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IN THE MATTER OF: CRYSTAL SKY ENTERPRISES, LLC CHRISTINA E. FOSTER (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-2006-7137-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 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 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 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 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 Respondents 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, . . . 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, . . . 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.
II. RESPONDENTS |
| 6. | CSE is a New Jersey limited liability company with its principal place of business last known to the Commissioner at 238 Raritan Street, Keyport, New Jersey 07735. |
| 7. |
Foster is a managing member of CSE and a Connecticut resident whose address last known to the Commissioner is 216 Dwight Street, New Haven, Connecticut 06511.
III. STATEMENT OF FACTS |
| 8. | From at least November 2003 to the present, CSE was an issuer of securities in the form of promissory notes (“CSE Note”). |
| 9. | On or about November 7, 2003, Foster, on behalf of CSE, effected a sale of a CSE Note to a Connecticut investor for $50,000 for the purposes of funding the property purchase agreement and pre-development costs related to the purchase of a former middle school building in New Jersey for redevelopment (“NJ Project”). Foster simultaneously obtained an additional $15,000 personal loan from the Connecticut investor, which was to be repaid as increased principal in the CSE Note, making a total principal investment of $65,000. |
| 10. |
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| 11. | The investor prospectus represented that CSE had obtained forward commitments from commercial lenders for the NJ Project and that if the NJ Project did not move forward to loan settlement, then no later than 10 days after the expiration of the 90-day investment period, the Connecticut investor would receive a guaranteed 20 percent return on his investment and the return of his principal, and if the NJ Project went to loan settlement, he would receive a guaranteed 100 percent return on his investment and the return of his principal. The investor prospectus, however, failed to disclose, inter alia, any risk factors, any financial information on CSE and the relevant work history of the managing members of CSE. |
| 12. | At the end of the initial 90-day investment period, CSE, through Foster, informed the Connecticut investor that the NJ Project had not gone to loan settlement and requested that he reinvest his funds plus accrued interest of 20 percent with CSE for an additional 90-day period under identical terms of the initial CSE Note. The Connecticut investor accepted the offer to reinvest his initial funds plus accrued interest under the identical terms of the initial CSE Note. Subsequently, the Connecticut investor reinvested his initial funds plus accrued interest in at least two more CSE Notes under the identical terms of the initial CSE Note. |
| 13. | Following the conclusion of the fourth 90-day investment period, the Connecticut investor made requests by telephone calls on September 8, 2004, and a letter dated November 22, 2004, to CSE that his principal investment plus accrued interest be sent to him. |
| 14. | No funds were returned by CSE or Foster. |
| 15. | The CSE Notes 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 2006 Supplement to the General Statutes, nor were they covered securities. |
| 16. |
Foster has never been registered in Connecticut as required by Section 36b-6 of the Act as an agent of CSE, nor was she 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 |
| 17. | Paragraphs 1 through 16, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 18. |
Respondents offered and sold unregistered securities to at least one Connecticut investor, as more fully described in paragraphs 8 through 12, inclusive, and paragraph 15, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 15. 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 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondents under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
b. Violation of Section 36b-4(a) of the Act – Fraud in Connection with the Offer and Sale of any Security |
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
The conduct of Respondents, as more fully described in paragraphs 8 through 14, inclusive, constitutes, in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud, making of any untrue statements of material facts 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 Respondents under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondents under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
c. Violation of Section 36b-6 of the 2006 Supplement to the General Statutes – Unregistered Agent Activity |
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. | Foster acted as an agent of issuer, as more fully described in paragraphs 9 and 12, absent registration, as more fully described in paragraph 16. Such conduct constitutes a violation of Section 36b-6(a) of the 2006 Supplement to the General Statutes, which forms a basis for an order to cease and desist to be issued against Foster under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Foster under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
| 23. |
CSE employed Foster as an agent of issuer, as more fully described in paragraphs 9 and 12, absent registration, as more fully described in paragraph 16. Such conduct constitutes a violation of Section 36b-6(b) of the 2006 Supplement to the General Statutes, which forms a basis for an order to cease and desist to be issued against CSE under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against CSE under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
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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, Crystal Sky Enterprises, LLC has violated Sections 36b-16 and 36b-4(a) of the Act and Section 36b-6(b) of the 2006 Supplement to the General Statutes and Christina E. Foster has violated Sections 36b-16 and 36b-4(a) of the Act and Section 36b-6(a) of the 2006 Supplement to the General Statutes;
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 Crystal Sky Enterprises, LLC CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including (1) without limitation, offering and selling unregistered securities, (2) in connection with the offer, sale or purchase of a security, employing a device, scheme or artifice to defraud, making of untrue statements of material facts 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 an act, practice or course of business which operates as a fraud or deceit upon any person, and (3) employing an agent absent registration; and Christina E. Foster 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 a security, employing a device, scheme or artifice to defraud, making of untrue statements of material facts 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 an 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 2006 Supplement to the General Statutes, Crystal Sky Enterprises, LLC and Christina E. Foster will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Crystal Sky Enterprises, LLC and Christina E. Foster 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 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 Crystal Sky Enterprises, LLC and Christina E. Foster 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 January 18, 2007, 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, Crystal Sky Enterprises, LLC and Christina E. Foster 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 Crystal Sky Enterprises, LLC if it does not request a hearing within the prescribed time period, and against Christina E. Foster if she does 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 CSE committed one violation of Section 36b-16 of the Act, one violation of Section 36b-4(a) of the Act and one violation of Section 36b-6(a) of the 2006 Supplement to the General Statutes, and Foster committed one violation of Section 36b-16 of the Act, one violation of Section 36b-4(a) of the Act and one violation of Section 36b-6(a) of the 2006 Supplement to the General Statutes;
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 intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation, or a maximum fine of Three Hundred Thousand Dollars ($300,000) on CSE and a maximum fine of Three Hundred Thousand Dollars ($300,000) on Foster.
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 January 18, 2007, 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 21st day of November 2006. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 21st day of November 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 Crystal Sky Enterprises, LLC, 238 Raritan Street, Keyport, New Jersey 07735, registered mail no. RB028033281US; and to Christina E. Foster, 216 Dwight Street, New Haven, Connecticut 06511, registered mail no. RB028033295US.
________/s/_________
Jesse B. Silverman
Prosecuting Attorney