Securities and Business Investments Division
Securities Bulletin
Vol. XXIII  No. 4	Winter 2009

Features

• A Word from the Banking Commissioner
• Quarterly Statistical Summaries 

• Administrative Orders and Notices 
• Consent Orders 
• Stipulation and Agreements
• Miscellaneous Orders 
• Conditional Registrations

A WORD FROM THE BANKING COMMISSIONER

As 2009 drew to a close, economic uncertainty persisted.  Although calls for reform echoed from Capital Hill and legislative proposals abounded, few of the debated ideas reached full fruition.  The department is continuing to monitor several federal bills.  These include proposals to extend fiduciary standards to all industry professionals rendering securities-related investment advice; legislation requiring hedge fund managers to register with the SEC; and a proposal to expand state investment advisory authority to advisers having up to $100 million in assets under management.  We estimate that raising the investment advisory regulatory level from its current $25 million to $100 million would result in a 37% increase in Connecticut-based investment adviser registrants.

In January 2010, Connecticut Senator Christopher Dodd, chairman of the Senate Banking Committee, announced that he would be retiring from the Senate at the end of his term.  While certain of Senator Dodd’s financial services reform ideas – notably his call for a Consumer Finance Protection Agency – provoked controversy, his political experience and financial services industry knowledge were unparalleled and will be missed.

2009 was not a year for savers.  Historically low interest rates on conservative investments such as U.S. Treasury bonds and bank certificates of deposit spurred some investors to redirect funds from financial institutions into a weakened stock market, prompting a few to question whether those investors would realize positive returns in the long-term.  Other savers simply settled for unprecedented low returns or shuffled their funds from institution to institution.  Savings interest rates of 3-4%, common just a few years ago, seemed out of reach.

The quest for higher investment returns had a dark underside.  2009 was described as the Year of the Ponzi.  Wall Street financier Bernard Madoff was sentenced to 150 years in prison for defrauding countless investors.  While the scheme was being perpetrated, the account statements distributed to investors painted a comforting financial picture.  When the scheme collapsed, investor confidence in the credibility of the marketplace further plummeted.

Marketplace uncertainty and related abuses underscore the need for state responsiveness to investor concerns.  Proximity matters.  As I have said many times before, state regulators provide a unique perspective on matters of local interest.  State regulation complements federal oversight by preventing costly errors, allowing for the detection of troubling practices or trends and providing implementational depth.  Given the economic challenges we face heading into 2010, investors deserve to have their concerns heard at all levels.

As always, we welcome your feedback and suggestions.

Howard F. Pitkin
Banking Commissioner

Royal Burgundy International, Inc. Directed to Cease and Desist from Sales of Unregistered Coffee Distributorship Business Opportunities; Notice of Intent to Fine Issued

On December 23, 2009, the Banking Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CF-2009-865-B) against Royal Burgundy International, Inc. of 172 W. Warren Avenue, Suite 200, Longwood, Florida.  The action alleged that, from at least August 2008 forward, Royal Burgundy International, Inc. offered and sold coffee distributorship business opportunities to at least one Connecticut purchaser-investor in contravention of Section 36b-67 of the Connecticut Business Opportunity Investment Act.  The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist and Notice of Intent to Fine.

Commonwealth Exploration Corporation Fined $900,000

On December 3, 2009, the Banking Commissioner entered Findings of Fact and Conclusions of Law resolving certain allegations contained in a June 30, 2009 Notice of Intent to Fine (Docket No. CF-2008-7560-S) issued against Commonwealth Exploration Corporation of 2002 Summit Boulevard, Suite 1225, Atlanta, Georgia, and Carlos E. Conde of 1231 Adams Street, Franklin, Tennessee.  The parties had also been the subject of a June 30, 2009 Order to Cease and Desist (Docket No. CF-2008-7560-S), which, being uncontested, had become permanent as to Commonwealth Exploration Corporation and Carlos E. Conde on August 7, 2009.

