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IN THE MATTER OF: CHARTER ONE CAPITAL HOLDING, * * * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. RF-2006-7155-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, 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 2006 Supplement to the General Statutes, 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 it has violated, is violating or is about to violate provisions of the Act or Regulations. Section 36b-26(a) of the 2006 Supplement to the General Statutes, provides, in pertinent part:
The commissioner may, subject to the provisions of the Freedom of Information Act . . . (1) [m]ake such public or private investigations within or outside of this state as the commissioner deems necessary to determine whether any person has violated, is violating or is about to violate any provision of sections 36b-2 to 36b-33, inclusive, or any regulation or order thereunder . . . . |
| 3. | As a result of the investigation by the Division, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act. |
| 4. |
As a result of the investigation by the Division, the Commissioner has the authority to issue a cease and desist order against Respondent pursuant to Section 36b-27(a) of the 2006 Supplement to the General Statutes, which provides, in pertinent part:
Whenever it appears to the commissioner after an investigation that any person has violated, is violating or is about to violate any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . or that the further sale or offer to sell securities would constitute a violation of said sections . . . the commissioner may, in the commissioner’s discretion, order (1) the person . . . to cease and desist from the violations . . . of the provisions of said sections . . . or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections . . . . After such an order is issued, the person named in the order may, within fourteen days after receipt of the order, file a written request for a hearing. Any such hearing shall be held in accordance with the provisions of chapter 54. |
| 5. |
As a result of the investigation by the Division, the Commissioner has the authority to impose a fine on Respondent pursuant to Section 36b-27(d) of the 2006 Supplement to the General Statutes, which provides, in pertinent part:
(1) Whenever the commissioner finds as the result of an investigation that any person has violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . or any regulation . . . adopted . . . under said sections, the commissioner may send a notice to (A) such person . . . by registered mail, return receipt requested . . . . Any such notice shall include: (i) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (ii) a short and plain statement of the matter asserted or charged; (iii) the maximum fine that may be imposed for such violation; and (iv) the time and place for the hearing. Any such hearing shall be fixed for a date not earlier than fourteen days after the notice is mailed.
(2) The commissioner shall hold a hearing upon the charges made unless such person fails to appear at the hearing. Any such hearing shall be held in accordance with the provisions of chapter 54. After the hearing if the commissioner finds that the person has violated . . . any of the provisions of sections 36b-2 to 36b-33, inclusive, or any regulation . . . adopted . . . under said sections, the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by said sections, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person fails to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested, . . . to any person named in such order.
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II. RESPONDENT | |
| 6. |
Respondent is a corporation with its principal place of business at 11 Broadway, Suite 1015, New York, New York.
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III. STATEMENT OF FACTS | |
| 7. | From at least January 2003 to October 2005, Respondent was an issuer of securities in the form of promissory notes (“Notes”). |
| 8. |
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| 9. | The Notes were never registered in Connecticut as required by Section 36b-16 of the Act nor were they exempt from registration under Section 36b-21 of the Act, nor were they covered securities. |
| 10. | The interest payable on the Notes was 10% per annum, payable quarterly with the principle due one year from the date of the Notes. Respondent failed to pay the investors interest or principal in accordance with the terms of the Notes. Only one investor was paid part of the interest owed. |
| 11. | Respondent failed to inform the Connecticut customer of any risks associated with investing in the Notes, even though Respondent had not paid earlier investors the monies owed on the Notes and had experienced a substantial net loss from inception and had substantial working capital deficiency, which according to the Report of Independent Auditor raised substantial doubt about its ability to continue as a going concern. |
| 12. |
In connection with the sale of the Notes, Respondent, through its agents, provided some potential investors with a document containing biographies and profiles of individuals purportedly associated with Respondent when at least three of those individuals had had declined Respondent’s request to become an officer/director of Respondent.
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IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST
AND ORDER IMPOSING FINE AGAINST RESPONDENT a. Violation of Section 36b-16 of the Act – Sale of Unregistered Securities | |
| 13. | Paragraphs 1 through 12, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 14. |
Respondent, through its agent, effected at least one sale of the Notes to at least one Connecticut investor, as more fully described in paragraph 8, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 9. The sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act. Such violation is a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
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c. Wilful Violation of Section 36b-4 of the Act | |
| 15. | Paragraphs 1 through 14, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 16. |
As more fully described in paragraphs 10 through 12, inclusive, Respondent, in connection with the offer and sale of the Notes, directly or indirectly, employed a device, scheme or artifice to defraud; omitted to state a material fact necessary in order to make statements made in light of the circumstances under which they were made, not misleading and engaged in a practice or course of business that operated as a fraud or deceit upon investors including the Connecticut investor. Such violation forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
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AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS that, with respect to the activity described herein, Charter One Capital Holding, Inc. has violated Sections 36b-16 and 36b-4 of the Act;
THE COMMISSIONER FURTHER FINDS that the issuance of this Order 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.
THE COMMISSIONER THEREFORE ORDERS that Charter One Capital Holding, Inc. CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, offering Sections 36b-16 and 36b-4 of the Act;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the 2006 Supplement to the General Statutes, Charter One Capital Holding, Inc. will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Charter One Capital Holding, Inc. if a written request for a hearing is received by the Department of Banking, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following its receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Charter One Capital Holding, Inc. 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 Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on July 11, 2006, 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 Connecticut General Statutes. At such hearing, Charter One Capital Holding, Inc. 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 shall remain in effect and become permanent if Charter One Capital Holding, Inc. does not request a hearing within the prescribed time period.
VI. NOTICE OF INTENT TO FINE RESPONDENT AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that Respondent has violated Sections 36b-4 and 36b-16 of the Act;
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondent would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, notice is hereby given to Respondent that the Commissioner intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation, for a maximum fine of Two Hundred Thousand Dollars ($200,000).
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the 2006 Supplement to the General Statutes, and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on July 11, 2006, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
At the hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law relating to the allegations stated herein. If Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon Respondent.
Dated at Hartford, Connecticut
this 27th day of April 2006. ________/s/_________
John P. Burke
Banking Commissioner
CERTIFICATION
I hereby certify that on this 28th day of April 2006, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by registered mail, return receipt requested, to Charter One Capital Holding, Inc., 11 Broadway, Suite 1015, New York, New York 10004, registered mail no. RB028032935US.
________/s/_________
Nirja Savill
Prosecuting Attorney