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IN THE MATTER OF: JULIUS BLACKWELDER d/b/a ("Respondent") * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-11-7806-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 the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”). |
| 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 Respondent to determine if Respondent has violated, is violating or is about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. | As a result of the Investigation, the Commissioner has reason to believe that Respondent has 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 Respondent pursuant to Section 36b-27(a) of the Act.
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| 5. |
As a result of the Investigation, the Commissioner has the authority to order that Respondent make restitution pursuant to Section 36b-27(b) of the Act. |
| 6. | As a result of the Investigation, the Commissioner has the authority to impose a fine against Respondent pursuant to Section 36b-27(d) of the Act. |
II. RESPONDENT
| 7. | Respondent is an individual whose address last known to the Commissioner is 1310 Jeff Davis Drive, Tyler, Texas 75703-5542. |
III. STATEMENT OF FACTS
| 8. | Respondent engages in the securities business both individually and under the name Friend’s Investment Group. At no time was Friend’s Investment Group a legal entity. |
| 9. | From at least 2001 to the present, Respondent, both individually and under the name Friend’s Investment Group, offered and sold promissory notes (“Blackwelder Notes”) in or from Connecticut to investors. In many cases, the Blackwelder Notes included a writing pursuant to which Respondent represented that he would manage and invest the underlying funds for the affected investor and pay a rate of return of 20% or more. Such investments would be made through the purported Friend’s Investment Group vehicle. |
| 10. | Specifically, on March 2, 2001, Respondent offered and sold a Connecticut investor (“Investor 1”) a promissory note (“Blackwelder Note 1”) and represented that Respondent would manage and invest money on behalf of Investor 1. Blackwelder Note 1 was in the sum of $25,000 for a one-year term and guaranteed a rate of return of 20% per annum. |
| 11. | On October 24, 2001, Respondent offered and sold Investor 1 a purported investment whereby Respondent offered to invest $45,000 invested by Investor 1 for a minimum term of one year, with all investment profits to be split evenly. This purported investment was evidenced by a promissory note in the sum of $45,000 issued by Respondent (“Blackwelder Note 2”). |
| 12. |
On August 24, 2005, Respondent offered and sold Investor 1 a promissory note purportedly to invest in or through Friend’s Investment Group (“Blackwelder Note 3”). Under this arrangement, Respondent offered to manage and invest money on behalf of Investor 1. Blackwelder Note 3 was in the sum of $25,000 for a thirteen-month term and guaranteed a rate of return of 25% per annum. However, Respondent used Investor 1’s money to pay for Respondent’s personal and household expenses, and failed to pay Investor 1 the interest due under Blackwelder Note 3. |
| 13. | On October 1, 2006, Respondent offered and sold Investor 1 another Blackwelder Note purportedly to invest in or through Friend’s Investment Group. This additional note (“Blackwelder Note 4”) rolled over the principal and interest due from Blackwelder Note 3. Blackwelder Note 4 was created by crossing out the dates on Blackwelder Note 3. Blackwelder Note 4 guaranteed a rate of return of 25% per annum, and included the $25,000 principal as well as the interest payments due and not paid on Blackwelder Note 3. |
| 14. | On July 1, 2008, Respondent offered and sold Investor 1 another promissory note (“Blackwelder Note 5”) purportedly to invest in or through Friend’s Investment Group. Under this arrangement, Respondent offered to manage and invest money on behalf of Investor 1. Blackwelder Note 5 was in the sum of $60,000 for a thirteen-month term and guaranteed a rate of return of 25% per annum. Respondent used Investor 1’s money to pay for Respondent’s personal and household expenses, and failed to pay Investor 1 the interest due under Blackwelder Note 5. |
| 15. | On August 31, 2005, another Connecticut investor (“Investor 2”) gave Respondent $100,000 to invest on his behalf because Respondent had offered to manage and invest Investor 2’s funds and to guarantee Investor 2’s investment. Respondent used Investor 2’s money to pay for Respondent’s personal and household expenses. |
| 16. | On December 12, 2005, Investor 2 gave Respondent an additional $100,000 to invest on his behalf because Respondent had offered to manage and invest Investor 2’s funds and because Respondent guaranteed Investor 2’s investment. |
| 17. | On December 10, 2008, Respondent issued a promissory note to Investor 2 in the sum of $20,000 for interest Respondent owed to Investor 2 under the terms of a 2008 promissory note for $100,000 (“Blackwelder Note 6”). |
| 18. | On September 1, 2009, Respondent issued two promissory notes to Investor 2 which rolled over the principal and interest due from all of Investor 2’s earlier investments. One promissory note was in the sum of $6,666 for interest due from December 2008 through August 2009 from a 2008 promissory note (“Blackwelder Note 7”). Another promissory note was in the sum of $200,000 for a three-year term and guaranteed a rate of return at the rate shown on an attached spread sheet of 10% per annum for the first year and 5% per annum for the second two years (“Blackwelder Note 8”). |
| 19. | On September 1, 2009, Respondent issued to Investor 2 a promissory note in the sum of $50,000 for a two-year term with a guaranteed rate of return at the interest rate charged by Investor 2’s bank (“Blackwelder Note 9”). |
| 20. | On September 1, 2009, Respondent wrote a letter for Investor 2 that was intended to inform Respondent’s wife of Investor 2’s investment in the event of Respondent’s death. The letter stated that: Investor 2 had invested a total of $250,000 with Respondent; the money was to earn interest; it was an obligation that needed to be paid to back to Investor 2; and the proceeds of an insurance policy on Respondent’s life should be used to pay this obligation in the event of Respondent’s death. |
| 21. | On April 1, 2008, another Connecticut investor (“Investor 3”) gave Respondent $5,000 to invest on his behalf because Respondent had offered to manage and invest Investor 3’s funds and because Respondent guaranteed a rate of return of 25% per annum on Investor 3’s investment. Respondent used Investor 3’s money to pay for Respondent’s personal and household expenses, and failed to pay Investor 3 the interest due. On June 1, 2010, Respondent issued a new note (“Blackwelder Note 10”) in the sum of $6,500, for a thirteen-month term and guaranteed a return of $500 in interest, which rolled over the principal and interest due to Investor 3 from the original investment of $5,000 in 2008. Respondent used Investor 3’s money to pay for Respondent’s personal and household expenses, and failed to pay Investor 3 the interest due under Blackwelder Note 10. |
