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IN THE MATTER OF: STEVEN GRAY ("Respondent") * * * * * * * * * * * * * * * |
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NOTICE OF INTENT TO REVOKE NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. RF-2006-7155-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 Respondent to determine if he has violated, is violating or is 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: |
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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 Respondent has violated certain provisions of the Act. |
| 4. | As a result of the investigation by the Division, the Commissioner brings this administrative action pursuant to Section 36b-15 of the 2006 Supplement to the General Statutes, and Section 4-182(c) of the Connecticut General Statutes to revoke the agent registration of Respondent, as set forth herein. Section 36b-15(a) of the 2006 Supplement to the General Statutes, provides, in pertinent part: |
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The commissioner may, by order, . . . revoke any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant . . . (B) has wilfully violated or wilfully failed to comply with any provision of sections 36b-2 to 36b-33, inclusive, . . . or any regulation . . . under said sections . . . ; (H) has engaged in fraudulent, dishonest or unethical practices in the securities . . . business, including abusive sales practices in the business dealings of such . . . registrant . . . with current or prospective customers or clients . . . ; (K) has failed reasonably to supervise . . . (ii) the agents of a broker-dealer . . . if such . . . registrant . . . is or was an agent . . . charged with exercising supervisory authority on behalf of a broker-dealer . . . ; [or] (L) in connection with any investigation conducted pursuant to section 36b-26 or any examination under subsection (d) of section 36b-14 . . . has withheld or concealed material information from . . . the commissioner . . . . | |
| Section 4-182(c) of the Connecticut General Statutes provides, in pertinent part: | |
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No revocation . . . of any license is lawful unless, prior to the institution of agency proceedings, the agency gave notice by mail to the licensee of facts or conduct which warrant the intended action, and the licensee was given an opportunity to show compliance with all lawful requirements for the retention of the license. | |
| 5. | As a result of the investigation by the Division, the Commissioner has the authority to impose a fine on Respondent pursuant to Section 36b-27(d) of the 2006 Supplement to the General Statutes, which provides, in pertinent part: |
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(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, or any regulation . . . adopted . . . under said sections, 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, or any regulation . . . adopted . . . under said sections, 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. | |
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II. RESPONDENT | |
| 6. | Respondent is an individual whose address last known to the Commissioner is 2552 East 11 Street, Brooklyn, New York 11235. |
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III. STATEMENT OF FACTS | |
| 7. | From at least September 24, 2004 to May 26, 2005, Respondent has been registered in Connecticut under the Act as an agent. |
| 8. | Independent Securities Investors Corporation (“Independent”) is a corporation whose current principal place of business is in Chipley, Florida. From at least July 2001, Independent has been registered in Connecticut under the Act as a broker-dealer. |
| 9. | Respondent is President and a majority shareholder of Charter One Capital Holding, Inc. (“Charter One”), a holding company that owns and operates a branch of Independent located at 11 Broadway, Suite 1015, New York, New York (“NY Branch”), and another branch of Independent in Boca Raton, Florida (“Florida Branch”). |
| 10. | On March 10 and 11 and April 7, 2005, the Commissioner, through employees of the Division, conducted an investigation of Independent pursuant to Section 36b-26(a) of the Act (“Investigation”), and an examination of Independent’s books and records pursuant to Section 36b-14(d) of the Act (“Examination”). The Investigation and Examination were conducted at the NY Branch. |
| 11. | Respondent managed the NY Branch and exercised supervisory authority at such branch on behalf of Independent. Respondent also exercised supervisory authority over at least one agent at the Florida Branch (“Agent”) on behalf of Independent. |
| 12. | From at least March to June 2005, the NY Branch employed at least two individuals as “cold callers”, who, inter alia, pre-qualified customers as to financial status and investment history. |
| 13. | The “cold callers” referred to in paragraph 12 were not, at all times relevant hereto, registered with the National Association of Securities Dealers, Inc. (“NASD”) as representatives of Independent. |
| 14. | The NASD is a self-regulatory organization registered with the Securities and Exchange Commission pursuant to Section 15A of the Securities Exchange Act of 1934. |
| 15. | From at least December 2004 through April 2005, the Agent made three sales of Bio-Solutions Manufacturing securities to at least two Connecticut customers. |
| 16. | The Bio-Solutions Manufacturing securities 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 Act, nor were they covered securities. |
