Securities and Business Investments Division
Securities Bulletin
Vol. XXXVI No. 2 - Summer 2022
Features
Enforcement and Other Highlights
_______________________________________________________________________
Administrative Actions
Samuel Klein, Visual Group, LLC and KF Pecksland, LLC
On June 20, 2022, the Banking Commissioner entered an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (No. CDF-22-8408-S) against Samuel Klein of 131 Pecksland Road, Greenwich, Connecticut, Visual Group, LLC of 58 East Main Street, Plainville, Connecticut and KF Pecksland, LLC of 131 Pecksland Road, Greenwich, Connecticut. Respondent Klein was affiliated with the two entities and was the sole member and control person of Visual Group, LLC. Visual Group, LLC purportedly invested in distressed real estate debt. KF Pecksland, LLC purportedly invested in The Bleachers Corporation, a now-defunct stock corporation of which Klein was the president.
The action alleged that in 2018, Klein sold investments in Visual Group, LLC to at least one investor, representing that he would personally guarantee a return of principal and that the investor’s money would double or triple. The action also alleged that Klein did not disclose to investors that, rather than being invested in distressed real estate debt, their monies would be used for Klein’s personal financial benefit.
The action further alleged that, starting in 2016, Klein sold securities consisting of membership interests in KF Pecksland, LLC to at least one investor. Klein allegedly represented to investors that KF Pecksland, LLC’s underlying investment in The Bleachers Corporation was valued between $25 and $50 million when in reality The Bleachers Corporation was struggling to stay solvent. In addition, the action alleged that Klein guaranteed investors that they would receive their money back but failed to disclose that he would use investor funds for his personal benefit.
The Order to Cease and Desist and Notice of Intent to Fine alleged that 1) the respondents offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 2) the respondents violated the antifraud provisions in Section 36b-4(a) of the Act; and 3) respondent Klein violated Section 36b-6 of the Act by transacting business as an unregistered agent of issuer.
The Respondents were afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist and Notice of Intent to Fine.
In a related matter, on May 3, 2022, following a plea of guilty in an action brought by the Department of Justice, Klein was sentenced to a 36 month term of imprisonment for violating 18 U.S.C. Section 2314 (Interstate Transportation of Property Taken by Fraud) and a 36 month term of imprisonment for violating 18 U.S. C. Section 1957 (Money Laundering) (United States of America v. Samuel Klein (D. Conn. (Case No. 3:20-CR-00243-JCH(1)). The sentences would run concurrently. The facts underlying the federal action paralleled those in the Commissioner’s June 20, 2022 action. In imposing sentence, the District Court also ordered Klein to pay $1,497,797.52 in restitution to the affected victims. In light of the District Court’s order, although the Commissioner was authorized to order restitution to the affected victims pursuant to Section 36b-27(b) of the Act, the Commissioner elected not to do so since such relief would replicate that ordered by the court.
Ruben Anibal Macedo
On April 22, 2022, the Banking Commissioner entered an Order Imposing Fine (Matter No. CF-22-8250b-S) against Ruben Anibal Macedo of Oakland Park, Florida 33334. Respondent Macedo, a former Connecticut resident, was the control person of Douro Capital Inc. (“DCI”) and Guadiana Holdings Inc. (“GHI”).
Respondent Macedo had been the subject of a January 27, 2022 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging that, between February 2014 and October 2016, Respondent Macedo orchestrated a scheme to defraud market participants, including retail investors in Connecticut, using shares of Latteno Food Corp. (“Latteno”), a low priced OTC pink sheet penny stock. Using various brokerage accounts, including those established under the names of DCI and GHI, Respondent Macedo made multiple purchases and sales of Latteno securities. Between April 24, 2015 and June 1, 2015, Respondent Macedo also issued at least three separate news releases to attract potential investors to Latteno and to increase the sales price of the Latteno shares. At the time, Latteno had no significant operating history, limited assets, and no significant source of revenue. After the press releases, Latteno’s stock trading volume increased, and Respondent Macedo proceeded to sell off his Latteno holdings. The January 27, 2022 action also alleged that, from at least February 2014 to October 2016, while Respondent Macedo resided in Connecticut, Macedo used the brokerage accounts he established to facilitate the sale of 2.86 billion shares of Latteno stock into the public market, and that, during this period, he generated approximately $1 million in profits from the sales. Respondent Macedo then transferred the proceeds to his personal and business bank accounts. The action claimed that Respondent Macedo 1) violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act; 2) engaged in dishonest or unethical practices in violation of 36b-4(b) of the Act; and 3) violated Section 36b-23 of the Act by making materially false or misleading statements to the Commissioner in connection with an agency investigation.