The June 30, 2009 Order to Cease and Desist and Notice of Intent to Fine had alleged that, in 2007, respondents Commonwealth Exploration Corporation and Conde sold unregistered interests in Perimeter Summit, LLP, a Georgia limited liability partnership, in violation of Section 36b-16 of the Connecticut Uniform Securities Act.  Perimeter Summit, LLP was allegedly formed to acquire oil and gas development projects in Kentucky.  The action had also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Act by disseminating offering documents that failed to disclose 1) financial information about the performance of prior interests in oil and gas rights in which Commonwealth Exploration Corporation was the manager; 2) investment risk factors; 3) that Derek M. Lofton, also named as a respondent, was not registered to sell securities in Connecticut; 4) that the Perimeter Summit, LLP interests were not registered in Connecticut; and 5) that respondent Lofton was subject to a prior Connecticut administrative action alleging that he sold unregistered securities in an unregistered capacity.  The action had also alleged that, in violation of Section 36b-6 of the Act, respondents Commonwealth Exploration Corporation and Conde employed respondent Lofton as an unregistered agent of issuer, and that respondent Lofton unlawfully transacted securities business in that capacity.

The matter involving respondent Lofton remains pending.

On August 11, 2009, a hearing was held on the Notice of Intent to Fine involving Commonwealth Exploration Corporation and Carlos E. Conde.  Neither Commonwealth Exploration Corporation nor respondent Conde appeared at that hearing.  Under Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, a party’s failure to appear at a scheduled hearing may result in the allegations against that party being deemed admitted.

Focusing exclusively on Section 36b-27(d)(1)(B) of the Connecticut Uniform Securities Act, which authorizes the Commissioner to impose a fine against control persons causing a primary violation, the Commissioner accepted the hearing officer's proposed finding that the Notice of Intent to Fine did not allege that respondent Conde was a cause of any of the alleged violations due to an act or omission that Conde knew or should have known would contribute to those violations.  Consequently, the facts did not require the imposition of a fine against respondent Conde.

The Commissioner found, however, that the record and the absence of mitigating factors required the imposition of a $900,000 fine against respondent Commonwealth Exploration Corporation.

Resilient Partners, LLC and Carlos M. Garcia, III (CRD # 1961096) Fined $1.9 Million in the Aggregate for Transacting Business as an Unregistered Investment Adviser and Unregistered Investment Adviser Agent

On November 16, 2009, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2009-7333-S) against Resilient Partners, LLC of 318 North Carson Street, Suite 208, Carson City, Nevada, and Carlos M. Garcia, III of 143 Ironwood Road, Guilford, Connecticut.  Resilient Partners, LLC managed Paramount Equity Partners, LLC, an investment fund located in Connecticut and Nevada.  Carlos M. Garcia, in turn, was a member and manager of both Resilient Partners, LLC and Paramount Equity Partners, LLC.  The respondents had been the subject of a July 1, 2009 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing which was subsequently amended on July 23, 2009.  The July 23, 2009 and July 1, 2009 actions had alleged that, at various times between August 2002 and October 10, 2005, Resilient Partners, LLC, through respondent Garcia, rendered investment advisory services to Paramount Equity Partners, LLC and others at a time when 1) Resilient Partners, LLC was not registered as an investment adviser under the Connecticut Uniform Securities Act; and 2) Carlos M. Garcia was not registered as an investment adviser agent in Connecticut.  Since Resilient Partners, LLC and Carlos M. Garcia, III had not requested a hearing on the Amended and Restated Order to Cease and Desist, the Amended and Restated Order to Cease and Desist became permanent as to each of them on August 18, 2009 and August 12, 2009, respectively.

Since neither respondent appeared at the hearing on the Notice of Intent to Fine, the allegations against each respondent were deemed admitted under Section 36a-1-31(b) of the Regulations of Connecticut State Agencies. Accordingly, the Commissioner found that, in transacting business as an unregistered investment adviser and engaging an unregistered investment adviser agent, Resilient Partners, LLC committed ten violations of Section 36b-6(c) of the Connecticut Uniform Securities Act, resulting in the imposition of a $1 million fine against Resilient Partners, LLC.  The Commissioner also found that, in transacting business as an unregistered investment adviser agent, Carlos M. Garcia, III committed nine violations of Section 36b-6(c)(2) of the Act, resulting in the imposition of a $900,000 fine against respondent Garcia.

Cuppy’s Coffee & More, Inc. – Stop Order Entered Denying Business Opportunity Registration

On November 10, 2009, the Banking Commissioner entered a Stop Order (Docket No. SOCF-2009-864-B) denying effectiveness to the pending business opportunity registration of Cuppy’s Coffee & More, Inc. of 348 Miracle Strip Parkway SW, Building C, Suite 10, Fort Walton Beach, Florida.  The Stop Order had been preceded by a September 8, 2009 Notice of Intent to Issue a Stop Order Denying Effectiveness to a Business Opportunity Registration, Order to Cease and Desist and Notice of Intent to Fine against the respondent.

