| * * * * * * * * * * * * * * * * * * IN THE MATTER OF: FUNDRAISING CO-OP, INC. BUYER TOPIA, INC. NICHOLAS C. BURKHOLDER DUNCAN H. GRAHAM JOHN WEBER (Collectively, "Respondents") * * * * * * * * * * * * * * * * * * |
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* * * |
ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-13-883-B |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (the “Commissioner”) is charged with the administration of Chapter 672c of the General Statutes of Connecticut, the Connecticut Business Opportunity Investment Act (the “Business Opportunity Act”). The Commissioner is also charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (the “Securities Act”) and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Securities Act. |
| 2. | Pursuant to Section 36b-71(a) of the Business Opportunity Act and Section 36b-26(a) of the Securities Act, the Commissioner, through the Securities and Business Investments Division (the “Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if Respondents have violated, are violating or are about to violate provisions of the Business Opportunity Act, the Securities Act or both (the “Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Business Opportunity Act and certain provisions of the Securities Act. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-72(a) of the Business Opportunity Act and Section 36b-27(a) of the Securities Act. |
| 5. |
As a result of the Investigation, the Commissioner has the authority to impose a fine upon Respondents pursuant to Section 36b-72(b) of the Business Opportunity Act and Section 36b-27(d) of the Securities Act. |
| 6. | As a result of the Investigation, the Commissioner has the authority to order that Respondents make restitution pursuant to Section 36b-27(b) of the Securities Act. |
II. RESPONDENTS
| 7. |
Fundraising Co-Op, Inc. (“Fundraising”) is a corporation based in Pennsylvania and located at 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974. |
| 8. | Buyer Topia, Inc. (“Buyer Topia”) is a corporation based in Pennsylvania. Like Fundraising, its business address is 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974. Fundraising and Buyer Topia also share the same business address as affiliates Community eStores, Inc. and Buyer Topia Authorized, Inc. |
| 9. | Nicholas C. Burkholder (“Burkholder”) is an executive officer of respondents Fundraising and Buyer Topia. |
| 10. | Duncan H. Graham (“Graham”) is the Executive Director of Fundraising as well as the Director of Development for Buyer Topia. |
| 11. | John Weber (“Weber”) is the Treasurer of respondent Fundraising. |
III. STATEMENT OF FACTS
12.
Respondents Fundraising and Buyer Topia, working alone and in tandem, are in the business of selling advertising and product fundraising programs (the “Fundraising Program”) to enable purchasers to establish their own home based business, earning commissions on products as well as a share of collateral advertising.
13.
From at least November 2011, Respondents offered and/or sold the Fundraising Program to one or more purchaser-investors in Connecticut, including one purchaser-investor (“Investor 1”) who paid Respondents $20,000 to participate in the Fundraising Program.
14.
Under Investor 1’s arrangement with Respondents, Investor 1 would become a designated member of the Fundraising cooperative, with the right to vote Fundraising shares.
15.
At no time were the interests in the Fundraising cooperative registered under Section 36b-16 of the Securities Act nor was there any record of an exemption claim or claim of covered security status having been filed under Section 36b-21 of the Securities Act with respect to those interests or shares.
16.
Under the arrangement with Investor 1, Fundraising agreed to provide ongoing business support and training to Investor 1.
17.
Under the arrangement with Investor 1, Fundraising represented that, at Investor 1’s request, it would refund Investor 1’s “investment”, including interest at five percent, between six and twelve months following Investor 1’s signing of the agreement. The related contract would be executed by respondent Burkholder.
18.
In its online marketing materials, Fundraising represented that it would provide purchaser-investors with (a) the “Best Return on Investment and Effort of any home based business”; (b) “A significant and stable six figure income, [and] a great work schedule”; (c) “Initial training”, “Ongoing training and support”; “Marketing Programs”; “Advertising” and “Continual Training.”
19.
There is no evidence that Respondents provided prospective purchaser-investors with documented data substantiating Respondents’ claims of income or earnings potential or detailing how many individuals actually achieved a “significant and stable six figure income.”
20.
At no time was the Fundraising Program registered as a business opportunity under the Business Opportunity Act, nor did any of the Respondents file a claim with the Commissioner that its business opportunity was excluded from the definition of “business opportunity” or exempt from registration under the Business Opportunity Act.
21.
Respondents failed to provide prospective purchaser-investors with a disclosure document containing critical information on the Fundraising Program and on the seller and its principals and affiliates, including, without limitation, background information on the seller; litigation involving Fundraising and Buyer Topia, their principals and affiliates; any risks associated with the purchase of the Fundraising Program; financial information on Fundraising or Buyer Topia; and the employment and disciplinary histories of the principals and representatives of Fundraising and Buyer Topia.
22.
Prior to the sales of the Fundraising Program, Respondents failed to register the Fundraising Program under the Business Opportunity Act and failed to: file a copy of the disclosure statement required by Section 36b-63 of the Business Opportunity Act; furnish a bond in accordance with the provisions of Section 36b-64 of the Business Opportunity Act; provide a sworn to and certified statement containing the information required by Section 36b-62 of the Business Opportunity Act; provide the Commissioner, in accordance with subsection (e) of Section 36b-62 of the Business Opportunity Act, with an irrevocable consent appointing the Commissioner or his successor in office to be the seller’s attorney to receive service of any lawful process in any noncriminal suit, action or proceeding which arises under Sections 36b-60 to 36b-80, inclusive, or any regulation or order adopted or issued under the provisions of said sections; and submit a nonrefundable registration fee of four hundred dollars.
