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IN THE MATTER OF: (Collectively "Respondents") * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER |
I. PRELIMINARY STATEMENT
WHEREAS, 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 Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
WHEREAS, Wayne P. Franco, M.D. (“Franco”) is an individual whose address last known to the Commissioner is 74 Fairway Drive, Portland, Connecticut 06480. Franco is not and has not been registered in any capacity under the Act;
WHEREAS, New Heart LLC (“New Heart”), a Connecticut limited liability company formed by Franco on October 1, 2004, maintains its principal place of business at 520 Saybrook Road, Middletown, Connecticut 06457. Franco is a member and the majority owner of New Heart. New Heart is not and has not been registered in any capacity under the Act;
WHEREAS, Progenesis LLC (“Progenesis”), a Connecticut limited liability company formed by Franco on October 1, 2004, maintains its principal place of business at 520 Saybrook Road, Middletown, Connecticut 06457. Franco is a member and the majority owner of Progenesis. Progenesis is not and has not been registered in any capacity under the Act;
WHEREAS, Oz III, LLC (“Oz”), a Connecticut limited liability company formed by Franco on February 10, 2006, maintains its principal place of business at 520 Saybrook Road, Middletown, Connecticut 06457. Franco is a member and the majority owner of Oz. Oz is not and has not been registered in any capacity under the Act;
WHEREAS, at all times relevant hereto, Franco has been the control person of New Heart, Progenesis and Oz;
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, conducted an investigation pursuant to Section 36b-26(a) of the Act into the activities of Respondents to determine whether they, or any of them, had violated, were violating or were about to violate provisions of the Act or Regulations (“Investigation”);
WHEREAS, as a result of such Investigation, the Division obtained evidence that at various times from approximately September 20, 2004 to approximately May 25, 2011 Respondents offered and/or sold securities of New Heart, Progenesis and/or Oz in and from Connecticut to at least one investor, which securities 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;
WHEREAS, as a result of such Investigation, the Division obtained evidence that at various times from approximately September 20, 2004 to approximately May 25, 2011 Respondents in connection with the offer, sale or purchase of New Heart, Progenesis and/or Oz securities, directly or indirectly, omitted 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 by (1) failing to disclose to several investors that their checks for an investment in Progenesis were actually deposited in New Heart’s bank account and invested in New Heart, and (2) failing to disclose to all the investors that approximately $29,000 of investor funds were used to pay Franco’s medical malpractice insurance;
WHEREAS, as a result of such Investigation, the Division obtained evidence that at various times from approximately September 20, 2004 to approximately May 25, 2011 Franco transacted business as an agent of issuer without being registered as an agent of issuer under the Act;
WHEREAS, as a result of such Investigation, the Division obtained evidence that New Heart, Progenesis and/or Oz employed one or more unregistered agents of issuer;
WHEREAS, the Commissioner has reason to believe that the foregoing conduct violates certain provisions of the Act, and would support administrative proceedings against Respondents under Section 36b-27 of the Act;
WHEREAS, Section 36b-31(a) of the Act provides, in relevant part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, an administrative proceeding initiated under Section 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, Respondents expressly consent to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;
WHEREAS, the Commissioner finds that the entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, Respondents, through their execution of this Consent Order, specifically assure the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, Respondents, through their execution of this Consent Order, voluntarily waive the following rights:
| 1. | To be afforded notice and an opportunity for a hearing within the meaning of Section 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut; |
| 2. | To present evidence and argument and to otherwise avail themselves of Section 36b-27 and Section 4-177c(a) of the General Statutes of Connecticut; |
| 3. |
To present their respective positions in a hearing in which each is represented by counsel; |
| 4. | To have a written record of the hearing made and a written decision issued by a hearing officer; and |
| 5. |
To seek judicial review of, or otherwise challenge or contest, the matters described herein, including the validity of this Consent Order. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, Respondents, through their execution of this Consent Order, acknowledge the following allegations of the Commissioner without admitting or denying them:
| 1. |
Respondents violated Section 36b-16 of the Act through the offer and sale of unregistered securities in or from Connecticut to at least one investor, which securities were not registered in Connecticut under 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; |
| 2. | Respondents violated Section 36b-4(a)(2) of the Act by, in connection with the offer, sale or purchase of any securities, directly or indirectly, 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; |
| 3. | New Heart, Progenesis and/or Oz each violated Section 36b-6(c)(3) of the Act by employing one or more unregistered agents of issuer; |
| 4. | Franco violated Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer; and |
| 5. | The foregoing conduct, if proven, forms a basis for the initiation of administrative proceedings against Respondents pursuant to 36b-27(a) of the Act; |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting Respondents an opportunity for a hearing;
AND WHEREAS, Respondents acknowledge the possible consequences of an administrative hearing and voluntarily agree to consent to the entry of the sanctions described below.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, Respondents, through their execution of this Consent Order, consent to the Commissioner’s entry of an order imposing on them the following sanctions:
| 1. | New Heart, Progenesis and Oz and their representatives, agents, employees, affiliates, assigns, subsidiaries, and successors in interest shall cease and desist from directly or indirectly violating the provisions of the Act and the Regulations, including without limitation: (a) offering and selling unregistered securities in and from Connecticut; (b) in connection with the offer, sale or purchase of any security, directly or indirectly, 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; and (c) employing one or more unregistered agents of issuer; |
