| * * * * * * * * * * * * * * * * * *
IN THE MATTER OF: * * * * * * * * * * * * * * * * * * |
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
|
FINDINGS OF FACT, CONCLUSIONS OF LAW ORDER DOCKET NO. CRF-15-8175-S |
INTRODUCTION
The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (“Act”), and Sections 36b 31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Act.
The Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking (“Department”), conducted an investigation into the activities of Respondent to determine if Respondent violated provisions of the Act or Regulations (“Investigation”). As a result of the Investigation, on March 31, 2015, the Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing against Respondent (collectively, “Notice”). The Notice afforded Respondent an opportunity for a hearing on the allegations set forth in the Notice. On March 31, 2015, the Notice was sent by certified mail, return receipt requested, to Respondent. On April 13, 2015, Respondent requested a hearing on the Notice.
On April 16 2015, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer appointing Attorney Stacey Serrano as Hearing Officer and stating that the hearing would be held on May 5, 2015, at 10 a.m. On May 22, 2015, the Commissioner issued a Redesignation of Hearing Officer appointing Paul A. Bobruff as Hearing Officer and stating that the hearing would be held on June 4, 2015, at 9:30 a.m. On May 28, 2015, Hearing Officer Bobruff held a conference call with Respondent and Attorney Elena Zweifler of the Department to discuss the Redesignation of Hearing Officer and other issues related to the scheduled hearing. On June 2, 2015, at Respondent’s request, the hearing was continued to June 17, 2015 at 10 a.m. On June 15, 2015, Respondent requested a new Hearing Officer. On June 15, 2015, Respondent’s request for a new Hearing Officer was denied. On June 16, 2015, Respondent withdrew his request for a hearing.
On June 16, 2015, Attorney Zweifler notified Hearing Officer Bobruff and Respondent that she was planning on putting evidence into the record at the hearing regarding the remedies that the Division is seeking. On June 17, 2015, a hearing was held at the Department. Attorney Elena Zweifler represented the Department at the hearing and Respondent failed to appear at the hearing. The hearing was conducted in accordance with Chapter 54 of the Connecticut General Statutes, the “Uniform Administrative Procedure Act”, and the Department’s contested case regulations, Section 36a 1-19 to 36a-1-57, inclusive, of the Regulations of Connecticut State Agencies.
Section 36a-1-31 of the Regulations of Connecticut State Agencies provides, in pertinent part, that:
| (a) | When a party fails to request a hearing within the time specified in the notice, the allegations against the party may be deemed admitted. Without further proceedings or notice to the party, the commissioner shall issue a final decision in accordance with section 4-180 of the Connecticut General Statutes and section 36a-1-52 of the Regulations of Connecticut State Agencies, provided the commissioner may, if deemed necessary, receive evidence from the department, as part of the record, concerning the appropriateness of the amount of any . . . fine, [or] restitution . . . sought in the notice. | ||
| (b) | When a party fails to appear at a scheduled hearing, the allegations against the party may be deemed admitted. Without further proceedings or notice to the party, the presiding officer shall submit to the commissioner a proposed final decision containing the relief sought in the notice, provided the presiding officer may, if deemed necessary, receive evidence from the department, as part of the record, concerning the appropriateness of the amount of any . . . fine or restitution sought in the notice. The commissioner shall issue a final decision in accordance with section 4-180 of the Connecticut General Statutes and section 36a-1-52 of the Regulations of Connecticut State Agencies. |
Having read the entire record, including testimony of the witnesses and documentary evidence, I make the following findings of fact and conclusions of law based on the preponderance of evidence in the record.
FINDINGS OF FACT
| 1. | James E. Neilsen (“Neilsen”) is an individual whose address last known to the Commissioner is 121 Murray Street, Norwalk, Connecticut 06851. Neilsen was previously registered under the Act as a broker-dealer agent of Tradition Asiel Securities Inc. (“Tradition”) (CRD No. 28269) from December 17, 2004 to July 2, 2007, and Sound Securities, LLC (“Sound Securities”) (CRD No. 122677) from August 7, 2008 to December 9, 2009. In addition, Neilsen has had a qualified Certified Public Accountant Certificate with the Connecticut State Board of Accountancy (CPAC No. 0006559) since October 9, 1986. At all times relevant hereto, Neilsen performed tax and accounting services as a sole proprietorship from his office at 124 East Avenue, Norwalk, Connecticut 06851. (HO Ex. 2; Tr. at 11.) |
| 2. | Neilsen has been doing business as Neilsen Financial Services since approximately September 2011. (HO Ex. 2; Tr. at 11.) |
| 3. |
Neilsen was a founding member, chief financial officer and treasurer of Ulysses Partners, LLC (“Ulysses”), a now defunct Illinois limited liability company that had its principal place of business at 124 East Avenue, Norwalk, Connecticut 06851. On January 9, 2014, the Commissioner, acting pursuant to Section 36b-27 of the Act, issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-13-8014-S), against Ulysses and Neilsen (collectively, “2014 Notice”), which 2014 Notice was amended on February 18, 2014 to expand the time frame of the alleged activity (“2014 Amended Notice”). The 2014 Amended Notice alleged that from approximately November 2005 to September 2011, Neilsen sold unregistered securities in the form of notes and investment agreements to Connecticut investors, the majority of whom were accounting clients of Neilsen and that Neilsen made misrepresentations and omissions of fact to the investors regarding the investments. (HO Ex. 2; Dept. Ex. 1; Tr. at 11, 19.) |
