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IN THE MATTER OF: ("Respondent") * * * * * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-13-8085-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 Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act. |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments 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. |
| 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. |
| 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. |
Stephen Goodrich a/k/a Stephen W. Goodrich a/k/a Stephen Western Goodrich (“Goodrich”) is an individual whose addresses last known to the Commissioner are 168 Queen Street, 1st Floor, Bristol, Connecticut 06010; and 36 Leominster Road, Bristol, Connecticut 06010. |
III. STATEMENT OF FACTS
8.
Goodrich engages or has engaged in the securities and/or investment advisory business individually and under the name Goodrich Financial. At no time was Goodrich Financial a legal entity.
9.
From at least March 2006 to the present, Goodrich, both individually and under the name Goodrich Financial, pooled investor funds for the purported purpose of investing such funds in an account managed by Goodrich. Goodrich raised approximately $1.9 million from at least 23 investors (“Investors”) primarily located in Connecticut.
10.
For all relevant periods, Goodrich informed the Investors that he would invest their money, along with money from other individuals, in an investment pool, and that Goodrich and/or Goodrich Financial invested in stocks, commodities and currencies. To entice prospective participants to invest, Goodrich told potential investors that the investment generated yearly returns of 14% to 16%.
11.
Goodrich gave some Investors business cards which he had created in the name of Goodrich Financial. The business cards described Goodrich as a “Licensed Professional [with] Over 14 years Experience”. The business cards further described Goodrich’s business as: “Investments: Stocks • Commodities • Currencies”; and added “Make money in any market Up or Down”. In reality, Goodrich was not licensed in any capacity and Goodrich Financial did not exist as a separate legal entity.
12.
The Investors did not have any input into how the money they invested with Goodrich was going to be managed. Goodrich controlled all investment decisions.
13.
The Investors believed, because of Goodrich’s misrepresentations, that Goodrich was investing their money in a safe investment generating exceptional rates of return. In reality, Goodrich commingled the Investors’ money into a single account, invested some money, paid off earlier Investors with later Investors’ money, and diverted some of the Investors’ money for his personal use, including liquor purchases, online gambling and hotel expenses.
14.
To hide his conduct, Goodrich created and provided some Investors with fictitious Performance Summary account statements, reflecting the amount of each Investor’s investment and purported profits. These Performance Summary account statements contained falsified account balances which were greatly inflated from the Investor’s actual account balances.
15.
The Investors continued to invest with Goodrich after receiving the falsified Performance Summary account statements.
16.
The investment pool interests offered and sold by Goodrich were never 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.
17.
Goodrich received compensation, directly or indirectly, for managing and purportedly investing the Investors’ pooled funds. At no time was Goodrich registered in Connecticut as an investment adviser, nor did he qualify for any exemption or exclusion from registration under the Act.
18.
Goodrich failed to pay Investors the purported profits he represented and promised, and failed to return all of the Investors’ principal investment in the investment pool.
19.
Goodrich failed to disclose, inter alia, any risk factors related to the investment, any financial, disciplinary, employment or other background information on Goodrich, and/or that Goodrich would use part of the Investors’ money for personal expenses and to pay off earlier Investors with later Investors’ money. Each of these omitted items was material to the Investors and prospective investors.
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act -
Offer and Sale of Unregistered Securities
| 20. | Paragraphs 1 through 19, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 21. |
Respondent offered and sold unregistered securities in or from Connecticut to at least twenty three investors, as more fully described in paragraphs 8 through 15, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 16. 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 upon Respondent under Section 36b-27(d) of the Act. |
b. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 22. | Paragraphs 1 through 21, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 23. |
The conduct of Respondent, as more fully described in paragraphs 8 through 19, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an 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 an 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 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 upon Respondent under Section 36b-27(d) of the Act. |
c. Violation of Section 36b-6(c)(1) of the Act –
Unregistered Investment Adviser 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 investment adviser in Connecticut absent registration, as more fully described in paragraphs 8 through 19. 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-5(a) of the Act –
Fraudulent Investment Adviser Activity
| 26. | Paragraphs 1 through 25, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 27. |
The conduct of Respondent, as more fully described in paragraphs 8 through 19, inclusive, in connection with advising another person on a compensated basis, directly or indirectly, as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, constitutes employing a device, scheme or artifice to defraud, making an 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 an act, practice or course of business which operates as a fraud or deceit upon such other person. Such conduct constitutes a violation of Section 36b-5(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 upon Respondent under Section 36b-27(d) of the Act. |
e. Violation of Section 36b-6(a) of the Act –
Unregistered Broker-dealer Activity
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. |
Respondent transacted business as a broker-dealer in Connecticut absent registration, as more fully described in paragraphs 8 through 19, 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 upon Respondent under Section 36b-27(d) of the Act. |
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 Section 36b-16 of the Act, at least one violation of Section 36b-4(a) of the Act, at least one violation of Section of 36b-6(c)(1) of the Act, at least one violation of Section 36b-5(a) of the Act, and at least one violation of Section 36b-6(a) of the 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 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;
WHEREAS, the Commissioner ORDERS that STEPHEN GOODRICH 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) in connection with the offer, sale or purchase of any security, directly or indirectly employing any device, scheme or artifice to defraud, making an 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 an act, practice or course of business which operates or would operate as a fraud or deceit upon any person; (3) engaging in the business of directly advising others, for compensation, as to the advisability of investing in, purchasing and selling securities in Connecticut absent registration as an investment adviser; (4) in connection with directly or indirectly advising another person on a compensated basis as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, employing a device, scheme or artifice to defraud, making an 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 an act, practice or course of business which operates as a fraud or deceit upon such other person; and (5) engaging in the business of effecting transactions in securities for the account of others or for his own account in or from Connecticut absent registration as a broker-dealer;
WHEREAS, the Commissioner ORDERS that STEPHEN GOODRICH MAKE RESTITUTION of any sums obtained as a result of Respondent’s violations of Sections 36b-4(a), 36b-5(a), 36b-6(a), 36b-6(c)(1) and 36b-16 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 January 1, 2006 to the date this Order to Make Restitution becomes permanent and which contains (a) the name and address(es) of each investor, (b) the amount Respondent collected from each investor, and (c) the amount of any refunds of principal or purported profit 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 funds returned in the form of purported refunds of principal and purported profit payments made to the Investor, with respect to all transactions effected from January 1, 2006 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 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 each such Investor plus interest, less funds returned in the form of purported refunds of principal and purported profit payments, with respect to all transactions effected from January 1, 2006 to 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 of Connecticut State Agencies. If a hearing is requested, the hearing will be held on September 10, 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, 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 Respondent if Respondent 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 Respondent if Respondent 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 Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | _______/s/__________ | |
| this 23rd day of July 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 23rd 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 Stephen Goodrich at 168 Queen Street, 1st Floor, Bristol, Connecticut 06010, certified mail no. 7012 3050 0002 1692 6088; 36 Leominster Road, Bristol, Connecticut 06010, certified mail no. 7012 3050 0002 1692 6095; and c/o Richard G. Convicer, Esq., Convicer, Percy & Green, LLP, 701 Hebron Avenue, Glastonbury, Connecticut 06033, certified mail no. 7012 3050 0002 1692 6101.
| ____/s/___________ |
| Paul A. Bobruff |
| Prosecuting Attorney |