Since the January 27, 2022 Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was returned to the department as undeliverable, constructive service was made on the Commissioner pursuant to Section 36b-33(h) of the Act, and the Order Imposing Fine was entered by default.
Finding that Respondent Macedo violated Sections 36b-4(a), 36b-4(b) and 36b-23 of the Act, the April 22, 2022 Order imposed a $100,000 fine against Respondent. The Order to Cease and Desist, being uncontested, became permanent by operation of law on April 6, 2022.
The Hop Knot Franchising Corp. and Michael T. Boney
On April 1, 2022, the Banking Commissioner issued a Notice of Intent to Issue Stop Order Denying Effectiveness to a Business Opportunity Registration, Order to Cease and Desist and Notice of Intent to Fine (No. CSF-22-14433-B) against The Hop Knot Franchising Corp., formerly of 170 Main Street, #6, Middletown, Connecticut and 505 Main Street, Middletown, Connecticut. Also named in the action was Michael T. Boney, president of the corporation. The Hop Knot Franchising Corp., since dissolved, was in the business of offering beer and gourmet pretzel franchises.
The action alleged that, at various times in 2018 and 2019, respondents sold unregistered business opportunities in violation of Sections 36b-62(a) and 36b-67(1) of the Connecticut Business Opportunity Investment Act. While The Hop Knot Franchising Corp. did file an application for business opportunity registration following the Connecticut sales, that application allegedly misrepresented the extent of the company’s prior unregistered activity in violation of Section 36b-80 of the Act. In addition, the action alleged that the respondents violated Section 36b-66(a) of the Act by failing to provide a purchaser-investor with a signed copy of the business opportunity contract.
The respondents were afforded an opportunity to request a hearing on the allegations in the action.
Consent Orders
Michael M. Reilly (CRD No. 4841098) and Quantum Capital Investments, LLC
On June 23, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-8518-S) with respect to Quantum Capital Investments, LLC of 117 State RT 39, New Fairfield, Connecticut 06812 and Michael M. Reilly, principal of the firm.
The Consent Order alleged that Reilly, through Quantum Capital Investments, LLC, violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities in the form of investments in a cryptocurrency pool. The Consent Order also alleged that the respondents violated the antifraud provisions in Section 36b-4 of the Act by failing to disclose to investors that investors were investing in a cryptocurrency pool rather than in bitcoin directly, and that respondent Reilly had been subject to a 2008 Consent Order issued by the Commissioner (No. CO-2008-7427-S) barring Reilly from transacting business as a broker-dealer, agent, investment adviser or investment adviser agent for seven years.
The Consent Order directed the respondents to cease and desist from regulatory violations. In addition, the Consent Order barred Reilly for seven years from offering or selling securities in or from Connecticut; transacting business as a broker-dealer, agent, investment adviser or investment adviser agent; and acting in any other capacity requiring a license or registration from the Commissioner.
Based on the Respondents’ demonstrated inability to pay the $15,000 fine that otherwise would have been imposed against them, the Consent Order temporarily stayed imposition of the fine for three years. At the end of three years, if the Respondents remained unable to pay the administrative fine, the fine would be waived.
Joseph Michael Fedorko, Jr. (CRD No. 2007317)
On May 17, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-20225-S) with respect to Joseph Michael Fedorko, Jr. of Old Greenwich, Connecticut. Joseph Fedorko was most recently employed as a broker-dealer agent of Laidlaw & Company (UK), Ltd. The Consent Order alleged that, while associated with Laidlaw & Company (UK), Ltd. Fedorko 1) transacted business as an unregistered investment adviser agent in contravention of Section 36b-6(c)(2) of the Connecticut Uniform Securities Act; 2) engaged in excessive trading in at least one client account; and 3) exercised discretionary trading authority for at least one client account without first obtaining written discretionary authority from the client. The Consent Order alleged that the latter two practices were proscribed as dishonest or unethical under Sections 36b-4(b) and 36b-15(a)(2)(H) of the Act and Sections 36b-31-15b(a)(8) and 36b-31-15b( c) of the Regulations thereunder.
