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THE MCCALL BUSINESS GROUP, LLC CAUZAE MCCALL ("McCall") (collectively "Respondents") * * * * * * * * * * * * * * * * * * * |
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FINDINGS OF FACT, AND ORDER IMPOSING FINE DOCKET NO. CF-2007-7225-S |
FINDINGS OF FACT
| 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). | ||||||||||||||||||
| 2.) | On April 19, 2007, the Commissioner issued an Order to Cease and Desist (“Order”), Notice of Intent to Fine (“Fine Notice”) and Notice of Right to Hearing (collectively “Notice”) against Respondents. (Ex. 1.) | ||||||||||||||||||
| 3.) | On April 20, 2007, the Notice was sent by registered mail, return receipt requested, to MBG at 3047 Pinewood Hills Drive, Matthews, North Carolina 28105, registered mail no. RB028033922US; and to McCall at 3047 Pinewood Hills Drive, Matthews, North Carolina 28105, registered mail no. RB028033936US. (Ex. 1.) | ||||||||||||||||||
| 4.) |
The Notice asserted that:
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| 5.) | The Notice asserted that Respondents offered and sold unregistered securities to at least two Connecticut investors, which securities were not registered in Connecticut under the Act. 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 Respondents under Section 36b-27(a) of the Act, and for the imposition of a fine against Respondents for one violation each under Section 36b-27(d) of the Act prior to October 1, 2003, and one violation each under Section 36b-27(d) of the Act. (Ex. 1.) | ||||||||||||||||||
| 6.) | The Notice asserted that the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud, making of any untrue statements of material facts 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 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 Respondents for one violation each under Section 36b-27(a) of the Act, and for the imposition of a fine against Respondents for one violation each under Section 36b-27(d) of the Act prior to October 1, 2003, and one violation each under Section 36b-27(d) of the Act. (Ex. 1.) | ||||||||||||||||||
| 7.) | In the Notice the Commissioner ordered that Respondents cease and desist from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; and (2) in connection with the offer, sale or purchase of a security, employing any device, scheme or artifice to defraud, making of any untrue statements of material facts or 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, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person. (Ex. 1.) | ||||||||||||||||||
| 8.) | In the Notice the Commissioner notified Respondents that they could request a hearing concerning the allegations set forth in the Notice. (Ex. 1.) | ||||||||||||||||||
| 9.) | The Notice stated that a hearing would be granted to Respondents if a written request for a hearing was received by the Department of Banking (“Department”), Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following its receipt of the Order. (Ex. 1.) | ||||||||||||||||||
| 10.) |
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| 11.) | The Fine Notice stated that the Commissioner intended to impose a fine against Respondents, that a hearing would be held on the matters alleged in the Fine Notice on May 30, 2007 (“Fine Hearing”), and that if Respondents failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Two Hundred Twenty Thousand Dollars ($220,000) be imposed on MBG and a maximum fine of Two Hundred Twenty Thousand Dollars ($220,000) be imposed on McCall. (Ex. 1.) | ||||||||||||||||||
| 12.) | On May 2, 2007, the Notice was received by MBG and McCall. (Ex. 1.) | ||||||||||||||||||
| 13.) | On May 21, 2007, certifications were issued certifying that the Orders against Respondents became permanent on May 17, 2007, because Respondents did not request a hearing on the Order within the period prescribed by the Notice. In accordance with Section 36a-1-31(a) of the Regulations of Connecticut State Agencies the allegations against Respondents in the Notice were deemed admitted due to Respondents’ failure to request a hearing within the time specified in the Notice. (Exs. 2 and 3.) | ||||||||||||||||||
| 14.) | The facts as set forth in the Notice shall constitute findings of fact and the conclusions of law in the Notice shall constitute conclusions of law in this findings of fact, conclusions of law and order imposing fine. The Commissioner found in the Notice, with respect to the activity described therein, that each Respondent violated Sections 36b-16 and 36b-4(a) of the Act on one occasion prior to October 1, 2003, and one occasion subsequent to October 1, 2003. (Exs. 1, 2 and 3.) | ||||||||||||||||||
| 15.) | The Notice stated that the hearing on the Fine Notice would be held on May 30, 2007, and that the hearing officer is Attorney Paul Bobruff. (Ex. 1.) | ||||||||||||||||||
| 16.) | On June 14, 2007, McCall filed an appearance dated May 14, 2007, on behalf of Respondents. (Tr. at 5, 11-12; Ex. 4.) | ||||||||||||||||||
| 17.) | On June 14, 2007, the Fine Hearing was held at the Department. (Tr. at 4.) | ||||||||||||||||||
| 18.) | McCall appeared at the Fine Hearing on behalf on Respondents. (Tr. at 4-5, 11-12.) | ||||||||||||||||||
| 19.) | Attorney Jesse Silverman appeared at the Fine Hearing on behalf of the Department. (Tr. at 4.) | ||||||||||||||||||
| 20.) | MBG is a Connecticut limited liability company with its principal place of business last known to the Commissioner at 3047 Pinewood Hills Drive, Matthews, North Carolina 28105. (Exs. 1, 2 and 3.) | ||||||||||||||||||
| 21.) | McCall is an individual whose address is 3047 Pinewood Hills Drive, Matthews, North Carolina 28105. (Exs. 1, 2, 3 and 4.) | ||||||||||||||||||
| 22.) | In approximately 1998, McCall passed the Series 7 examination and the Series 65 examination and was employed by Salomon Smith Barney Inc., in the State of New York. (Tr. at 70.) | ||||||||||||||||||