| 17. | In at least November 2004, the Agent, made three sales of Stake Technology securities to at least three Connecticut customers. |
| 18. | Stake Technology securities 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 Act, nor were they covered securities. |
| 19. | On at least February 9, 2005, at least one agent at the NY Branch effected a sale of Nuvelo Inc. securities for the account of at least one person located in Connecticut absent registration in Connecticut. |
| 20. | From at least November 2004 through April 2005, the Agent effected an aggregate of at least three unauthorized transactions on behalf of two Connecticut customers. |
| 21. | “Section 510: Registration” of Independent’s “OSJ Manual” (“Supervisory Manual”) provides, in pertinent part, that “[t]he OSJ Manager should review the activities in the office in order to prevent any of the following: . . . no . . . [registered representative] may solicit transactions . . . with residents of a state in which the . . . [registered representative] is not registered”. |
| 22. | Respondent failed reasonably to supervise the Agent and Independent’s agents at the NY Branch to prevent the violative conduct described in paragraphs 12 through 20, inclusive. |
| 23. | Respondent made sales of Charter One securities in the form of promissory notes (“Notes”) to at least 50 investors, including a Connecticut customer, raising an aggregate of over $1 million from such investors. |
| 24. | The Notes 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 Act, nor were they covered securities. |
| 25. | The interest payable on the Notes was 10% per annum, payable quarterly with the principal due one year from the date of the Notes. Respondent failed to pay the investors interest or principal in accordance with the terms of the Notes. Only one investor was paid part of the interest owed. |
| 26. | Respondent and the Agent who referred the Connecticut customer to Respondent failed to inform the customer of any risks associated with investing in Charter One, even though Charter One had not paid earlier investors the monies owed on the Notes and had experienced a substantial net loss from inception and had substantial working capital deficiency, which, according to the Report of Independent Auditor, raised substantial doubt about its ability to continue as a going concern. |
| 27. | In connection with the sale of Charter One securities, Respondent and agents and cold callers over whom Respondent exercised supervisory authority provided some potential investors with a document containing biographies and profiles of individuals purportedly associated with Charter One when at least three of the individuals whose biographies were included in the document had declined Respondent’s request to become an officer/director of Charter One. |
| 28. | The sales of the Charter One securities were transactions that were outside the regular course or scope of Respondent’s employment with Independent. Such transactions did not go through the books and records of Independent and Respondent did not provide Independent written notice describing in detail the proposed transactions, his proposed role in such transactions and stating whether he had received or would receive compensation in connection with the transactions. |
| 29. | Respondent was, at all times relevant to this matter, a member of the NASD. NASD Conduct Rule 2110 states that a “member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade”. |
| 30. | During and subsequent to the Investigation and Examination, the Division requested Respondent, both verbally and in writing, to provide numerous material documents. Despite repeated requests, Respondent has not provided the Division with all of the requested documents. |
| 31. | On January 6, 2006, the Commissioner gave Respondent written notice pursuant to Section 4-182(c) of the Connecticut General Statutes that he may have engaged in conduct which would provide a basis for the suspension or revocation of his agent registration in Connecticut and gave Respondent the opportunity to show compliance with all lawful requirements for the retention of his agent registration in Connecticut. To date, Respondent has failed to respond to such notice. |
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IV. STATUTORY BASIS FOR REVOCATION OF AGENT REGISTRATION AND FINE | |
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a. Failure Reasonably to Supervise | |
| 32. | Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 33. | Respondent’s failure reasonably to supervise the activities of Independent’s agents as more fully described in paragraphs 11 through 20, inclusive, forms a basis for the revocation of Respondent’s registration as an agent pursuant to Section 36b-15(a)(2)(K) of the 2006 Supplement to the General Statutes. |
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b. Wilful Violation of Section 36b-16 of the Act – Sale of Unregistered Securities | |
| 34. | Paragraphs 1 through 33, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 35. | Respondent effected at least one offer and sale of a security, which was not registered in Connecticut under the Act, to at least one Connecticut customer, as more fully described in paragraphs 23 and 24. The offer and sale of such security absent registration constitutes a wilful violation of Section 36b-16 of the Act, and such violation forms a basis for the revocation of Respondent’s registration as an agent pursuant to Section 36b-15(a)(2)(B) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