The Consent Order directed Fedorko to cease and desist from regulatory violations; suspended his broker-dealer agent registration for eighteen months; and fined him $7,500.
KJM Securities, Inc. (CRD No. 20277)
On May 16, 2022, the Banking Commissioner entered a Consent Order (No. NRC-21-202027-S) with respect to KJM Securities, Inc. now or formerly of 48 Sagamore Road, Suite 29, Bronxville, New York 10708-1534. The firm had been expelled from FINRA membership on January 2, 2020 for financial reporting violations, and the FINRA expulsion was sustained by the Securities and Exchange Commission on January 25, 2022 (SEC Release No. 94059).
The Consent Order had been preceded by a December 23, 2021 Notice of Intent to Revoke and Cancel Registration as a Broker-dealer and Notice of Right to Hearing (Matter No. NRC-21-202027-S) alleging that the firm violated Section 36b-31-14c of the Regulations under the Connecticut Uniform Securities Act by failing to file an annual audited financial report. In addition, the action alleged that the firm’s apparent cessation of business formed a basis for canceling the firm's registration under Section 36b-15(d) of the Act.
The Consent Order directed the firm to 1) cease and desist from regulatory violations; and 2) not re-apply for registration as a broker-dealer in Connecticut until the firm's FINRA membership and registration had been reinstated and the firm became registered as a broker-dealer under federal law.
Sage Financial Design, Inc. (CRD No. 127996) and Robert Sheldon Thompson (CRD No. 446052)
On May 9, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-202125-S) with respect to Sage Financial Design, Inc., a Connecticut registered investment adviser located at 548 Hopmeadow Street, Simsbury, Connecticut, and Robert Sheldon Thompson, president and treasurer of the firm.
The Consent Order alleged that, in January 2021, a firm employee impersonated a nonclient trust beneficiary to obtain year-end investment information from a mutual fund, and that the firm failed to establish and implement a supervisory system to prevent such conduct. The Consent Order also alleged that Thompson separately served as the trustee for an advisory client from 2012 to 2021, that Sage Financial Design, Inc. had custody as a result and that the firm 1) failed to have the funds and securities over which it had custody verified annually by an independent public accountant without prior notice to the firm; and 2) failed to abide by required financial reporting requirements, including providing the Commissioner with notice that it maintained custody. The second affected trust is no longer in existence, and no misappropriation of funds was detected.
The Consent Order also alleged that, from August 2020 to December 2021, one Robert Morgan Thompson (CRD No. 7501771) transacted business as an unregistered investment adviser agent of the firm.
The Consent Order further alleged that the firm engaged in conduct made actionable as dishonest or unethical by Section 36b-15(a)(2)(H) of the Connecticut Uniform Securities Act; failed to establish and maintain sufficient supervisory controls in violation of Section 36b-31-6f of the Regulations under the Act, failed to the adhere to the custodial and financial reporting requirements in Sections 36b-31-5b and 36b-31-14d of the Regulations; and engaged an unregistered investment adviser agent in violation of Section 36b-6(c)(3) of the Act. The Consent Order also alleged that Robert Sheldon Thompson engaged in conduct made actionable as dishonest or unethical by Section 36b-15(a)(2)(H) of the Act.
The Consent Order directed Sage Financial Design, Inc. and Robert Sheldon Thompson to cease and desist from regulatory violations; required that the firm retain an independent consultant to evaluate its compliance procedures; and fined the firm and Robert Sheldon Thompson $50,000 in the aggregate.
Erin Lynn Verespy (CRD No. 2727866)
On May 2, 2022, the Banking Commissioner entered a Consent Order (Docket No. NRCDF-20-8507-S) with respect to Erin Lynn Verespy of Trumbull, Connecticut. Respondent Verespy was a former broker-dealer agent and investment adviser agent of HD Vest Investment Services and HD Vest Advisory Services, Inc.
