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DANIEL QUENTIN HUMPHREY WATERFORD LOAN FUND, LLC OASIS PROPERTIES I, LLC SCOTT L. WILSON (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-11-7719-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 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 Act, 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 Respondents had violated, are violating or are about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act and Regulations. |
| 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-27(a) of the Act. |
| 5. |
As a result of the Investigation, the Commissioner has the authority to impose a fine against Respondents pursuant to Section 36b-27(d) of the Act. Section 36b-27(d) of the Act provides a maximum fine not to exceed one hundred thousand dollars per violation ($100,000). For activity occurring prior to October 1, 2003, under Section 36b-27(d) of the Act as in effect at that time, Section 36b-27(d) of the Act provided a maximum fine not to exceed ten thousand dollars ($10,000) per violation. |
II. RESPONDENTS
| 6. |
Humphrey is an individual whose address last known to the Commissioner is 108 Bordeaux Lane, Alpine, Utah 84004. Humphrey is currently the president of Financial Guard, LLC (IARD No. 156059), a Securities and Exchange Commission registered investment adviser located at 481 East 1000 South, Suite B, Pleasant Grove, Utah 84062. |
| 7. | Finity Financial Group was a sole proprietorship under which Humphrey conducted investment advisory business. Finity Financial Group, LLC became organized as a Connecticut limited liability company on January 5, 2009, with Humphrey as its member. Finity Financial Group, LLC’s address last known to the Commissioner is 708 South Avenue, New Canaan, Connecticut 06840. |
| 8. | Waterford is a Utah limited liability company whose address last known to the Commissioner is 215 South State Street, Suite 550, Salt Lake City, Utah 84111. |
| 9. | Oasis is a Utah limited liability company whose principal place of business and address last known to the Commissioner is 1055 West Red Cliff Drive, C-517, Washington, Utah 84780. |
| 10. | At all times pertinent hereto, Wilson has been the manager of Oasis. Wilson’s address last known to the Commissioner is c/o Oasis Properties I, LLC, 1055 West Red Cliff Drive, C-517, Washington, Utah 84780. |
III. STATEMENT OF FACTS
| 11. | From February 9, 1995 through June 1, 2005, Humphrey was registered in Connecticut as a broker-dealer agent of Mony Securities Corporation (“Mony”) (CRD No. 4386), a broker-dealer registered in Connecticut under the Act. |
| 12. | From June 1, 2005 through November 11, 2005, Humphrey was registered in Connecticut as a broker-dealer agent of AXA Advisors, LLC (CRD No. 6627), a broker-dealer registered in Connecticut under the Act. Humphrey was also registered as an investment adviser agent of AXA Advisors, LLC under the Act from June 1, 2005 to November 11, 2005. Humphrey has not been registered as an agent of any broker-dealer or investment adviser under the Act since November 2005. |
| 13. | From at least March 2002 to the present, Waterford has been an issuer of securities in the form of promissory notes (“Waterford Notes”). |
| 14. | On or about March 12, 2002, March 2, 2004 and April 14, 2005, Humphrey, while registered as a broker-dealer agent of Mony, offered and sold the Waterford Notes on behalf of Waterford to at least one Connecticut investor. |
| 15. | The Waterford Notes that were offered and sold by Humphrey on behalf of Waterford were not registered in Connecticut, nor were they the subject of a filed exemption claim or claim of covered security status. |
| 16. | Humphrey has never been registered as an agent of issuer of Waterford under the Act. |
| 17. | The offer and sale of the Waterford Notes were transactions that were outside the regular course or scope of Humphrey’s employment with Mony, inasmuch as the transactions did not go through the books and records of Mony, and Humphrey did not provide Mony with prior written notice describing in detail the proposed transactions and his proposed role therein and stating whether he had received or would receive selling compensation in connection with the transactions. |
| 18. | From at least October 2006, to the present, Oasis has been an issuer of securities in the form of various series of promissory notes. |
| 19. | On November 20, 2006, the Division received from Oasis a Regulation D Rule 506 notice filing for an offering of Series C notes (“Oasis Series C Notes”) under Section 36b-21(e) of the Act. Such notice filing disclosed that Oasis would solicit investors in Connecticut, but failed to disclose that Oasis would pay sales commissions to any agents of issuer. |
| 20. | On or about October 30, 2006 and August 10, 2007, absent registration in any capacity under the Act, Humphrey, on behalf of Oasis, sold at least two Oasis Series C Notes for a purchase price at least $122,900 to one or more Connecticut investors. |
| 21. | Humphrey has never been registered as an agent of issuer of Oasis under the Act. |
