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WILLIAM ALEXIS CRONIN, JR.
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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-12-7930-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 and Regulations. |
| 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 upon Respondent pursuant to Section 36b-27(d) of the Act. |
II. RESPONDENT
| 7. | William Alexis Cronin, Jr. (“Cronin”) is an individual whose principal place of business last known to the Commissioner is 11 Woodland Road, Madison, Connecticut 06443. Cronin was previously registered under the act as a broker-dealer agent of various broker-dealers from approximately August 25, 1983 to March 3, 2011. At various times from approximately September 1985 to approximately November 2011, Cronin transacted business as a sole proprietorship under the name Madison Financial Services. |
III. STATEMENT OF FACTS
| 8. | From September 5, 1996 to July 30, 2008, Cronin conducted broker-dealer agent activities on behalf of Allegheny Investments, Ltd. (Central Registration Depository (“CRD”) No. 7597) (“Allegheny”), of Stone Quarry Crossing, 811 Camp Horne Road, Suite 100, Pittsburgh, Pennsylvania 15237. |
| 9. | From approximately March 2006 to December 2007, Cronin, individually and/or while doing business as Madison Financial Services (“MFS”), transacted business as an investment adviser by giving investment advice on securities to clients for compensation without being registered as an investment adviser under the Act. |
| 10. | From approximately March 2006 to approximately April 2008, FundGuard, LLC (“FundGuard”), a Delaware limited liability company, was an issuer of securities in the form of debentures (“FundGuard Debentures”). |
| 11. | From approximately July 2006 to approximately February 2008, Aliki Foods, LLC (“Aliki”), a Connecticut limited liability company, was an issuer of securities in the form of notes and callable debentures (“Aliki Notes”). |
| 12. |
On June 12, 2006, Cronin, d/b/a MFS, and Aliki entered into an agreement pursuant to which Cronin would raise financing for and introduce investors to Aliki in exchange for a fee based on a percentage of the capital raised. |
| 13. | At various times between March 2006 and April 2008, Cronin d/b/a MFS offered and sold from Connecticut approximately $775,000 of FundGuard Debentures on behalf of FundGuard to at least fifteen investors in Connecticut and other states. At various times between July 2006 and February 2008, Cronin d/b/a MFS offered and sold from Connecticut approximately $917,000 of Aliki Notes on behalf of Aliki to at least sixteen investors in Connecticut and other states. (The Aliki Notes and the FundGuard Debentures are collectively referred to as the “Private Placements”). |
| 14. | The Private Placements that Cronin d/b/a MFS offered and sold to investors were not 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. |
| 15. | Cronin d/b/a MFS received $77,500 in compensation from FundGuard for introducing prospective investors to FundGuard, and received $93,500 in compensation from Aliki for introducing prospective investors to Aliki. |
| 16. | Cronin has never been registered under the Act as an agent of issuer of either FundGuard or Aliki. |
| 17. | Cronin, while registered as a broker-dealer agent of Allegheny under the Act, did not provide Allegheny with prior written notice describing in detail the Private Placements, Cronin’s proposed roles therein and whether Cronin had received or would receive compensation in connection with the transactions, as required by Section 36b-31-6e(c) of the Regulations. |
| 18. | During the course of the offers and sales of the Private Placements from Connecticut to investors in Connecticut and other states, Cronin d/b/a MFS failed to disclose to investors and prospective investors that he was receiving compensation from either FundGuard or Aliki for his sales efforts. |
| 19. | From July 25, 2008 to March 3, 2011, Cronin was registered under the Act as a broker-dealer agent of Capwest Securities, Inc. (CRD No. 30002) (“Capwest”), of 1821 56th Avenue, Suite B, Greeley, Colorado 80634. Capwest had been registered at various times as a broker-dealer under the Act from May 19, 2003 to September 9, 2011. |
| 20. | On November 4, 2008, while registered as a broker-dealer agent of Capwest under the Act, Cronin borrowed $10,000 from one of his broker-dealer clients without notice to Capwest. Cronin repaid the loan, which was evidenced by a promissory note, in full on February 18, 2011. |
| 21. | On October 17, 2011, Cronin was the subject of an Acceptance, Waiver and Consent (AWC) (No. 2011025885801) by the Financial Industry Regulatory Authority (“FINRA”), in which Cronin, without admitting or denying FINRA’s findings, consented to a Civil and Administrative Penalty/Fine of $181,000 for, among other things, allegedly: (a) participating in private securities transactions without providing prior written notice to, and obtaining prior written approval from, his member firm in violation of NASD Conduct Rule 3040; and (b) borrowing $10,000 from a client without prior written approval of his member firm, in violation of the member firm’s policy. FINRA entered a fine against Cronin in the amount of $181,000, representing the $171,000 in compensation Cronin received from FundGuard and Aliki, and the $10,000 Cronin borrowed from his client on November 4, 2008, and suspended Cronin from association with any FINRA member in any capacity for two years. |
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
| 22. | Paragraphs 1 through 21, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 23. |
Respondent offered and sold unregistered securities in or from Connecticut to at least one investor, as more fully described in paragraphs 10 through 13, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 14. 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, 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. |
b. Violation of Section 36b-6(a) of the Act –
Unregistered Agent of Issuer Activity