Respondent Verespy had been the subject of a June 25, 2020 Order to Cease and Desist, Notice of Intent to Fine, Notice of Intent to Revoke Registrations as a Broker-dealer Agent and an Investment Adviser Agent and Notice of Right to Hearing alleging that respondent 1) engaged in dishonest or unethical business practices by failing to provide HD Vest with written notice of outside business activity in which she was engaged; 2) violated Section 36b-31-14e of the Regulations under the Connecticut Uniform Securities Act by failing to amend her regulatory filings to disclose pending civil litigation involving a Connecticut client; and 3) engaged in dishonest or unethical business practices in her business dealings with a Connecticut customer. The June 25, 2020 action had acknowledged that, following the initiation of litigation by the affected Connecticut customer, respondent Verespy agreed to pay the customer back $800,000 pursuant to an agreed-upon settlement between the parties.
The May 2, 2022 Consent Order noted that Verespy had provided a written financial affidavit to the Commissioner demonstrating that she was unable to pay any fine that might otherwise have been imposed in the administrative proceeding or as a term of the Consent Order. The Consent Order revoked Verespy's registrations as a broker-dealer agent and an investment adviser agent; rendered the June 25, 2020 Order to Cease and Desist permanent; and barred Verespy for ten years from 1) transacting business as an agent, broker-dealer, broker-dealer agent, investment adviser or investment adviser agent; 2) maintaining a direct or indirect ownership interest in a Connecticut registered broker-dealer or investment adviser; and 3) acting in any other capacity requiring a license or registration under laws administered by the Commissioner. The Consent Order also stayed imposition of a $20,000 fine for three years, following which the fine would be waived if Verespy remained unable to pay the amount assessed.
Stipulation and Agreements
Fortis Group Advisors, LLC (CRD No. 290427)
On June 30, 2022, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-22-202142-S) with Fortis Group Advisors, LLC of 345 Kinderkamack Road, Westwood, New Jersey 07675. The firm is registered as an investment adviser with the Securities and Exchange Commission.
The Stipulation and Agreement alleged that from approximately February 2018 through November 2021, the firm engaged an unregistered investment adviser agent in violation of Section 36b-6(c)(3) of the Connecticut Uniform Securities Act. The investment adviser agent has since applied for Connecticut registration.
In resolution of the matter, the firm agreed to refrain from regulatory violations and to pay $5,500 to the department. Of that amount, $5,000 constituted an administrative fine and $500 represented reimbursement for past due investment adviser agent registration fees.
Judicial Proceedings
Adam Westphalen (CRD No. 2821723)
On April 26, 2022, in a civil proceeding brought by the Commissioner to enforce a July 27, 2020 Order (Docket No. CRNDF-19-8408-S) against Adam Westphalen, principal of Mosaic Financial Strategies LLC, the Superior Court ordered Westphalen to reimburse affected investors $490,000 plus interest; pay the $900,000 fine imposed by the Commissioner's Order and pay an additional $400,000 for failing to comply with an order of the Commissioner. (Jorge L. Perez, Banking Commissioner v. Adam Westphalen, No. HHD-CV21-6141624-S). The Superior Court had granted the Commissioner's June 3, 2021 Motion for Summary Judgment on November 17, 2021.
The Commissioner's July 27, 2020 Order had found that Westphalen and Mosaic 1) violated Section 36b-31-14e of the Regulations under the Connecticut Uniform Securities Act by failing to update their regulatory filings to reflect their association with Triton Investment Partners LLC, Vista Financial Strategies LLC, Vista Investment Advisors LLC and Mosaic College Planners as well as New Horizon Financial Strategies, an entity from whom Mosaic received investment advisory fees; 2) violated Sections 36b-6(c)(1) and 36b-6(c)(2) of the Act by transacting business as an unregistered investment adviser and unregistered investment adviser agent, respectively; and 3) violated Section 36b-23 of the Act by making false or misleading statements to the department. The Order had also found that 1) Westphalen sold unregistered securities of Omni Oil and Gas, Inc., and Triton Investment Partners LLC in violation of Section 36b-16 of the Act; 2) Westphalen violated the antifraud provisions in Section 36b-4(a) of the Act in conjunction with sales of Omni Oil and Gas Inc. and Triton Investment Partners LLC to investors; and 3) Mosaic failed to preserve its investment advisory records as required by Section 36b-14(a)(1) of the Act and Section 36b-31-14b(a) of the Regulations.