| 23.) | From at least September 2003 to the present, MBG was an issuer of securities in the form of MBG Notes. (Tr. at 26-27; Exs. 1, 2 and 3.) | ||||||||||||||||||
| 24.) | On or about September 8, 2003, McCall, on behalf of MBG, effected the sale of an MBG Note to at least one Connecticut investor for a total of $25,000. The terms of the note provided, inter alia, that “FOR VALUE RECEIVED, (the borrower), The McCall Business Group promises to pay to (the lender) . . . the principal sum of twenty-five thousand ($25,000) USD, with interest payable on the unpaid principal at the rate of 10 percent per annum”. (Emphasis in original.) The terms of the note also provided, inter alia, that “[t]his promissory note will be repaid (into escrow) in consecutive monthly installments of interest only on the last Friday of each month commencing one month following execution of this promissory note and continuing until September 1st, 2004 with the principle [sic] balance owing under this note being paid at the end of its term”. (Emphasis in original.) (Tr. at 33-35; Exs. 1, 2 and 3.) | ||||||||||||||||||
| 25.) | On or about September 8, 2003, the principal place of business of MBG and the primary residence of McCall was 23 Schoolhouse Road, Old Saybrook, Connecticut 06475. (Exs. 1, 2 and 3.) | ||||||||||||||||||
| 26.) | On or about May 17, 2004, McCall, on behalf of MBG, effected the sale of an MBG Note to at least one Connecticut investor for a total of $150,000. The terms of the note provided, inter alia, that “FOR VALUE RECEIVED, (the borrower), The McCall Business Group promises to pay to (the lender) . . . the principal sum of One Hundred Fifty Thousand ($50,000) [sic] USD, with interest payable on the unpaid principal at the rate of 7.5 percent per month”. (Emphasis in original.) The terms of the note also provided, inter alia, that “[t]his promissory note will be repaid in consecutive monthly installments of interest only on the . . . the 15th of each month commencing one month following execution of this promissory note and continuing until the last Friday of May 2005 [sic], with the principle [sic] balance owing under this note being paid at the end of its term, unless (the lender) exercises their right to renew and extend this agreement”. (Emphasis in original.) (Tr. at 33-35; Exs. 1, 2 and 3.) | ||||||||||||||||||
| 27.) | McCall informed the Connecticut investor that if he was given about One Hundred Fifty Thousand Dollars ($150,000) he could safely produce a return of Ten Thousand Dollars ($10,000) per month. (Tr. at 38.) | ||||||||||||||||||
| 28.) | On or about May 17, 2004, the principal place of business of MBG and the primary residence of McCall was 222 Stonehouse Lane, Guilford, Connecticut 06437. (Exs. 1, 2 and 3.) | ||||||||||||||||||
| 29.) | Both MBG and McCall failed to disclose, inter alia, any risk factors related to the investment, any financial information on MBG or McCall or the relevant work history of the managing member of MBG. Further, at least one Connecticut investor was guaranteed a 100 percent return on her investment. (Tr. at 33-35; Exs. 1, 2 and 3.) | ||||||||||||||||||
| 30.) |
The MBG Notes that were offered and sold by Respondents 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. (Tr. at 29-30; Exs. 1, 2 and 3.)
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CONCLUSIONS OF LAW
I. Violation of Section 36b-16 of the Act -
Offer and Sale of Unregistered Securities
Section 36b-16 of the Act provides that:
No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, inclusive, (2) the security or transaction is exempted under section 36b-21, or (3) the security is a covered security provided such person complies with any applicable requirements in subsections (c), (d) and (e) of section 36b-21.
Section 36b-3(19) of the Act defines the term “security” to mean, in pertinent part, “any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement”.
The record establishes that Respondents sold to at least two Connecticut investors MBG Notes, which are securities as defined in Section 36b-3(19) of the Act, which securities were not registered in Connecticut under the Act 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. The record further establishes that such offer and sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act, which was a basis for an order to cease and desist pursuant to Section 36b-27(a) of the Act that was issued against Respondents on April 19, 2007. On May 21, 2007, certifications were issued certifying that the Order issued on April 19, 2007, by the Commissioner against Respondents became permanent on May 17, 2007.
II. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
Section 36b-4(a) of the Act provides that:
No person shall, in connection with the offer, sale or purchase of any security, directly or indirectly: (1) Employ any device, scheme or artifice to defraud; (2) make any untrue statement of a material fact or omit 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 (3) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
The record establishes that both MBG and McCall failed to disclose, inter alia, any risk factors related to the investment, any financial information on MBG or McCall or the relevant work history of the managing member of MBG. Further, at least one Connecticut investor was guaranteed a 100 percent return on her investment. The record further establishes that the conduct of Respondents, constitutes, in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud, making of any untrue statements of material facts 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 as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-4(a) of the Act, which was a basis for an order to cease and desist pursuant to Section 36b-27(a) of the Act that was issued against Respondents on April 19, 2007, for one violation each under Section 36b-27(a) of the Act. On May 21, 2007, certifications were issued certifying that the Order issued on April 19, 2007, by the Commissioner against Respondents became permanent on May 17, 2007.