| 24. | Paragraphs 1 through 23, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 25. | Respondent transacted business as an agent of issuer in Connecticut on at least one occasion absent registration, as more fully described in paragraphs 10 through 16, inclusive. 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 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-6(c)(1) of the Act –
Unregistered Investment Adviser Activity
| 26. | Paragraphs 1 through 25, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 27. |
Respondent transacted business as an investment adviser in Connecticut absent registration, as more fully described in paragraph 9. Such conduct constitutes a violation of Section 36b-6(c)(1) 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. |
d. Violation of Section 36b-4(a)(2) 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 12, 15 and 18 constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly, 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. Such conduct constitutes a violation of Section 36b-4(a)(2) 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. |
e. Violation of Section 36b-31-6e of the Regulations –
Engaging in Private Securities Transactions Without Prior
Written Notice to Employing Broker-dealer (Selling Away)
| 30. | Paragraphs 1 through 29, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 31. |
Respondent, through his sale of the FundGuard Debentures and Aliki Notes from Connecticut, as more fully described in paragraphs 10 through 17, inclusive, participated in private securities transactions without providing prior written notice to his employing broker-dealer describing in detail the proposed transactions, his proposed role therein and stating whether he had received or would receive selling compensation in connection with such transactions, as more fully described in paragraph 15, in violation of Section 36b-31-6e of the Regulations. Such violation of Section 36b-31-6e of the Regulations 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. |
f. Engaging in Dishonest or Unethical Business Practices
Within the Meaning of Section 36b-31-15b(a)(1) of the Regulations
| 32. | Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 33. | While registered as a broker-dealer agent under the Act, Respondent borrowed money from a client without notice to the broker-dealer whom he represented at the time, as more fully described in paragraph 20. Such conduct constitutes a dishonest or unethical practice by an agent within the meaning of 36b-31-15b(a)(1) of the Regulations, 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 an order that Respondent make restitution under Section 36b-27(b) 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 36b-16 of the Act, at least one violation of Section 36b-6(a) of the Act, at least one violation of Section 36b-6(c)(1) of the Act, at least one violation of Section 36b-4(a)(2) of the Act, and has engaged in conduct proscribed by Section 36b-31-6e of the Regulations and Section 36b-31-15b(a)(1) of the Regulations;
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 upon 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 upon Respondent;
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) transacting business as an agent of issuer in this state absent registration; (3) transacting business as an investment adviser in this state absent registration; (4) in connection with the offer, sale or purchase of any security, directly or indirectly, 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; (5) participating in private securities transactions without providing prior written notice to his employing broker-dealer; and (6) borrowing money from a client without notice to his employing broker-dealer;
WHEREAS, the Commissioner ORDERS that Respondent MAKE RESTITUTION of any sums obtained as a result of Respondent’s violation of Sections 36b-16, 36b-6(a), 36b-6(c)(1) and 36b-4(a)(2) 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 March 2006 through the date this Order to Make Restitution becomes permanent and which contains (a) the name and address of each investor of FundGuard Debentures and Aliki Notes, (b) the amount Respondent collected from each investor, (c) the date of each investment; and (d) the amount of any refunds of principal or purported interest payments Respondent made to each investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondent shall reimburse each investor the amount of funds collected from the investor plus interest, less the funds returned to the investor in the form of purported refunds of principal and purported interest payments, with respect to all transactions effected from March 2006 through 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 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 investor the amount of funds collected from investors plus interest, less the funds returned in the form of purported refunds of principal and purported interest payments, with respect to all transactions effected from July 2006 through the date this Order to Make Restitution becomes permanent. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to 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 the 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. If a hearing is requested, the hearing will be held on September 5, 2012, 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 the Respondent if he 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 the Respondent if he 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 the Respondent if he fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | ________/s/________ | |
| this 26th day of June 2012. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 26th day of June 2012, 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 William Alexis Cronin, Jr., 180 Concord Drive, Madison, Connecticut 06443, certified mail no. 7011 0470 0002 2573 4445; and William Alexis Cronin, Jr., c/o Madison Financial Services, 11 Woodland Road, Madison, Connecticut 06443, certified mail no. 7011 0470 0002 2573 4452.
| ______/s/_______________ |
| Elena Zweifler |
| Prosecuting Attorney |