| 22. | From at least 2006 forward, Humphrey, alone and doing business as Finity Financial Group and Finity Financial Group, LLC, transacted business as an investment adviser in or from Connecticut absent registration as such. Humphrey and Finity Financial Group received almost $94,000 in compensation from Oasis for recommending clients to invest in Oasis securities. Such compensation consisted of a 2% “advisor fee” based on the funds actually invested with Oasis by clients of Humphrey and Finity Financial Group. Humphrey had a similar compensation arrangement with Waterford. |
| 23. | In or about October, 2008, Wilson and Oasis offered and sold Series F secured promissory notes of Oasis (“Oasis Series F Notes”) for a purchase price of at least $117,279 to one or more Connecticut investors. The Subscription Agreement relating to the Oasis Series F Notes recited that the Oasis Series F Notes were “being offered and sold without registration under the Securities Act in reliance upon the exemption provided in Regulation D promulgated under the Securities Act [of 1933].” |
| 24. | The Oasis Series F Notes that were offered and sold by Wilson and Oasis were not registered in Connecticut, nor were they the subject of a filed exemption claim or claim of covered security status, including, without limitation, the private placement exemption in Section 36b-21(b)(10) of the Act and the notice filing provisions governing Regulation D Rule 506 offerings in 36b-21(e) of the Act. |
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
| 25. | Paragraphs 1 through 24, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 26. |
Humphrey and Waterford offered and sold securities to at least one Connecticut investor on at least three occasions, as more fully described in paragraphs 13 and 14, 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 Humphrey and Waterford under Section 36b-27(a) of the Act, and for the imposition of a fine against Humphrey and Waterford under Section 36b-27(d) of the Act in effect prior to October 1, 2003, and Section 36b-27(d) of the Act as it exists presently. |
| 27. | Oasis and Wilson offered and sold securities to at least one Connecticut investor on at least one occasion, as more fully described in paragraph 23, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 24. 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 Oasis and Wilson under Section 36b-27(a) of the Act, and for the imposition of a fine against Oasis and Wilson under Section 36b-27(d) of the Act. |
b. Violation of Sections 36b-6 of the Act –
Unregistered Agent Activity
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. |
Humphrey transacted business as an agent of issuer in this state on at least five occasions absent registration, as more fully described in paragraphs 13, 14, 16, 18, 20 and 21. 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 Humphrey under Section 36b-27(a) of the Act, and for the imposition of a fine against Humphrey under Section 36b-27(d) of the Act in effect prior to October 1, 2003, and Section 36b-27(d) of the Act as it exists presently. |
| 30. | Waterford employed Humphrey as an unregistered agent of issuer in this state on at least three occasions, as more fully described in paragraphs 13, 14 and 16. Such conduct constitutes a violation of Section 36b-6(b) of the Act, which forms a basis for an order to cease and desist to be issued against Waterford under Section 36b-27(a) of the Act, and for the imposition of a fine against Waterford under Section 36b-27(d) of the Act in effect prior to October 1, 2003, and Section 36b-27(d) of the Act as it exists presently. |
| 31. | Oasis employed Humphrey as an unregistered agent of issuer in this state on at least two occasions, as more fully described in paragraphs 18 through 21, inclusive. Such conduct constitutes a violation of Section 36b-6(b) of the Act, which forms a basis for an order to cease and desist to be issued against Oasis under Section 36b-27(a) of the Act, and for the imposition of a fine against Oasis under Section 36b-27(d) of the Act. |
c. Violation of Section 36b-31-6e of the Regulations –
Engaging in Private Securities Transactions Without Prior
Written Notice to Employing Broker-dealer (Selling Away)
| 32. | Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 33. |
Humphrey, through his sale of the Waterford Notes, as more fully described in paragraphs 11 through 17, inclusive, participated in private securities transactions without providing prior written notice to his employing broker-dealer describing in detail the proposed transactions and his proposed role therein and stating whether he had received or would receive selling compensation in connection with such transactions, as more fully described in paragraph 17, in violation of Section 36b-31-6e of the Regulations. Such violation of Section 36b 31-6e of the Regulations form a basis for an order to cease and desist to be issued against Humphrey under Section 36b-27(a) of the Act, and for the imposition of a fine against Humphrey under Section 36b- 27(d) of the Act in effect prior to October 1, 2003, and Section 36b-27(d) of the Act as it exists presently. |
d. Violation of Section 36b-6(c)(1) of the Act –
Unregistered Investment Adviser Activity
| 34. | Paragraphs 1 through 33, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 35. |
