| * * * * * * * * * * * * * * * * * *
IN THE MATTER OF: (Collectively, "Respondents") * * * * * * * * * * * * * * * * * * |
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* |
ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-13-7971-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 (“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 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. |
| 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 order that Respondents 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 Respondents pursuant to Section 36b-27(d) of the Act. |
II. RESPONDENTS
| 7. |
M&M is a Texas limited liability company with its principal place of business last known to the Commissioner at 9720 Coit Road, Suite 220-211, Plano, Texas 75025. |
| 8. | Moore is an individual whose address last known to the Commissioner is 3524 Flat Creek Drive, Plano, Texas 75025. At all times relevant hereto, Moore was the President, managing partner, and a control person of M&M, and was responsible for M&M’s day-to-day operation and management. |
III. STATEMENT OF FACTS
9.
From at least 2009 to the present, M&M has been in the business of investing and managing investors’ money in the Foreign Exchange Market (“FOREX”).
10.
From at least June 2010 to the present, Respondents offered and sold to at least one investor residing in Connecticut securities in the form of commodity investment contracts and/or investment contracts related to trading in foreign currency exchange investments (the “FOREX Investment”).
11.
During 2009 and 2010, prospective Connecticut investors attended a series of seminars and webinars culminating in their viewing a webinar on May 20, 2010, which encouraged them to use the FOREX trading strategy and the related Trade Star software. Trade Star is an automated electronic trading software platform developed and/or owned by Trade Star Incorporated, a company formed and owned by Robert Mihailovich. Robert Mihailovich was a felon convicted of a federal mail fraud charge in 2005. Trade Star Incorporated had licensed the use of the Trade Star software to M&M on or about March 25, 2010.
12.
During the May 20, 2010 webinar, the Connecticut prospective investors were told that the trading strategy utilized by the Trade Star software would provide high returns with minimal risk, and that M&M utilized the Trade Star software. Following the webinar, the Connecticut prospective investors received paperwork and instructions on how to sign up for the FOREX Investment program featuring the Trade Star Software by granting Respondents a Limited Power of Attorney. The prospective investors did not have the means, expertise or authority to participate in the FOREX Investment program without the assistance of Respondents upon whom the investors totally relied.
13.
On June 20, 2010 and June 23, 2010, Moore responded via e-mail to the Connecticut prospective investors who had learned about M&M and Moore during the May 20, 2010 webinar.
14.
In the June 20, 2010 and June 23, 2010 e-mail communications, Moore represented to the prospective Connecticut investors that M&M and Moore were licensed to use and did, in fact, use the FOREX Trade Star platform in making FOREX trades.
15.
Respondents also assisted the Connecticut investors in opening an account which used the FOREX Trade Star platform. Specifically, Respondents instructed the Connecticut investors to open an account at Forex Capital Markets, LTD (“FXCM”), and provided the investors with an account opening application for FXCM as well as a Limited Power of Attorney which granted Respondents the authority, as trading agent, to pool and trade the investors’ accounts that M&M had referred to FXCM.
16.
M&M had entered into a referring broker agreement with FXCM in December 2009. The referring broker agreement with FXCM listed M&M as a referring broker and Moore as the authorized representative. Pursuant to the referring broker agreement with FXCM, Respondents would (a) refer clients to FXCM for the purpose of foreign exchange trading and receive referral fees in return; and (b) place orders with FXCM for the execution of transactions on behalf of referred clients. FXCM also provided Limited Power to Attorney forms to M&M. Those forms, when executed by investors, authorized M&M to pool and trade investor accounts as the trading agent for investors that M&M had referred to FXCM.
17.
Respondents represented to the Connecticut investors that the investors’ funds would be used for FOREX trading, and that M&M would make the trading decisions on the investors’ behalf. The investors would not participate in the selection of the foreign currency trades. Respondents also represented to the Connecticut investors that their FOREX investments would be pooled with other investors and that M&M would use the Trade Star software platform to direct trades of the pool.
18.
On June 29, 2010 and on July 10, 2010, the Connecticut investors executed an FXCM account application and Limited Power of Attorney based on the Respondents’ representations that Respondents would effect FOREX trades on behalf of the Connecticut investors using the Trade Star software platform.
19.
The Limited Powers of Attorney executed by the Connecticut investors granted trading authority to M&M, and provided for the use of the Percentage Allocation Management Module (“PAMM”). The Limited Powers of Attorney authorized the trading agent, M&M, as agent and attorney-in-fact, to manage the affected client’s account and risk through the purchase and sale of precious metals and foreign currencies. M&M utilized the Limited Powers of Attorney and PAMM to pool the assets of investor subaccounts into a master account where those assets could be traded at the direction of M&M. The Connecticut investors did not participate in the selection of the trades, but relied on the efforts and investment expertise of Respondents. The investors entered into this arrangement with the expectation that M&M would make and control the investment decisions in the investors’ accounts and that any profits would be generated through the efforts of Respondents.
20.
Although the Connecticut investors were aware that Respondents’ FOREX Investment trading decisions during the March 25, 2010 to July 20, 2010 time period were based on a software program developed and/or owned by Trade Star Incorporated, at no time did Respondents disclose to the Connecticut investors that the principal of Trade Star Incorporated and the founder of the trading software platform on which M&M made its trading decisions was Robert Mihailovich, a convicted felon.
