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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-18-8238-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act. |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if Respondents have violated, are violating or are about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-27(a) of the 2018 Supplement to the General Statutes (“2018 Supplement”). |
| 5. |
As a result of the Investigation, the Commissioner has reason to believe that a basis exists to order that Respondents make restitution pursuant to Section 36b-27(b) of the 2018 Supplement. |
| 6. | As a result of the Investigation, the Commissioner has the authority to impose a fine upon Respondents pursuant to Section 36b-27(d) of the 2018 Supplement. |
II. RESPONDENTS
| 7. |
Allied Energy, Inc., f/k/a Allied Syndications, Inc. (“Allied”) is a currently inactive Florida corporation involved in exploratory oil and gas investments whose principal place of business and address last known to the Commissioner is 2427 Russellville Road, Bowling Green, Kentucky 42101. Allied is not and has never been registered in any capacity under the Act. |
| 8. | In addition to the offerings described herein, from May 2008 until February 2010, Allied acted as managing general partner for at least six (6) offerings sold to at least three (3) Connecticut investors. The six (6) offerings, for which notice filings were made under Section 36b-21(e) of the Act, consisted of the following: (i) Allied Gas Transmission Common Stock – 2009; (ii) East Texas Year-End Development; (iii) Gibbons Creek PUD Development; (iv) Pawnee-Rogers County Development; (v) Morgan County Off-Set Development; and (vi) Bush Spectrum 7 Development. |
| 9. | SE Ohio Shale & Oriskany Development (“SE Ohio”) describes itself in its Confidential Private Placement Memorandum and its Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption) filings as a general partnership. Records maintained by the Kentucky Secretary of State indicate that SE Ohio is a trade or assumed name of Allied. SE Ohio’s executive office and address last known to the Commissioner is 2800 Griffin Drive, Bowling Green, Kentucky 42103. SE Ohio is not and has never been registered in any capacity under the Act. |
III. STATEMENT OF FACTS
10.
On May 1, 2008, SE Ohio, as issuer, filed a Form D with the United States Securities and Exchange Commission indicating that SE Ohio, in reliance on Rule 506 of Regulation D, would be offering partnership interests in a private placement of securities to finance a four well drilling project to be drilled in Rogers County, Oklahoma (“SE Oklahoma Offering”). According to the Form D, the minimum investment accepted from any individual for the SE Oklahoma Offering was $18,437. On June 13, 2008, SE Ohio made a corresponding Rule 506 notice filing under Section 36b-21(e) of the Act.
11.
Previously, on April 7, 2008, SE Ohio issued a Confidential Private Placement Memorandum offering 25 partnership units in a Rule 506 offering for a minimum investment of $38,612. The Private Placement Offering stated that the proceeds would be used to invest in a four well project consisting of a 50% working interest in four wells to be drilled in the Ohio Shale, Oriskany Sandstone and/or other formations in Washington or Athens Counties, Ohio (“SE Ohio Offering”). The Private Placement Memorandum stated that Allied was the managing general partner of SE Ohio.
12.
No Form D filing was made with the SEC or with the Commissioner for the SE Ohio Offering nor was such offering the subject of a filed registration or exemptive claim.
13.
In April 2008, Allied, acting in the capacity of managing partner on SE Ohio, began offering potential investors the opportunity to invest in the SE Ohio Offering.
14.
Andrew A. Flowers (CRD number 5191114) (“Flowers”) is an individual associated with Allied from approximately March 2008 through August 2010. While associated with Allied, Flowers was not registered in any capacity under the Act.
15.
On April 27, 2006, the Securities Commission of the State of Alabama had entered an Amended Cease and Desist Order (No. CD-2006-0015A) against Flowers and others in conjunction with an offering of participation agreements in oil, gas, or mining titles or leases or in payments out of production under such titles or leases. More specifically, the State of Alabama alleged that, in “cold calling” prospective Alabama investors, Flowers offered unregistered nonexempt securities in violation of Alabama’s securities laws. The Alabama order became final by default of the parties on November 6, 2008.
16.
Commencing in 2008, following the entry of the Alabama order, Flowers “cold-called” at least one Connecticut investor to purchase a unit of the SE Ohio Offering.
17.
Even if Form D filings had been made with the SEC and the Commissioner for the SE Ohio Offering (which they were not), such offering would not qualify for exempt treatment under Rule 506 of Regulation D because Rule 502(c) prohibits the issuer or any person acting on its behalf from offering or selling the securities by any form of general solicitation.
18.
Flowers’ “cold-call” to the Connecticut investor thus voided any potential Regulation D exemption SE Ohio could claim in conjunction with the SE Ohio Offering.