| 2. | Franco shall cease and desist from directly or indirectly violating the provisions of the Act and the Regulations, including without limitation: (a) offering and selling unregistered securities in and from Connecticut; (b) in connection with the offer, sale or purchase of any security, directly or indirectly, 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; and (c) transacting business as an agent of issuer in this state without registering as an agent of issuer under the Act; |
| 3. | No later than the date this Consent Order is entered by the Commissioner, Respondents shall remit to the Department by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut,” the sum of ten thousand dollars ($10,000), which shall constitute an administrative fine. Franco, New Heart, Progenesis and Oz are jointly and severally liable for the remittance of the ten thousand dollar ($10,000) administrative fine; and |
| 4. | For five (5) years, commencing on the date this Consent Order is entered by the Commissioner, Respondents and their affiliates and successors in interest shall each be barred from directly or indirectly soliciting or accepting funds for investment purposes from public or private investors in or from Connecticut absent compliance with this paragraph. Specifically, Respondents and their affiliates and successors in interest, as the case may be, shall each: (a) retain legal counsel experienced in the area of state securities regulation under the Act and not unacceptable to the Division Director to provide advice on compliance with the securities laws of Connecticut and other jurisdictions (“Retained Counsel”), including compliance with agent of issuer registration requirements; (b) provide the Division Director, through Retained Counsel, with at least thirty (30) days advance written notice of the proposed issuance, offer or sale of securities to public or private investors; (c) direct Retained Counsel to prepare and submit all required filings and fees to the Commissioner and to provide the Division Director with a signed opinion of counsel setting forth the basis for any claim of exemption or covered security status under Section 36b-21 of the Act, at least thirty (30) days prior to the commencement of the offering; and (d) refrain from offering or selling securities in or from Connecticut to public or private investors prior to receiving a written acknowledgement by Retained Counsel that the Commissioner has declared the registration of such securities effective in writing or that the Division Director has acknowledged in writing the issuer’s claim of exemption under Section 36b-21 of the Act or the issuer’s claim of covered security status. |
V. CONSENT ORDER
NOW THEREFORE, the Commissioner enters the following:
| 1. | The Sanctions set forth above be and are hereby entered; |
| 2. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against any Respondent and/or its affiliates and successors in interest based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance with the terms herein is not being observed; |
| 3. | Nothing in this Consent Order shall be construed as limiting the Commissioner’s ability to take enforcement action against any Respondent and/or its affiliates and successors in interest based upon evidence of which the Division was unaware on the date hereof relating to a violation of the Act or any regulation or order under the Act; and |
| 4. | This Consent Order shall become final when entered. |
| So ordered at Hartford, Connecticut, | ______/s/__________ | |
| this 25th day of September 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Wayne P. Franco, M.D., state that I have read the foregoing Consent Order; that I know and fully understand its contents; that I agree freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that I consent to the entry of this Consent Order.
| ______/s/__________ |
| Wayne P. Franco, M.D. |
State of: Connecticut
County of: Middlesex
On this the 17th day of September 2013, before me, Melissa Fisher, the undersigned officer, personally appeared Wayne P. Franco, M.D., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.
_____/s/_____________________
Date Commission Expires: 5/31/18
CONSENT TO ENTRY OF ORDER
I, Wayne P. Franco, M.D., state on behalf of New Heart LLC that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of New Heart LLC; that New Heart LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that New Heart LLC consents to the entry of this Consent Order.
| New Heart LLC | |
| By: | ______/s/__________ |
| Wayne P. Franco, M.D. | |
| Member |
State of: Connecticut
County of: Middlesex
On this the 17th day of September 2013, before me, Melissa Fisher, the undersigned officer, personally appeared Wayne P. Franco, M.D., who acknowledged himself to be a Member New Heart LLC and that he, as such Member, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the limited liability company by himself as Member.
_____/s/_____________________
Notary Public
Date Commission Expires: 5/31/18
CONSENT TO ENTRY OF ORDER
I, Wayne P. Franco, M.D., state on behalf of Progenesis LLC that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Progenesis LLC; that Progenesis LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Progenesis LLC consents to the entry of this Consent Order.
| Progenesis LLC | |
| By: | ______/s/__________ |
| Wayne P. Franco, M.D. | |
| Member |
State of: Connecticut
County of: Middlesex
On this the 17th day of September 2013, before me, Melissa Fisher, the undersigned officer, personally appeared Wayne P. Franco, M.D., who acknowledged himself to be a Member of Progenesis LLC and that he, as such Member, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the limited liability company by himself as Member.
_____/s/_____________________
Notary Public
Date Commission Expires: 5/31/18
CONSENT TO ENTRY OF ORDER
I, Wayne P. Franco, M.D., state on behalf of Oz III, LLC that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Oz III, LLC; that Oz III, LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Oz III, LLC consents to the entry of this Consent Order.
| Oz III, LLC | |
| By: | ______/s/__________ |
| Wayne P. Franco, M.D. | |
| Member |
State of: Connecticut
County of: Middlesex
On this the 17th day of September 2013, before me, Melissa Fisher, the undersigned officer, personally appeared Wayne P. Franco, M.D., who acknowledged himself to be a Member of Oz III, LLC and that he, as such Member, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the limited liability company by himself as Member.
_____/s/_____________________
Notary Public
Date Commission Expires: 5/31/18