Although Cuppy’s Coffee & More, Inc. had previously registered its business opportunity under the Connecticut Business Opportunity Investment Act, that registration had terminated on April 30, 2007 when the registration was not renewed.   Cuppy’s Coffee & More, Inc. reapplied for Connecticut business opportunity registration on March 5, 2008.  The September 8, 2009 action alleged that, in its 2008 business opportunity registration application and in a General Affidavit filed with the agency, Cuppy’s Coffee & More, Inc. made materially false or misleading statements concerning prior business opportunity offers and sales in Connecticut.  In addition, the action alleged that Cuppy’s Coffee & More, Inc. violated Section 36b-67 of the Connecticut Business Opportunity Investment Act by selling or offering unregistered business opportunities to at least one Connecticut purchaser-investor.

Cuppy’s Coffee & More, Inc. did not request a hearing on the imposition of the Stop Order.  Similarly, since the respondent had not requested a hearing on the earlier Order to Cease and Desist, the Order to Cease and Desist had become permanent on October 14, 2009.

Southridge Investment Group LLC f/k/a Greenfield Capital Partners LLC (CRD # 45531) – Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine Issued

On October 20, 2009, 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-2009-7741-S) against Southridge Investment Group, a Connecticut-registered broker-dealer located at 90 Grove Street, 2nd Floor, Ridgefield, Connecticut.   The firm, whose president is Michael Byl (CRD number 1204677), is beneficially owned by Stephen Murray Hicks (CRD number 1248222).  Hicks also maintains a beneficial ownership interest in Southridge Capital Management LLC (CRD Number 138267) and Southridge Asset Management LLC (CRD number 136707).

The action alleged that, in 2005, the respondent firm violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered, nonexempt common stock issued by Markland Technologies, Inc.  The action also alleged that, in contravention of Section 36b-31-6f of the Regulations under the Act, the respondent failed to maintain and enforce adequate supervisory procedures relating to Hicks’ supervisory role; the protection of material, non-public information; the preservation of electronic communications and other business records; and the processing of fingerprint data.  In addition, the action alleged that 1) the firm engaged in dishonest and unethical business practices by allowing Hicks to operate as an unregistered principal; and by failing to maintain business electronic communications as required by the firm’s Supervisory Manual as well as by failing to follow procedures governing the processing of fingerprints; 2) the firm failed to maintain the books and records required by Section 36b-14 of the Act; 3) the firm wilfully violated Section 36b-14 of the Act by failing to provide copies or computer printouts of records when requested by the department; and 4) the firm violated Section 36b-31-15e of the Regulations by allowing Hicks to act as a manager when he had not passed the appropriate principal’s examination.  Finally, the action alleged that the respondent violated Section 36b-23 of the Act by filing Form U-4 amendments that were materially false or misleading.

The respondent requested a hearing on the Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer and Notice of Intent to Fine.  The hearing remains pending.

Randall Bruce Hyten d/b/a RH Planning & Advisory (CRD # 125854) Barred from Applying for Investment Adviser Registration for Five Years Following Allegations of Unregistered Activity

On October 7, 2009, the Banking Commissioner entered a Consent Order (No. CO-09-7718-S) with respect to Randall Bruce Hyten (CRD number 4709701), a sole proprietorship doing business as RH Planning & Advisory.   RH Planning & Advisory was previously registered as an investment adviser in the State of New York, and Randall Hyten relocated to Connecticut from New York in 2006.  The Consent Order alleged that from 2006 to February 2009, Randall Hyten d/b/a RH Planning & Advisory continued to render investment advisory services from Connecticut to preexisting non-Connecticut clients; that the firm acquired two new non-Connecticut clients during that period; and that the firm did not pursue investment adviser registration under the Connecticut Uniform Securities Act.  The Consent Order acknowledged Randall Hyten’s representations that he did not receive advice from an attorney or compliance consultant regarding Connecticut investment adviser registration requirements, and that he had closed his investment advisory practice on March 9, 2009.  The Consent Order directed Randall Hyten to refrain from violative conduct and barred him from applying for Connecticut investment adviser registration for five years.

