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IN THE MATTER OF: STEVEN G. MORTON
OXFORD MICRO DEVICES, INC. (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-2006-6859-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 Respondents to determine if they have violated, are violating or are 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:
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 Respondents have violated certain provisions of the Act. |
| 4. |
As a result of the investigation by the Division, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-27(a) of the 2006 Supplement to the General Statutes, which provides, in pertinent part:
Whenever it appears to the commissioner after an investigation that any person has violated, is violating or is about to violate any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . or that the further sale or offer to sell securities would constitute a violation of said sections . . . the commissioner may, in the commissioner’s discretion, order (1) the person . . . to cease and desist from the violations . . . of the provisions of said sections . . . or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections . . . . After such an order is issued, the person named in the order may, within fourteen days after receipt of the order, file a written request for a hearing. Any such hearing shall be held in accordance with the provisions of chapter 54. |
| 5. |
As a result of the investigation by the Division, the Commissioner has the authority to impose a fine on Respondents pursuant to Section 36b-27(d) of the Act, which prior to October 1, 2003, provided, in pertinent part:
(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.
II. RESPONDENTS
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| 6. |
Respondent Steven G. Morton (“Morton”) is an individual whose last known address is 39 Old Good Hill Road, Oxford, Connecticut 06478, and Respondent Oxford Micro Devices, Inc. (“Oxford”) is a Delaware corporation with its last known business address as Lantern Ridge Office Park, 731 Main Street, Building 2, Suite B3, Monroe, Connecticut 06468.
III. STATEMENT OF FACTS
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| 7. | At all times relevant hereto, Morton was President of Oxford. |
| 8. | From at least August 1999 to May 2002, Oxford was an issuer of securities in the form of stock and warrants (“Oxford Securities”). |
| 9. | Between August 1999 and October 2000, Morton, on behalf of Oxford, offered and sold Oxford Securities to at least one Connecticut investor and several out-of-state investors, raising over $1.2 million in capital. |
| 10. |
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| 11. | Between August 1999 to October 2000, Respondents, in connection with the offer and sale of Oxford Securities to at least one investor, failed to disclose the market risks of investing in Oxford and distributed a business plan forecasting net income of $9.7 million in Year 3, $17.0 million in Year 4, and $24.4 million in Year 5, without providing a reasonable basis for such projections. |
| 12. | Also between August 1999 and October 2000, in connection with the offer and sale of Oxford Securities, Morton, on behalf of Oxford, stated to at least one investor that Oxford would have an initial public offering (“IPO”) within a year from purchase. |
| 13. | Between March 2001 and August 2001, Morton, on behalf of Oxford, continued to solicit at least one investor to buy additional Oxford Securities. By letter dated March 23, 2001, Morton, on behalf of Oxford, repeated that there was a possibility of Oxford having an IPO in the next two years and forecasted that Oxford would earn millions of dollars in profits during the next year. Subsequently, by letter dated July 30, 2001, Morton, on behalf of Oxford, informed the investor that Oxford had signed a deal with a company that makes security systems for casinos in order to “supply them with large quantities of Ax36™–based video compression boards”, that there was “potential for OMDI to sell them 100,000 of our Ax36™–based video compression boards per year at a price of $500 each”, and that “they are paying us $250,000 in cash and their stock to develop a board” (“Casino Deal”). |
| 14. | At no time relevant hereto did Respondents inform the investor that the Casino Deal had fallen through and that Oxford never received $250,000 in cash and stock from the Casino Deal. In addition, Respondents never provided the investor with any basis for Oxford’s favorable financial statement projections or complete and full disclosure concerning Oxford’s potential IPO. |
| 15. |
On March 15, 2005, the Securities Division of the State of Washington Department of Financial Institutions ordered Respondents to cease and desist from violating the security registration, anti-fraud and broker-dealer and securities salesperson registration provisions of the Washington securities laws.
IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND
ORDER IMPOSING FINE AGAINST RESPONDENTS a. Violation of Section 36b-4(a) of the Act –
Fraud in the Offer and Sale of a Security |
| 16. | Paragraphs 1 through 15, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 17. |
The conduct of Respondents, as more fully described in paragraphs 11 through 14, inclusive, constitutes, in connection with the offer, sale or purchase of Oxford Securities, directly or indirectly, employing a device, scheme or artifice to defraud; making any untrue statement of a material fact or omitting to state a material fact necessary in order to make statements made, in light of the circumstances under which they were made, not misleading or engaging in an act, practice or course of business that operates as a fraud or deceit upon investors. Such conduct was in violation of Section 36b-4(a) of the Act, which constitutes a basis for an order to cease and desist to be issued against each Respondent under Section 36b-27(a) of the Act and for the imposition of a fine against each Respondent for one violation under Section 36b-27(d) of the Act prior to October 1, 2003.
b. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities |
| 18. | Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 19. | Respondents offered and sold unregistered securities, as more fully described in paragraphs 8 and 9, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 10, in violation of Section 36b-16 of the Act. Such violation constitutes a basis for an order to cease and desist to be issued against each Respondent under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against each Respondent for one violation under Section 36b-27(d) of the Act prior to October 1, 2003. |
V. ORDER TO CEASE AND DESIST AND NOTICE OF RIGHT TO HEARING
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS that, with respect to the activity described herein, Steven G. Morton and Oxford Micro Devices, Inc., have violated Sections 36b-4(a) and 36b-16 of the Act;
THE COMMISSIONER FURTHER FINDS that the issuance of this Order 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.
THE COMMISSIONER THEREFORE ORDERS that Steven G. Morton and Oxford Micro Devices, Inc., CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) employing a device, scheme or artifice to defraud, making of any untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business that operates as a fraud or deceit upon any person, and (2) offering and selling unregistered securities;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the Act, as amended, Steven G. Morton and Oxford Micro Devices, Inc., will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Steven G. Morton and Oxford Micro Devices, Inc., 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 your receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Steven G. Morton and Oxford Micro Devices, Inc., 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 January 23, 2007, 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, Steven G. Morton and Oxford Micro Devices, Inc., 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 shall remain in effect and become permanent against Steven G. Morton if he does not request a hearing within the prescribed time period and against Oxford Micro Devices, Inc., if it does not request a hearing within the prescribed time period.
VI. NOTICE OF INTENT TO FINE RESPONDENTS AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that Morton and Oxford each committed one violation of Section 36b-4(a) of the Act and one violation of Section 36b-16 of the Act;
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondents 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 Morton and Oxford that the Commissioner intends to impose a fine not to exceed Ten Thousand Dollars ($10,000) per violation that occurred prior to October 1, 2003, or a maximum fine of Twenty Thousand Dollars ($20,000) on Morton and a maximum fine of Twenty Thousand Dollars ($20,000) on Oxford.
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act, and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on January 23, 2007, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
At the hearing, Respondents 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 any Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon such Respondent.
Dated at Hartford, Connecticut
this 22nd day of November 2006. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 22nd day of November 2006, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by registered mail, return receipt requested, to Steven G. Morton, 39 Old Good Hill Road, Oxford, Connecticut 06478, registered mail no. RB028033264US; and Oxford Micro Devices, Inc., Lantern Ridge Office Park, 731 Main Street, Building 2, Suite 3B, P.O. Box 648, Monroe, Connecticut 06468, registered mail no. RB028033278US; and William J. Sarris, Agent, 273 Canal Street, Suite 100, Shelton, Connecticut 06484, registered mail no. RB028033304US.
________/s/_________
Stacey Serrano Sarlo
Prosecuting Attorney