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c. Wilful Violation of Section 36b-4 of the Act | |
| 36. | Paragraphs 1 through 35, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 37. | As more fully described in paragraphs 25 through 27, inclusive, Respondent, in connection with the offer and sale of the Notes, directly or indirectly employed a device scheme or artifice to defraud; omitted to state a material fact necessary in order to make statements made in light of the circumstances under which they were made, not misleading and engaged in a practice or course of business that operated as a fraud or deceit upon investors including the Connecticut investor. Such violation forms a basis for the revocation of Respondent’s registration as an agent pursuant to Section 36b-15(a)(2)(B) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
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d. Wilful Violation of Section 36b-31-6e of the Regulations – Participation in a Private Securities Transaction | |
| 38. | Paragraphs 1 through 37, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 39. | Respondent’s offers and sales of the Notes, as more fully described in paragraphs 23 and 28, constitute private transactions in violation of Section 36b-31-6e of the Regulations and a dishonest or unethical business practice under Section 36b-31-15b(2) of the Regulations. Such conduct forms a basis for the revocation of Respondent’s registration as an agent pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
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e. Dishonest and Unethical Practices in the Securities Business – Failure to Observe High Standards and Just and Equitable Principles | |
| 40. | Paragraphs 1 through 39, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 41. | Respondent’s conduct as described in paragraphs 22 through 28, inclusive, constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations, in that it is conduct proscribed by NASD Conduct Rule 2110. Such a dishonest and unethical practice in the securities business by Respondent forms a basis for the revocation of Respondent’s registration as an agent pursuant to Section 36b-15(a)(2)(H) of the 2006 Supplement to the General Statutes. |
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f. Withholding of Material Information from the Commissioner | |
| 42. | Paragraphs 1 through 41, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 43. | Respondent’s withholding of material information from the Commissioner, as more fully described in paragraph 30, forms a basis for the revocation of Respondent’s registration as an agent pursuant to Section 36b-15(a)(2)(L) of the 2006 Supplement to the General Statutes. |
AND NOTICE OF RIGHT TO HEARING
WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct that, pursuant to Section 36b-15(a) of the 2006 Supplement to the General Statutes, constitute grounds for revoking his registration as an agent in Connecticut;
WHEREAS, the Commissioner believes that the issuance of an order revoking registration would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, Section 36b-15(f) of the Act provides, in pertinent part, that “[n]o order may be entered under this section . . . without (1) appropriate prior notice to the . . . registrant and to the employer . . . if such . . . registrant is an agent . . . , (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”.
NOW THEREFORE, notice is hereby given to Respondent that his registration as an agent shall be revoked, subject to his right to request a hearing on the allegations set forth above.
A hearing will be granted to Respondent 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 his receipt of this Notice. 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 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 April 18, 2006, 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, 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.
If Respondent does not request a hearing within the prescribed time period, the Commissioner shall issue an order revoking registration as an agent in Connecticut.
VI. NOTICE OF INTENT TO FINE RESPONDENT AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that Respondent has violated Sections 36b-4 and 36b-16 of the Act and Section 36b-31-6e of the Regulations;
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondent 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 Respondent that the Commissioner intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation for a maximum fine of Three Hundred Thousand Dollars ($300,000).
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 April 18, 2006, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
At the hearing, Respondent 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 Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon Respondent.
________/s/_________
Dated at Hartford, Connecticut John P. Burke
this 2nd day of March 2006. Banking Commissioner
CERTIFICATION
I hereby certify that on this 2nd day of March 2006, the foregoing Notice of Intent to Revoke Registration as Agent, Notice of Intent to Fine and Notice of Right to Hearing was sent by registered mail, return receipt requested, to Steven Gray, 2552 East 11 Street, Brooklyn, New York 11235, registered mail no. RB028032913US; Independent Securities Investors Corporation, 11 Broadway, Suite 1015, New York, New York 10004, registered mail no. RB028032860US; and Independent Securities Investors Corporation, 795 Main Street, Chipley, Florida 32428, registered mail no. RB028032873US.
________/s/_________
Nirja Savill
Prosecuting Attorney