| 22. | On June 10, 2008, Respondent offered and sold another Connecticut investor (“Investor 4”) a promissory note (“Blackwelder Note 11”) purportedly to invest in or through Friend’s Investment Group. Under this arrangement, Respondent offered to manage and invest money on behalf of Investor 4. Blackwelder Note 11 was in the sum of $5,000 for a thirteen-month term and guaranteed a rate of return of 20% per annum. Respondent used Investor 4’s money to pay for Respondent’s personal and household expenses, and failed to pay Investor 4 the interest due under Blackwelder Note 11. |
| 23. | The Blackwelder Notes that were offered and sold by Respondent were never registered in Connecticut under Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the Act, nor were they the subject of a filed exemption claim or claim of covered security status. |
| 24. | In connection with the offer and sale of the Blackwelder Notes, Respondent failed to disclose, inter alia, the risk of loss of the entire investment, any risk factors related to the investment, any financial information on Respondent; information substantiating how the represented rates of return could be achieved; Respondent’s ability to meet his obligations under the Blackwelder Notes, and that Respondent would use investors’ money to pay for Respondent’s personal and household expenses. Each of these omitted items was material to investors and prospective investors of the Blackwelder Notes. |
| 25. | To date, Respondent has failed to pay at least one Connecticut investor any of the principal or interest required by the Blackwelder Notes. |
IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST,
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 26. | Paragraphs 1 through 25, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 27. |
Respondent offered and sold unregistered securities in or from Connecticut to at least one Connecticut investor, as more fully described in paragraphs 8 through 22, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 23. 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 Respondent under Section 36b-27(a) of the Act and for the imposition of a fine against Respondent under Section 36b-27(d) of the Act. |
b. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. | The conduct of Respondent, as more fully described in paragraphs 8 through 25, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-4(a) of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act, an order that Respondent make restitution under Section 36b-27(b) of the Act, and for the imposition of a fine against Respondent under Section 36b-27(d) of the Act. |
c. Violation of Section 36b-4(b) of the Act –
Engaging in Dishonest or Unethical Practices
in Connection with the Offer and Sale of any Security
| 30. | Paragraphs 1 through 29, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 31. | The conduct of Respondent, as more fully described in paragraphs 8 through 25, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly engaging in dishonest or unethical practices. Such conduct constitutes a violation of Section 36b-4(b) of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act, an order that Respondent make restitution under Section 36b-27(b) of the Act, and for the imposition of a fine against Respondent under Section 36b-27(d) of the Act. |
V. ORDER TO CEASE AND DESIST, ORDER TO MAKE RESTITUTION,
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, Respondent has committed at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-4(a) of the Act, and at least one violation of Section 36b-4(b) of the Act;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist, Order to Make Restitution, and the imposition of a fine against Respondent 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 Respondent that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation;
WHEREAS, the Commissioner ORDERS that Respondent CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) offering and selling unregistered securities, (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing any device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person, and (3) in connection with the offer, sale or purchase of any security, directly or indirectly engaging in dishonest or unethical practices;
WHEREAS, the Commissioner ORDERS that Respondent MAKE RESTITUTION of any sums obtained as a result of Respondent’s violations of Sections 36b-4(a) and 36b-4(b) 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, Respondent shall provide the Division with a written disclosure which covers the period from January 1, 2001 to the date this Order to Make Restitution becomes permanent and which contains (a) the name and address of each Connecticut investor, (b) the amount Respondent collected from each Connecticut investor, (c) the amount of any refunds of principal or purported interest payments Respondent made to each Connecticut investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondent shall reimburse each Connecticut 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 made to the investor, with respect to all transactions effected from January 1, 2001 to the date this Order to Make Restitution becomes permanent. Such restitution shall be made by certified check, and shall be sent by certified mail, return receipt requested, to each affected Connecticut investor; and |
| 3. | Within ninety days (90) days from the date this Order to Make Restitution becomes permanent, Respondent 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 Respondent has reimbursed each Connecticut investor the amount of funds collected from investors plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to all transactions effected from January 1, 2001 to the date this Order to Make Restitution becomes permanent. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant subsections (a), (b) and (d) of Section 36b -27 of the Act, 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 Respondent’s receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the General Statutes of Connecticut and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on August 23, 2011 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, 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.
This Order to Cease and Desist shall remain in effect and become permanent against Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
This Order to Make Restitution shall remain in effect and become permanent against Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
The Commissioner may order that the maximum fine be imposed upon Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | ________/s/________ | |
| this 30th day of June 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 30th day of June 2011, the foregoing Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Julius Blackwelder d/b/a Friend’s Investment Group, 1310 Jeff Davis Drive, Tyler, Texas 75703-5542, certified mail no. 7010 1870 0001 3619 4714.
_______/s/_________
Paul A. Bobruff
Prosecuting Attorney