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act by Respondents –
Offer and Sale of Unregistered Securities
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
Respondents offered and sold unregistered nonexempt securities in or from Connecticut to at least one investor, as more fully described in paragraphs 12 through 18, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 12. The offer and sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the 2018 Supplement, an order that Respondents make restitution under Section 36b-27(c) of the 2018 Supplement, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the 2018 Supplement. |
b. Violation of Section 36b-6(b) of the Act by SE Ohio –
Employing an Unregistered Agent
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
SE Ohio, through Allied, its managing general partner, employed Flowers as an unregistered agent of issuer as more fully described in paragraphs 13, 14 and 16, inclusive. Such conduct constitutes a violation of Section 36b-6(b) of the Act which forms a basis for an order to cease and desist to be issued against SE Ohio under Section 36b-27(a) of the 2018 Supplement, and for the imposition of a fine upon SE Ohio under Section 36b-27(d) of the 2018 Supplement. |
c. Allied Materially Aided SE Ohio’s Violations of Sections 36b-6(b) of the Act
| 23. | Paragraphs 1 through 22, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 24. |
Section 36b-6(b) of the Act prohibits an issuer from employing an agent unless such agent is registered under the Act. Allied materially aided SE Ohio’s violation of Section 36b-6(b) of the Act by employing and allowing an unregistered agent to solicit investors on behalf of SE Ohio. Such conduct supports the entry of an order to cease and desist against Allied pursuant to Section 36b-27(a)(3) of the 2018 Supplement, and the imposition of a fine upon Allied under Section 36b-27(d)(1)(C) of the 2018 Supplement. |
V. ORDER
NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, SE Ohio has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-6(b) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Allied has committed at least one violation of Section 36b-16 of the Act, and materially aided at least violation of Section 36b-6(b) of the Act;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist, an Order to Make Restitution and the imposition of a fine upon Respondents is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;
WHEREAS, notice is hereby given to Respondents that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation upon Respondents;
WHEREAS, the Commissioner ORDERS that SE OHIO SHALE & ORISKANY DEVELOPMENT CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; and (2) employing an agent of issuer in this state absent registration;
WHEREAS, the Commissioner ORDERS that ALLIED ENERGY INC. f/k/a ALLIED SYNDICATIONS, INC. CEASE AND DESIST from directly or indirectly violating, or materially aiding any other person in violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; and (2) employing an agent of issuer in this state absent registration.
WHEREAS, the Commissioner ORDERS that RESPONDENTS MAKE RESTITUTION of any sums obtained as a result of Respondents’ violation of 36b-16 of the Act, plus interest at the legal rate set forth in Section 37-1 of the General Statutes of Connecticut. Specifically, the Commissioner ORDERS that:
| 1. | Within thirty (30) days from the date this Order to Make Restitution becomes permanent, Respondents shall provide the Division with a written disclosure which contains (a) the name and address of each of the individual investors who purchased SE Ohio Offering units from April 1, 2008 through December 1, 2008, (b) the amount collected from each investor, (c) the date of each investment, and (d) the amount of any refunds of principal or purported interest payments made to each investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondents shall reimburse each investor the amount of funds collected from the investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to each investor’s purchase of SE Ohio Offering units. Such restitution shall be made by certified check, and shall be sent by certified mail, return receipt requested, to each affected investor; and |
| 3. | Within ninety days (90) days from the date this Order to Make Restitution becomes permanent, Respondents shall provide the Division with proof in the form of copies of the certified checks and the return receipts required by paragraph 2 of Section V of this Order to Cease and Desist, Order to make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (collectively “Order”), that Respondents have reimbursed each investor the amount of funds collected from the investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to each investor’s purchase of the SE Ohio Offering units. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to Section 36b-27 of the 2018 Supplement, each Respondent will be afforded an opportunity for a hearing on the allegations set forth above if a written request for a hearing is received by the Department of Banking, Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following each Respondent’s receipt of this Order. To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form to the above address. If any Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. If a hearing is requested, the hearing will be held on June 12, 2018, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, each Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If any Respondent does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein against any such Respondent will be deemed admitted. Accordingly, the Order to Cease and Desist and Order to Make Restitution shall remain in effect and become permanent against any such Respondent, and the Commissioner may order that the maximum fine be imposed upon any such Respondent.
| Dated at Hartford, Connecticut, | ____/s/_____________ | |
| this 25th day of April 2018. | Jorge L. Perez | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 27th day of April 2018, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing to: Allied Energy, Inc. f/k/a Allied Syndications, Inc., 2427 Russellville Road, Bowling Green, Kentucky 42101, certified mail no. 7012 3050 0000 6997 6889; and SE Ohio Shale & Oriskany Development, 2800 Griffin Drive, Bowling Green, Kentucky 42103, certified mail no. 7012 3050 0000 6997 6896.
| ____/s/______ |
| Tina M. Daigle |
| Paralegal |