23.
Prior to the sales of the Fundraising Program, Respondents failed to inform prospective purchaser-investors that Respondents had failed to register the Fundraising Program, as described in Paragraph 22.
24.
Despite repeated requests, Respondents failed to return to Investor 1 the monies Investor 1 remitted to [sic] for the purchase of the Fundraising Program.
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
AGAINST RESPONDENTS
a. The Fundraising Program Offered and Sold by Respondents
is a Business Opportunity
| 25. | Paragraphs 1 through 24, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 26. |
The products, equipment, supplies, and services described in paragraph 12 constitute a “business opportunity” within the meaning of Section 36b-61(2) of the Business Opportunity Act in that they were offered and sold to purchaser-investors by Respondents to enable those purchaser-investors to start a home-based fundraising business. |
| 27. | As described in paragraphs 16 and 18, Respondents represented to prospective purchaser-investors that Respondents would provide purchaser-investors with training, ongoing support, advertising and marketing programs necessary to make the purchaser-investor’s fundraising business a success. In so doing, Respondents represented that they would provide purchaser-investors with a sales program or a marketing program within the meaning of Section 36b-61(2)(D) of the Business Opportunity Act. |
| 28. | As described in paragraph 17, Respondents represented that they would refund the purchaser-investor’s investment, at the purchaser-investor’s request and including interest at five percent, between six and twelve months following the purchaser-investor’s signing of the agreement. In so doing, Respondents represented that the seller would refund all or part of the price paid for the business opportunity if the purchaser-investor became unsatisfied with the business opportunity, thus bringing the Fundraising Program within Section 36b-61(2)(C) of the Business Opportunity Act. |
b. Violation of Section 36b-67(1) of the Business Opportunity Act by Respondents –
Offer or Sale of an Unregistered Business Opportunity
| 29. | Section 36b-67(1) of the Business Opportunity Act provides, in pertinent part, that “[n]o person shall in connection with the sale or offer for sale of a business opportunity: (1) Sell or offer for sale a business opportunity in this state or from this state unless it has first been registered with the commissioner and declared effective by the commissioner in accordance with the provisions of section 36b-62.” |
| 30. |
Paragraphs 1 through 29, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 31. | Respondents offered and sold Fundraising Program business opportunities as more fully described in paragraphs 12 through 19, inclusive. The offer and sale of such business opportunities absent registration constitutes a violation of Section 36b-67(1) of the Business Opportunity Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-72(a) of the Business Opportunity Act, and for the imposition of a fine upon Respondents under Section 36b-72(b) of the Business Opportunity Act. |
c. Violation of Section 36b-67(2) of the Business Opportunity Act by Respondents –
Unsubstantiated Earnings or Income Claims
| 32. | Section 36b-67(2) of the Business Opportunity Act provides, in pertinent part, that “[n]o person shall in connection with the sale or offer for sale of a business opportunity . . . (2) represent that the business opportunity will provide income or earning potential of any kind unless the seller has documented data to substantiate the claims of income or earnings potential and discloses this data to the prospective purchaser-investor at the time such representations are made . . . .” |
| 33. |
Paragraphs 1 through 32, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 34. | As described in paragraphs 18 and 19, Respondents failed to provide prospective purchaser-investors with documented data substantiating Fundraising’s claims of income or earnings potential or detailing who, if anyone, achieved a “significant and stable six figure income” by participating in the Fundraising Program. Such conduct constitutes a violation of Section 36b-67(2) of the Business Opportunity Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-72(a) of the Business Opportunity Act and/or the imposition of a fine upon Respondents under Section 36b-72(b) of the Business Opportunity Act. |
d. Violation of Section 36b-67(6) of the Business Opportunity Act by Respondents –
Fraud in Connection with the Offer or Sale of a Business Opportunity
| 35. | Paragraphs 1 through 34, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 36. |
The conduct of Respondents, as more fully described in paragraphs 18 and 19, and 21 through 23, inclusive, constitutes, in connection with the offer or sale of a business opportunity, directly or indirectly employing any device, scheme or artifice to defraud; making any untrue statement of a material fact 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 or would operate as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-67(6) of the Business Opportunity Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-72(a) of the Business Opportunity Act and/or the imposition of a fine upon Respondents under Section 36b-72(b) of the Business Opportunity Act. |
e. Violation of Section 36b-16 of the Securities Act by Respondent Fundraising –
Offer and Sale of an Unregistered Security
| 37. | Paragraphs 1 through 36, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 38. |
Respondent Fundraising offered and/or sold unregistered securities in violation of Section 36b-16 of the Securities Act. The offer and sale of such securities absent registration forms a basis for the issuance of an order to cease and desist under Section 36b-27(a) of the Securities Act, an order of restitution under Section 36b-27(b) of the Securities Act, and the imposition of a fine under Section 36b-27(d) of the Securities 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, Fundraising has committed at least one violation of 36b-67(1) of the Business Opportunity Act, at least one violation of Section 36b-67(2) of the Business Opportunity Act, at least one violation of Section 36b-67(6) of the Business Opportunity Act and at least one violation of Section 36b-16 of the Securities Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Buyer Topia has committed at least one violation of 36b-67(1) of the Business Opportunity Act, at least one violation of Section 36b-67(2) of the Business Opportunity Act, and at least one violation of Section 36b-67(6) of the Business Opportunity Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Burkholder has committed at least one violation of 36b-67(1) of the Business Opportunity Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Graham has committed at least one violation of 36b-67(1) of the Business Opportunity Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Weber has committed at least one violation of 36b-67(1) of the Business Opportunity Act;