The transaction of business as an investment adviser in Connecticut absent registration by Humphrey, alone and doing business as Finity Financial Group, and by Finity Financial Group, LLC, as more fully described in paragraph 22, was in violation of Section 36b-6(c)(1) of the Act, which constitutes a basis for an order to cease and desist to be issued against Humphrey and Finity Financial Group, LLC under Section 36b-27(a) of the Act, and for the imposition of a fine against Humphrey and Finity Financial Group, LLC under Section 36b-27(d) of the Act. |
V. ORDER TO CEASE AND DESIST, 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, Humphrey has committed at least one violation of Section 36b-16 of the Act prior to October 1, 2003, at least two violations of Section 36b-16 of the Act subsequent to October 1, 2003, at least one violation of Section 36b-6(a) of the Act prior to October 1, 2003, at least four violations of Section 36b-6(a) of the Act subsequent to October 1, 2003, at least one violation of Section 36b-31-6e of the Regulations prior to October 1, 2003, at least two violations of Section 36b-31-6e of the Regulations subsequent to October 1, 2003; and at least one violation of Section 36b-6(c)(1) of the Act subsequent to October 1, 2003;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Waterford has committed at least one violation of Section 36b-16 of the Act prior to October 1, 2003, at least two violations of Section 36b-16 of the Act subsequent to October 1, 2003, at least one violation of Section and [sic] 36b-6(b) of the Act prior to October 1, 2003, and at least two violations of Section 36b-6(b) of the Act subsequent to October 1, 2003;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Oasis has committed at least two violations of Section 36b-6(b) of the Act, subsequent to October 1, 2003; and at least one violation of Section 36b-16 of the Act subsequent to October 1, 2003;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Wilson has committed at least at least one violation of Section 36b-16 of the Act subsequent to October 1, 2003;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Finity Financial Group, LLC has committed at one violation of Section 36b-6(c)(1) of the Act subsequent to October 1, 2003;
WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist and the imposition of a fine against 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 Act;
WHEREAS, notice is hereby given to Respondents that the Commissioner intends to impose a maximum fine not to exceed Ten Thousand Dollars ($10,000) per violation that occurred prior to October 1, 2003, and a maximum fine not to exceed One Hundred Thousand Dollars ($100,000) per violation that occurred subsequent to October 1, 2003;
WHEREAS, the Commissioner ORDERS that Humphrey CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, (1) offering and selling unregistered securities, (2) transacting business as an agent of issuer in this state absent registration, (3) participating in private securities transactions without providing prior written notice to his employing broker-dealer, and (4) transacting business as an investment adviser in this state absent registration;
WHEREAS, the Commissioner ORDERS that Waterford CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, offering and selling unregistered securities, and employing an agent of issuer in this state absent registration;
WHEREAS, the Commissioner ORDERS that Oasis CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, offering and selling unregistered securities, and employing an agent of issuer in this state absent registration;
WHEREAS, the Commissioner ORDERS that Wilson CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, offering and selling unregistered securities;
WHEREAS, the Commissioner ORDERS that Finity Financial Group, LLC CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, transacting business as an investment adviser in this state absent registration;
AND WHEREAS, pursuant to Section 36b-27 of the Act, Respondents will be afforded an opportunity for a hearing on the allegations set forth above.
THE COMMISSIONER FURTHER ORDERS that a hearing will be granted to each Respondent if a written request for a hearing is received by the Department of Banking, 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 for any such Respondent 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 April 28, 2011 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, Respondents 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.
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 4th day of March 2011. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 4th day of March 2011, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Daniel Quentin Humphrey, 108 Bordeaux Lane, Alpine, Utah 84004, certified mail no. 7010 1870 0001 3619 4516; Daniel Quentin Humphrey, c/o Financial Guard, LLC, 481 East 1000 South, Suite B, Pleasant Grove, Utah 84062, certified mail no. 7010 1870 0001 3619 4523; Waterford Loan Fund, LLC, c/o Gil A. Miller, 215 South State Street, Suite 550, Salt Lake City, Utah 84111, certified mail no. 7010 1870 0001 3619 4530; Oasis Properties I, LLC, 1055 West Red Cliff Drive, C-517, Washington, Utah 84780, certified mail no. 7010 1870 0001 3619 4547; Scott L. Wilson, c/o Oasis Properties I, LLC, 1055 West Red Cliff Drive, C-517, Washington, Utah 84780, certified mail no. 7010 1870 0001 3619 4554; and Finity Financial Group, LLC, 708 South Avenue, New Canaan, Connecticut 06840, certified mail no. 7010 1870 0001 3619 4561.
____/s/___________
Paul A. Bobruff
Prosecuting Attorney