III. Authority to Impose Fine
Section 36b-27(d) of the Act, which prior to October 1, 2003, provided, in pertinent part, that:
(1) Whenever the commissioner finds as the result of an investigation that any person or persons have violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may send a notice to such person or persons by registered mail, return receipt requested . . . . Any such notice shall include: (A) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (B) a short and plain statement of the matter asserted or charged; (C) the maximum fine that may be imposed for such violation; and (D) the time and place for the hearing. 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 or persons fail to appear at the hearing. Said hearing shall be held in accordance with the provisions of chapter 54. After the hearing if the commissioner finds that the person or persons have violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . 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 ten thousand dollars per violation be imposed upon such person or persons. If such person or persons fail to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding ten thousand dollars per violation be imposed upon such person or persons. The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested, . . . to any person or persons named in such order.
Section 36b-27(d) of the Act currently provides, in pertinent part, that:
(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, . . . 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, . . . 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.
IV. Notice and Public Interest
Section 4-177 of the Connecticut General Statutes provides, in pertinent part, that:
(a) In a contested case, all parties shall be afforded an opportunity for hearing after reasonable notice.
(b) The notice shall be in writing and shall include: (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the statutes and regulations involved; and (4) a short and plain statement of the matters asserted.
The Fine Notice issued by the Commissioner complied with Section 36b-27(d) of the Act and Section 4-177 of the Connecticut General Statutes.
Section 36b-31(a) of the Act provides, in pertinent part, that:
The commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive[.]
Section 36b-31(b) of the Act provides, in pertinent part, that:
No . . . 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-33, inclusive.
Respondents contend that their violations of the Act were a result of ignorance of the securities registration requirement and that the MBG notes were not an inducement for people to give Respondents money. Specifically, McCall asserted during the hearing that he was never in the business of investing money for people, that he was approached by friends and that he wrote the MBG notes as gentlemanly agreements, not as an inducement for people to invest and not realizing that he was creating an unregistered security. McCall also asserted that he ceased taking money when he learned he was doing something improper. In addition, McCall offered some evidence that purported to show that he has attempted to pay back some of the investors some of their principal, but I do not find that evidence convincing. Further, Respondents’ attempts at explaining their clear violations of the Act are unpersuasive. McCall has experience in the securities industry, having passed the Series 7 and the Series 65 examinations, and the MBG notes were clearly securities that were sold in Connecticut to investors in Connecticut without being registered in violation of Section 36b-16 of the Act. The egregious nature of Respondents’ conduct, which guaranteed high rates of returns without disclosing any risk factors to the investors in violation of Section 36b-4(a) of the Act, is demonstrated by McCall’s admission during the hearing that he informed one investor that he could safely produce a return of Ten Thousand Dollars ($10,000) per month with an investment of One Hundred Fifty Thousand Dollars ($150,000), without disclosing any risk factors related to the investment or any financial information regarding MGB or McCall.
| 1.) | The Commissioner finds that: (a) Respondents’ violations of Section 36b-16 of the Act form the basis for the imposition of a fine against Respondents for one violation each under Section 36b-27(d) of the Act prior to October 1, 2003, and one violation each under Section 36b-27(d) of the Act; and (b) Respondents’ violations of Section 36b-4(a) of the Act form the basis for the imposition of a fine against Respondents for one violation each under Section 36b-27(d) of the Act prior to October 1, 2003, and one violation each under Section 36b-27(d) of the Act. |
| 2.) | The Commissioner finds that the facts require the issuance of an order imposing a fine against Respondents. |
| 3.) |
The Commissioner finds that this action is necessary or appropriate in the public interest or for the protection of investors consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 36b-33, inclusive, of the Act.
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ORDER
Having read the record, I hereby ORDER, pursuant to Section 36b-27(d)(2) of the Act, that:
| 1.) | A fine of Two Hundred Twenty Thousand Dollars ($220,000) be imposed against The McCall Business Group, LLC d/b/a MBG Private Trading, to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 30 days from the date the Order is mailed; |
| 2.) | A fine of Two Hundred Twenty Thousand Dollars ($220,000) be imposed upon Cauzae McCall, to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 30 days from the date the Order is mailed; and |
| 3.) |
This Order shall become effective when mailed.
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Dated at Hartford, Connecticut
this 21st day of September 2007.
________/s/_________
Howard F. Pitkin
Banking Commissioner
This Order was mailed by registered mail,
return receipt requested, to Respondents
on September 24, 2007.
The McCall Business Group, LLC Registered Mail No. RB027866655US
d/b/a MBG Private Trading
3047 Pinewood Hills Drive
Matthews, NC 28105
Cauzae McCall Registered Mail No. RB027866669US
3047 Pinewood Hills Drive
Matthews, NC 28105