21.
On or about July 20, 2010, M&M and Moore ceased doing business with Trade Star, Inc. and Mihailovich and no longer used the Trade Star software. On July 20, 2010, M&M signed a trading agent Limited Power of Attorney with Parthenon Capital as the Sub-trading Agent for the Connecticut investors’ FXCM PAMM account and a fee sharing agreement for trading the PAMM account at FXCM. The Limited Power of Attorney made Parthenon Capital the sub-trading agent and attorney-in-fact to manage and trade the PAMM account of M&M customers.
22.
Parthenon was owned and operated by Joel Warren, who was convicted in 2000 of felony assault on a peace officer and who in 2008 had an arrest warrant issued against him for felony auto theft.
23.
Respondents did not inform the Connecticut investors that M&M had granted a Limited Power of Attorney to Parthenon and did not disclose Warren’s criminal history.
24.
On August 3, 2010, Moore e-mailed Connecticut investors an undated letter that referenced a July 29, 2010 news article reporting that the Commodity Futures Trading Commission had sued Robert Mihailovich, Sr. and his company. The letter stated that, effective immediately, Respondents no longer had a business relationship with Mihailovich or Trade Star, Inc. and that M&M no longer used the Trade Star software algorithm. Moore stated, however, that M&M had not stopped trading in the currency or other markets for its own account or for the account of others. Although M&M had signed a trading agent Limited Power of Attorney with Parthenon Capital as the Sub-trading Agent on July 20, 2010, Moore’s August 3, 2010 communication failed to advise the investors about the Limited Power of Attorney with Parthenon or about Warren’s criminal history. In addition, Respondents never advised the Connecticut investors that Mihailavich, the principal behind Trade Star Incorporated, was a convicted felon.
25.
The FOREX Investment offered and sold by Respondents was never registered in Connecticut under Section 36b-16 of the Act, nor was it the subject of a filed exemption claim or claim of covered security status.
26.
Respondents failed to disclose to purchasers and prospective purchasers of the FOREX Investment, inter alia, any risk factors related to the investment; any financial information on M&M or Moore; that the principal and founder of Trade Star Incorporated and the trading software platform that M&M utilized was a convicted felon; that M&M had granted a Limited Power of Attorney regarding the FOREX Investment to Parthenon; that the owner and operator of Parthenon had a criminal history; or that the FOREX Investment was not registered under the Act. Each of these omitted items was material to investors and prospective investors of the FOREX Investment offered and sold by Respondents.
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act -
Offer and Sale of Unregistered Securities
| 27. | Paragraphs 1 through 26, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 28. |
Respondents offered and sold unregistered securities in or from Connecticut to at least one investor, as more fully described in paragraphs 9 through 24, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 25. 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, an order that Respondents make restitution under Section 36b-27(b) of the Act, and an order imposing a fine upon Respondents 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
| 29. | Paragraphs 1 through 28, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 30. |
The conduct of Respondents, as more fully described in paragraphs 9 through 26, 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 Respondents under Section 36b-27(a) of the Act, an order that Respondents make restitution under Section 36b-27(b) of the Act, and an order imposing a fine upon Respondents under Section 36b-27(d) of the 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, M&M has committed at least one violation of Section 36b-16 of the Act and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Moore has committed at least one violation of Section 36b-16 of the Act and at least one violation of Section 36b-4(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 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 one hundred thousand dollars ($100,000) per violation;
WHEREAS, the Commissioner ORDERS that M&M CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation: (1) offering and selling unregistered securities, and (2) 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;
WHEREAS, the Commissioner ORDERS that Moore CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation: (1) offering and selling unregistered securities, and (2) 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;
WHEREAS, the Commissioner ORDERS that Respondents MAKE RESTITUTION of any sums obtained as a result of Respondents’ violations of Sections 36b-4(a) 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, Respondents shall provide the Division with a written disclosure which covers the period from December 1, 2009 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 Respondents collected from each investor, and (c) the amount of any refunds of principal or purported profit payments Respondents made to each investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondents shall reimburse each Connecticut investor the amount of funds collected from the Connecticut investor plus interest, less funds returned in the form of purported refunds of principal and purported profit payments made to the Connecticut investor, with respect to all transactions effected from December 1, 2009 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, Respondents 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 Respondents have 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 profit payments, with respect to all transactions effected from December 1, 2009 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, 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 May 9, 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 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.
| Dated at Hartford, Connecticut, | ______/s/__________ | |
| this 18th day of March 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 18th day of March 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 Mohr & Moore, LLC at 9720 Coit Road, Suite 220-211, Plano, Texas 75025, certified mail no. 7012 1010 0001 7317 3974; and 6136 Frisco Square Boulevard, Suite 400, Frisco, Texas 75034, certified mail no. 7012 1010 0001 7317 3981; and William E. Moore, 3524 Flat Creek Drive, Plano, Texas 75025, certified mail no. 7012 1010 0001 7317 3998.
| ______/s/_______ |
| William C. Hall III |
| Paralegal |