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IN THE MATTER OF: COMMONWEALTH EXPLORATION CARLOS E. CONDE (Collectively "Respondents") * * * * * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. CF-2008-7560-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 Respondents to determine if they have violated, are violating or are about to violate provisions of the Act or Regulations. Section 36b-26(a) of the Act 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 Respondents have 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 Respondents pursuant to Section 36b-27(a) of the Act 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, (2) any other person that directly or indirectly controls such person and that is, was or would be a cause of the violation of such sections . . . due to an act or omission such other person knew or should have known would contribute to such violation . . . 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 Respondents pursuant to Section 36b-27(d) of the Act, 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, . . . the commissioner may send a notice to (A) such person, (B) any other person that directly or indirectly controls such person and that was a cause of the violation of said sections . . . due to an act or omission such other person knew or should have known would contribute to such violation . . . 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, . . . 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. RESPONDENTS | |
| 6. |
Commonwealth is a Florida corporation with its principal place of business last known to the Commissioner at 2002 Summit Boulevard, Suite 1225, Atlanta, Georgia 30319. |
| 7. | Conde was C.O.O., President and control person of Commonwealth; and a Tennessee resident whose address last known to the Commissioner is 1231 Adams Street, Franklin, Tennessee 37064-3605. |
| 8. |
Lofton was an agent of Commonwealth, and a Georgia resident whose address last known to the Commissioner is 118 Pond Drive, Stockbridge, Georgia 30281-5192. |
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III. STATEMENT OF FACTS | |
| 9. | From at least March 2007 to at least August 2007, Commonwealth was an issuer of securities in the form of interests in Perimeter Summit, LLP, a limited liability partnership organized under the laws of Georgia (“Perimeter”). Perimeter is a partnership formed to acquire oil and gas development projects in Kentucky. |
| 10. | On May 14, 2002, the Commissioner issued an Order to Cease and Desist (“Order”), Notice of Intent to Fine and Notice of Right to Hearing against Lofton for transacting business in Connecticut as an agent of a broker-dealer absent registration, and offering and selling unregistered securities in Connecticut. The Order became permanent on June 27, 2002, and the Commissioner imposed a fine of Twenty Thousand Dollars ($20,000) against Lofton on July 30, 2002. |
| 11. |
On or about April 23, 2007, August 16, 2007 and August 31, 2007, Lofton, on behalf of Commonwealth, effected three sales of interests in Perimeter to a Connecticut investor (“Connecticut Investor”) for a total of Twenty-four Thousand Five Hundred Dollars ($24,500). In connection with each of the three purchases of the interests in Perimeter, the Connecticut Investor received, inter alia: a questionnaire; a brochure; a limited liability partnership agreement; and a subscription agreement, including power of attorney and an execution page, that set forth the terms of the investment (collectively “Offering Documents”). The Offering Documents failed to disclose, inter alia: any financial information about the performance of prior interests in oil and gas rights in which Commonwealth was the manager; any risk factors; that Lofton was not registered to sell securities in the state of Connecticut; that the interests in Perimeter that were offered and sold by Respondents were never registered in Connecticut; that Lofton was subject to the Order that became permanent on June 27, 2002; or that Lofton was fined Twenty Thousand Dollars ($20,000) by the Commissioner on July 30, 2002. |
| 12. | The interests in Perimeter that were offered and sold by Respondents 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. |
| 13. | Lofton has never been registered in Connecticut as an agent of Commonwealth as required by Section 36b-6 of the Act, nor was he an associated person. |
IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND
ORDER IMPOSING FINE AGAINST RESPONDENTS
a. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 14. | Paragraphs 1 through 13, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 15. |
Respondents offered and sold securities to at least one Connecticut investor, as more fully described in paragraph 11, 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 violations of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against each Respondent under Section 36b-27(a) of the Act, and for the imposition of a fine against: (i) Commonwealth for three violations under Section 36b-27(d) of the Act; (ii) Lofton for three violations under Section 36b-27(d) of the Act; and (iii) Conde for three violations under Section 36b 27(d) of the Act. Section 36b-27(d) of the Act authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon: (i) Commonwealth not to exceed Three Hundred Thousand Dollars ($300,000); (ii) Lofton not to exceed Three Hundred Thousand Dollars ($300,000); and (iii) Conde not to exceed Three Hundred Thousand Dollars ($300,000). Such fines are subject to each Respondent’s right to a hearing on the allegations set forth above. |
b. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 16. | Paragraphs 1 through 15, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 17. |
The conduct of Respondents, as more fully described in paragraph 11, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly, employing any device, scheme or artifice to defraud 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 any 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 each Respondent under Section 36b-27(a) of the Act, and for the imposition of a fine against: (i) Commonwealth for three violations under Section 36b-27(d) of the Act; (ii) Lofton for three violations under Section 36b-27(d) of the Act; and (iii) Conde for three violations under Section 36b-27(d) of the Act. Section 36b-27(d) of the Act authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon: (i) Commonwealth not to exceed Three Hundred Thousand Dollars ($300,000); (ii) Lofton not to exceed Three Hundred Thousand Dollars ($300,000); and (iii) Conde not to exceed Three Hundred Thousand Dollars ($300,000). Such fines are subject to each Respondent’s right to a hearing on the allegations set forth above. |
c. Violation of Section 36b-6 of the Act – Unregistered Agent Activity
18.
Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
19.
Lofton acted as an agent of issuer, as more fully described in paragraph 11, absent registration, as more fully described in paragraph 13. Such conduct constitutes a violation of Section 36b-6(a) of the Act, which forms a basis for an order to cease and desist to be issued against Lofton under Section 36b-27(a) of the Act, and for the imposition of a fine against Lofton for three violations under Section 36b-27(d) of the Act. Section 36b-27(d) of the Act authorizes the Commissioner to impose a fine upon Lofton in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon Lofton not to exceed Three Hundred Thousand Dollars ($300,000). Such fine is subject to Lofton’s right to a hearing on the allegations set forth above.
20.
V. ORDER TO CEASE AND DESIST AND NOTICE OF RIGHT TO HEARING
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS that, with respect to the activity described herein, Commonwealth Exploration Corporation and Carlos E. Conde have violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, and Derek M. Lofton has violated Sections 36b-16, 36b-4(a) and 36b-6(a) 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 Commonwealth Exploration Corporation and Carlos E. Conde CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud or omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person; and (3) employing an agent of issuer absent registration; and Derek M. Lofton CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud or omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person; and (3) acting as an agent of issuer absent registration;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the Act, Commonwealth Exploration Corporation, Derek M. Lofton and Carlos E. Conde will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Commonwealth Exploration Corporation, Derek M. Lofton and Carlos E. Conde if a written request for a hearing is received by the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following each Respondent’s receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Commonwealth Exploration Corporation, Derek M. Lofton or Carlos E. Conde will not be represented by an attorney at the hearing, the Appearance and Request for Hearing Form must be completed as “pro se” and mailed to the above address. 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 11, 2009, 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, Commonwealth Exploration Corporation, Derek M. Lofton and Carlos E. Conde 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 against Commonwealth Exploration Corporation, Derek M. Lofton and Carlos E. Conde, individually, if they do not request a hearing within the prescribed time period.
VI. NOTICE OF INTENT TO FINE RESPONDENTS AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that, with respect to the activity described herein, Commonwealth Exploration Corporation and Carlos E. Conde have violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, and Derek M. Lofton has violated Sections 36b-16, 36b-4(a) and 36b-6(a) of the Act;
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondents 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 Respondents that the Commissioner may impose a fine upon: (i) Commonwealth Exploration Corporation not to exceed Nine Hundred Thousand Dollars ($900,000); (ii) Derek M. Lofton not to exceed Nine Hundred Thousand Dollars ($900,000); and (iii) Carlos E. Conde not to exceed Nine Hundred Thousand Dollars ($900,000).
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act and Chapter 54 of the General Statutes of Connecticut.
The hearing will be held on August 11, 2009, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
At the hearing, Respondents 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 any Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon such Respondent.
Dated at Hartford, Connecticut,
this 30th day of June 2009. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 1st day of July 2009, 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 Commonwealth Exploration Corporation, 2002 Summit Boulevard, Suite 1225, Atlanta, Georgia 30319, registered mail no. RB027869206US; Carlos E. Conde, 1231 Adams Street, Franklin, Tennessee 37064-3605, registered mail no. RB027869210US; Carlos E. Conde, 1305 Perimeter Lofts Circle, Atlanta, Georgia, 30346-1716, registered mail no. RB027869223US; and Derek M. Lofton, 118 Pond Drive, Stockbridge, Georgia 30281-5192, registered mail no. RB027869237US;
________/s/_________
Paul A. Bobruff
Prosecuting Attorney