Perennial Investment Partners (U.S.) Inc. (CRD #144375) Assessed $2,500 for Unregistered Investment Advisory Activity

On December 16, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-09-7731-S) with Perennial Investment Partners (U.S.) Inc., an investment adviser having its principal office at 1010 Washington Boulevard, Stamford, Connecticut.  The Stipulation and Agreement alleged that, in contravention of Section 36b-6(c)(1) of the Connecticut Uniform Securities Act, from at least September 26, 2008 forward, the firm rendered investment advisory services to an institutional client while not registered as an investment adviser under Connecticut’s securities law.  The firm had registered with the Securities and Exchange Commission in 2007, expecting that, within 120 days, its assets under management would meet the $25 million threshold required to maintain its federal registration.  However, the firm's assets under management did not surpass $25 million, and the firm failed to withdraw its federal registration as required by SEC Rule 203A-2(d) under the Investment Advisers Act of 1940.  Perennial Investment Partners (U.S.) Inc. applied for investment adviser registration in Connecticut in June 2009.  The firm submitted documentation to the department indicating that it had relied upon a third party filing service to make its federal and state registration filings.  In furtherance of its desire to resolve the matter informally with the department, the firm represented that it would retain a Connecticut licensed attorney experienced in state and federal investment advisory legal and compliance issues and consult with such counsel annually for a period of three years.

Pursuant to the Stipulation and Agreement, the firm agreed to refrain from regulatory violations and to remit $2,500 to the department.  Of that amount, $1,700 constituted an administrative fine, $300 represented reimbursement for past due registration fees and $500 would be applied to defray the Division's investigative costs.

CT Equity Partners, LLC and John A. Gilroy Fined $5,000 for Unregistered Activity

On December 16, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-09-7733-S) with CT Equity Partners, LLC of 401 Carroll Road, Fairfield, Connecticut and its managing member, John A. Gilroy.  The Stipulation and Agreement alleged that CT Equity Partners, LLC was retained by iMedX, Inc., a Shelton, Connecticut-based issuer of securities, to provide certain services, including the identification of investors, and that CT Equity Partners, LLC introduced a financial entity investor to the issuer for compensation.  At the time of the transaction, John A. Gilroy was not registered as an agent of issuer or in any other capacity under the Connecticut Uniform Securities Act nor was CT Equity Partners, LLC registered as a broker-dealer or in any other capacity.  Pursuant to the Stipulation and Agreement, John A. Gilroy agreed to refrain from offering or selling securities on behalf of any issuer unless those transactions were effected within the scope of Gilroy’s employment with a Connecticut-registered broker-dealer.  CT Equity Partners, LLC agreed not to transact business as a broker-dealer or investment adviser in Connecticut absent registration under the Act.   In addition, John Gilroy agreed to retain legal counsel experienced in securities law and to consult with such attorney on an annual basis for three years.  The Stipulation and Agreement also required that CT Equity Partners, LLC and John A. Gilroy remit $5,000, jointly and severally, to the department as an administrative fine.

Tix Corporation and Alan R. Davidson Assessed $3,000 in the Aggregate for Unregistered Finder Activity

On October 15, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-2008-7492-S) with Tix Corporation, an issuer of securities located at 12001 Ventura Place, Studio City, California, and Alan R. Davidson, of 36 Candlewyck Drive, Henderson, Nevada.  Davidson is the manager of ARD Partners, LLC, a Florida limited liability company.  The Stipulation and Agreement alleged, in conjunction with a prior private placement, Tix Corporation had paid a 12% finder’s fee to ARD Partners, LLC, on behalf of Davidson; and that Davidson was not registered as either an agent of issuer or as a broker-dealer under the Connecticut Uniform Securities Act.  Pursuant to the Stipulation and Agreement, Tix Corporation agreed to refrain from engaging an unregistered broker-dealer or an unregistered agent of issuer in connection with future securities sales and to pay a $1,500 fine.  Davidson agreed to refrain from transacting business as an agent or a broker-dealer absent registration and to remit $1,500 to the department as a fine.

Barnard Jacobs Mellet (USA) LLC (CRD # 39142) Assessed $1,500 For Employing an Unregistered Broker-dealer Agent

On October 2, 2009, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-09-07-7712) with Barnard Jacobs Mellet (USA) LLC, a Connecticut-registered broker-dealer located at 301 Tresser Boulevard, 6th Floor, Stamford, Connecticut.  The Stipulation and Agreement alleged that, from April 2005 forward, the firm employed an unregistered agent in contravention of Section 36b-6 of the Connecticut Uniform Securities Act.  Pursuant to the Stipulation and Agreement, the firm agreed to file an application to register the individual in question; refrain from paying commissions to the individual until the agent registration was in effect; prohibit the individual from engaging in activities requiring registration until the agent was effectively registered in Connecticut; and pay $1,500 to the department.  Of that amount, $1,000 constituted an administrative fine and $500 would be applied to cover reimbursement for past due agent registration fees and the Division’s investigative costs.