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 Respondents 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 Business Opportunity Act and the Securities Act;
WHEREAS, notice is hereby given to Respondents that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation upon Respondents;
WHEREAS, the Commissioner ORDERS that FUNDRAISING CO-OP, INC. CEASE AND DESIST from directly or indirectly violating the provisions of the Business Opportunity Act and the Securities Act, including without limitation: (1) offering and selling unregistered business opportunities; (2) making unsubstantiated earnings or income claims; (3) in connection with the offer or sale of any business opportunity, directly or indirectly employing any device, scheme or artifice to defraud, making any untrue statements of a material fact 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 or would operate as a fraud or deceit upon any person; and (4) offering or selling securities in violation of Section 36b-16 of the Securities Act;
WHEREAS, the Commissioner ORDERS that BUYER TOPIA, INC. CEASE AND DESIST from directly or indirectly violating the provisions of the Business Opportunity Act, including without limitation: (1) offering and selling unregistered business opportunities; (2) making unsubstantiated earnings or income claims; and (3) in connection with the offer or sale of any business opportunity, directly or indirectly employing any device, scheme or artifice to defraud, making any untrue statements of a material fact 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 or would operate as a fraud or deceit upon any person;
WHEREAS, the Commissioner ORDERS that NICHOLAS C. BURKHOLDER CEASE AND DESIST from directly or indirectly violating the provisions of the Business Opportunity Act, including, without limitation, offering and selling unregistered business opportunities;
WHEREAS, the Commissioner ORDERS that DUNCAN H. GRAHAM CEASE AND DESIST from directly or indirectly violating the provisions of the Business Opportunity Act, including, without limitation, offering and selling unregistered business opportunities;
WHEREAS, the Commissioner ORDERS that JOHN WEBER CEASE AND DESIST from directly or indirectly violating the provisions of the Business Opportunity Act, including, without limitation, offering and selling unregistered business opportunities;
WHEREAS, the Commissioner ORDERS that FUNDRAISING CO-OP, INC. MAKE RESTITUTION of any sums obtained as a result of its violations of Section 36b-16 of the Securities 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 Fundraising Co-Op, Inc. shall provide the Division with a written disclosure which covers the period from January 1, 2011 to the date this Order to Make Restitution becomes permanent and which contains (a) the name and address of each Connecticut investor, (b) the amount Respondent Fundraising Co-Op, Inc collected from each Connecticut investor, and (c) the amount of any refunds of principal or purported interest payments Respondent Fundraising Co-Op, Inc made to each Connecticut investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondent Fundraising Co-Op, Inc. shall reimburse each Connecticut investor the amount of funds collected from the investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments made to the investor, with respect to all transactions effected from January 1, 2011 to 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 Connecticut investor; and |
| 3. | Within ninety days (90) days from the date this Order to Make Restitution becomes permanent, Respondent Fundraising Co-Op, Inc. 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 Fundraising Co-Op, Inc. has reimbursed each Connecticut investor the amount of funds collected from each such investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to all transactions effected from January 1, 2011 to the date this Order to Make Restitution becomes permanent. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant Section 36b-72 of the Business Opportunity Act and Section 36b-27 of the Securities Act, each 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 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 any 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 of Connecticut State Agencies. If a hearing is requested, the hearing will be held on September 24, 2013, 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, each 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 any Respondent that 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 any Respondent to whom such Order to Make Restitution is directed and that 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 any Respondent that fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| So ordered at Hartford, Connecticut, | ______/s/__________ | |
| this 25th day of July 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 25th day of July 2013, 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 Fundraising Co-Op, Inc., 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974, certified mail no. 7012 3050 0002 1692 5043; Buyer Topia, Inc., 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974, certified mail no. 7012 3050 0002 1692 5050; Nicholas C. Burkholder, c/o Fundraising Co-Op, Inc., 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974, certified mail no. 7012 3050 0002 1692 5067; Duncan H. Graham, c/o Fundraising Co-Op, Inc., 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974, certified mail no. 7012 3050 0002 1692 5074; and John Weber, c/o Fundraising Co-Op, Inc., 600 Louis Drive, Suite 202B, Warminster, Pennsylvania 18974, certified mail no. 7012 3050 0002 1692 5319.
| ______/s/_______ |
| William C. Hall III |
| Paralegal |