Statistical Summary
|
Licensing At A Glance |
1st |
2nd |
3rd |
4th |
|---|---|---|---|---|
|
Broker-dealers Registered |
2,023 | 2,035 | ||
|
Broker-dealer Agents Registered |
190,842 | 194,086 | ||
|
Broker-dealer Branch Offices Registered |
2,302 | 2,322 | ||
|
Investment Advisers Registered |
457 | 452 | ||
|
SEC Registered Advisers Filing Notice |
2,446 | 2,495 | ||
|
Investment Adviser Agents Registered |
15,690 | 15,743 | ||
|
Exempt Reporting Advisers |
162 | 168 | ||
|
Agents of Issuer Registered |
3 | 3 | ||
|
Conditional Registrations |
1 | 0 |
|
Securities and Business |
1st |
2nd |
3rd |
4th |
Year |
|---|---|---|---|---|---|
|
Offerings Reviewed |
33 |
56 | 89 | ||
|
Investment Company Notice Filings |
449 | 403 | 852 | ||
|
Exemptions and Exemptive Notices |
2,476 | 2,155 | 4,631 | ||
|
Examinations |
|||||
|
Broker-dealers |
15 | 20 | 35 | ||
|
Investment Advisers |
31 | 20 | 51 | ||
|
Securities Investigations |
|||||
|
Opened |
19 | 8 | 27 | ||
|
Closed |
2 | 7 |
9 |
||
|
Ongoing as of End of Quarter |
91 | 92 | |||
|
Subpoenas issued |
12 | 6 | 18 | ||
|
Matters referred from Attorney General |
1 | 0 | 1 | ||
|
Matters referred from Other Agencies |
4 | 4 | 8 | ||
|
Business Opportunity Investigations |
|||||
|
Investigations Opened |
0 | 0 | 0 | ||
|
Investigations Closed |
1 | 0 | 1 | ||
|
Ongoing as of End of Quarter |
1 | 1 |
|
||
|
Enforcement: Remedies and Sanctions |
|||||
|
Notices of Intent to Deny (Licensing) |
0 | 0 |
0 |
||
|
Notices of Intent to Suspend (Licensing) |
0 | 0 |
0 |
||
|
Notices of Intent to Revoke (Licensing) |
0 | 0 |
0 |
||
|
Denial Orders (Licensing) |
0 | 0 |
0 |
||
|
Suspension Orders (Licensing) |
0 | 1 |
1 |
||
|
Revocation Orders (Licensing) |
0 | 1 |
1 |
||
|
Notices of Intent to Fine |
3 | 2 |
5 |
||
|
Orders Imposing Fine |
0 | 1 |
1 |
||
|
Cease and Desist Orders |
3 | 2 |
5 |
||
|
Notices of Intent to Issue Stop Order |
0 | 1 |
1 |
||
|
Activity Restrictions/Bars |
1 | 3 |
4 |
||
|
Stop Orders |
0 | 0 |
0 |
||
|
Vacating/Withdrawal/ Modification Orders |
0 | 0 |
0 |
||
|
Restitutionary Orders and Disgorgement Orders |
2 | 0 |
2 |
||
|
Injunctive Relief Obtained |
0 | 0 |
0 |
||
|
Proceedings and Settlements |
1st |
2nd |
3rd |
4th |
Year |
|
Administrative Actions |
3 | 3 |
6 |
||
|
Consent Orders |
2 | 5 |
7 |
||
|
Stipulation and Agreements |
0 | 1 |
1 |
||
|
Monetary Relief* |
1st |
2nd |
3rd |
4th |
Year |
|
Monetary Sanctions Imposed |
$953,396 |
$563,000 | $1,516,396 | ||
|
Portion attributable to settlements |
$953,396 |
$63,000 | $1,016,396 | ||
| Attributable to Agency Administrative Orders | 0 | $100,000 | $100,000 | ||
|
Attributable to Court-Ordered Penalties |
0 |
$400,000 |
|
|
$400,000 |
| Financial Literacy Contribution | 0 | 0 | 0 | ||
|
Restitution or Other Monetary Relief |
$116,687 |
$490,000 | $606,687 | ||
| Portion Attributable to Court-Ordered Restitution Obtained by Agency |
0 | $490,000 |
$490,000 |
||
|
*Cents eliminated Securities Referrals |
1st |
2nd |
3rd |
4th |
Year |
|
Criminal Matters |
1 | 0 | 1 | ||
|
Civil (Attorney General) |
1 | 0 | 1 | ||
|
Other Agency Referrals |
1 | 1 | 2 | ||