L & L International Holdings, Inc. f/k/a L & L Financial Holdings, Inc. – 2007 Consent Order Modified

On November 9, 2009, the Banking Commissioner entered an Order modifying an April 26, 2007 Consent Order (No. CO-07-7271-S) issued with respect to L & L Financial Holdings, Inc. n/k/a L & L International Holdings, Inc.  L & L International Holdings, Inc. is currently located at 130 Andover Park East, Suite 101, Seattle, Washington.  The 2007 Consent Order had alleged that L & L Financial Holdings, Inc. employed one Stephen Patrick Johnston as an unregistered agent of issuer, and that the stock sold by Johnston was not registered under the Connecticut Uniform Securities Act.   Among other things, the 2007 Consent Order had barred the issuer for ten years from selling securities in or from Connecticut notwithstanding any claim of exemption or covered securities status that it could otherwise assert.

The modifying Order removed the existing sales bar effective November 9, 2009, and imposed an additional requirement mandating that, for three years, the issuer, its affiliates and successors in interest retain and consult with experienced Connecticut securities legal counsel prior to engaging in any securities-related activities in or from the state.  The modifying Order also required that, for three years, the issuer, its affiliates and successors in interest only offer or sell securities in or from Connecticut through broker-dealers or broker-dealer agents who were then registered under the Connecticut Uniform Securities Act and whose identities were supplied in writing to the department prior to the offers or sales in question.  Aside from prospectively removing the existing sales bar, the modifying Order did not alter any other provisions in the 2007 Consent Order.

Israel A. Englander & Co., Inc. (CRD # 33725) – Consent Order Conditioning Registration as a Broker-dealer Entered

On November 16, 2009, the Banking Commissioner entered a Consent Order (No. CO-09-7494-S) conditioning the broker-dealer registration of Israel A. Englander & Co., Inc.  The firm is located at 666 Fifth Avenue, 9th Floor, New York, New York.  Israel Alexander Englander (CRD number 1267326) is a vice-president and control person of the firm.  The Consent Order Conditioning Registration as a Broker-dealer alleged that 1) on December 20, 2000, October 21, 2002, August 7, 2007, February 25, 2008 and April 27, 2009, the firm had been sanctioned by various self-regulatory organizations, including FINRA, for securities law violations; and 2) on December 1, 2005, Israel Alexander Englander had consented to the entry of a cease and desist order and the imposition of a $30 million civil penalty by the SEC following allegations that he wilfully violated federal antifraud provisions by engaging in improper market timing trades of mutual fund shares and structuring trading so as to avoid detection by the affected mutual funds.

As a precondition to broker-dealer registration, the firm agreed to several activity restrictions.  The restrictions 1) precluded the firm from transacting Connecticut securities business for the account of any entity that did not qualify as an “accredited investor” under Rule 501(a) of federal Regulation D, or any natural person, regardless of accredited status; 2) prohibited Israel Alexander Englander from supervising or training agents with respect to Connecticut securities business or from acting in any capacity that would require him to be registered under the Connecticut Uniform Securities Act; and 3) prohibited Israel Alexander Englander from acting as a finder for compensation, receiving or splitting commissions or similar remuneration or receiving referral fees in connection with Connecticut securities activity.  The Consent Order Conditioning Registration as a Broker-dealer also imposed various reporting obligations upon the firm.   Specifically, the firm was required to 1) notify the department for three years concerning changes to key personnel and Connecticut office activity; 2) provide enhanced reporting of disciplinary items for three years; and 3) file a written certification by December 31, 2010 attesting to the firm’s compliance with the terms of the Consent Order Conditioning Registration as a Broker-dealer.  The firm also agreed to reimburse the department for the costs associated with one or more future examinations of the firm’s offices to be conducted within twenty four months.

Israel A. Englander & Co., Inc. became registered as a broker-dealer in Connecticut on November 17, 2009.

STATISTICAL SUMMARY

Securities Division