., as a Securities and Exchange Commission registered investment adviser); and (5) Payment of the referral fee must not depend on whether the referral results in the customer actually engaging the investment adviser.

Of course, the Department will continue to respond to industry requests for interpretive opinions on specific issues that arise as the new laws take effect. We would also strongly encourage Banking Institutions involved in or contemplating retail sales of nondeposit investment products, either directly or indirectly, to consult with private counsel on applicable state and federal requirements, including those governing customer privacy.