| 4. | Neilsen and Ulysses requested a hearing on the matters alleged in the 2014 Notice, which hearing was held on April 22, 2014 and June 17, 2014. (HO Ex. 2; Dept. Ex. 1; Tr. at 11, 19.) |
| 5. |
On November 13, 2014, based on evidence presented at the hearing, the Commissioner entered Findings of Fact, Conclusions of Law and Order (collectively, “Order”) against Ulysses and Neilsen. The Order found that, between 2005 and 2012, Ulysses and Neilsen violated Section 36b-16 of the Act by selling unregistered securities and that Ulysses, through Neilsen, violated the antifraud provisions of the Act. The Order rendered the cease and desist and restitution orders against Ulysses and Neilsen permanent, and ordered a $25,000 fine to be imposed upon Ulysses and Neilsen jointly and severally. As of the date of the hearing, such restitution order and fine remained unpaid. (HO Ex. 2; Dept. Ex. 1; Tr. at 11, 19-20.) |
| 6. | In approximately February 2012, Neilsen entered into at [sic] an agreement, entitled “Investment Agreement”, with at least two individuals (“Investors”). The conduct occurred subsequent to the activity described in the 2014 Amended Notice. In exchange for entering into the Investment Agreements, the Investors gave Neilsen at least $243,000 in total. The Investment Agreements, on their face, represented that Neilsen would invest the investment proceeds into Company A, an entity that was in the business of acting as an intermediary between prime brokers and investors (“Company A”). (HO Ex. 2; Dept. Exs. 2, 3, 5, 6; Tr. at 11, 18-19, 21-25, 29-34.) |
| 7. | Neilsen induced the Investors to enter the Investment Agreements by representing that the investment would generate a nine percent (9%) return. Neilsen also represented to at least one of the Investors that the Investor would not incur any loss. (HO Ex. 2; Dept. Exs. 5 and 6; Tr. at 11, 30-34.) |
| 8. | The Investment Agreements constitute securities, which securities were not registered in Connecticut under Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the Act, nor were they the subject of a filed exemption claim or claim of covered security status. (HO Ex. 2; Dept. Exs. 2, 3, 5, 6; Tr. at 11, 18-24, 30-34.) |
| 9. | In connection with the offer and sale of the Investment Agreements, Neilsen failed to provide the Investors with any offering document or other written disclosure describing the risks associated with the investment or the registration status of the Investment Agreements. (HO Ex. 2; Dept. Exs. 5, 6; Tr. at 11, 18-24, 30-34, 38.) |
| 10. | Despite Neilsen’s representations to the Investors, Neilsen spent a portion, if not all, of the investment proceeds on personal expenses. As of the date of the hearing, there was an outstanding balance owed to the Investors of at least $243,000. (HO Ex. 2; Tr. at 11, 39-41.) |
| 11. | In connection with the Division’s Investigation into Neilsen’s activities, the Division obtained on-the-record, sworn testimony from Neilsen, wherein Neilsen represented that he did not raise money from investors to invest in Company A, which representation was false. (HO Ex. 2; Dept. Ex. 4; Tr. at 11, 25-28.) |
| 12. | On February 24, 2015 Neilsen executed a promissory Note in favor of an Investor in the amount of $242,687.12. The Promissory Note provided that the Investor would be paid interest on the unpaid principal balance at the rate of 5 % per annum. Nielsen guaranteed the Promissory Note. (Dept. Ex. 3; Tr. at 23-25, 28-29.) |
| 13. | At the hearing, the Department requested an order of restitution be imposed on Nielsen ordering payment to the two investors listed in Exhibit A attached hereto totaling $243,000. Investor 1 to receive $216,000 and Investor 2 to receive $27,000. The Department also requested that a fine of $300,000 be imposed on Neilsen. (Tr. at 15-17, 34-39, 42-44.) |
CONCLUSIONS OF LAW
| 1. | Pursuant to Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, the allegations made in the Notice against Respondent are deemed admitted. |
| 2. | Respondent offered and sold unregistered securities in or from Connecticut, in violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act, an order that Respondent make restitution under Section 36b-27(b) of the Act, and for the imposition of a fine upon Respondent pursuant to Section 36b-27(d) of the Act. |
| 3. | The conduct of Respondent 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 or would operate 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 Respondent under Section 36b-27(a) of the Act, an order that Respondent make restitution pursuant to Section 36b-27(b) of the Act, and for the imposition of a fine upon Respondent pursuant to Section 36b-27(d) of the Act. |
| 4. | Respondent’s statement to the Division was, at the time and in light of the circumstances under which it was made, false or misleading in a material respect. Such conduct constitutes a wilful violation of Section 36b-23 of the Act, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the Act and the imposition of a fine upon Respondent under Section 36b-27(d) of the Act. |
| 5. | The Notice, the June 16, 2015 hearing, and this Findings of Fact, Conclusions of Law and Order comply with Sections 36b-31(b), 36b-27(a), 36b-27(b) and 36b-27(d) of the Act and Section 4-177 of the Connecticut General Statutes. |
| 6. | The issuance of an order to cease and desist, order to make restitution and order imposing a fine is necessary and appropriate in the public interest and for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 36b-34, inclusive, of the Act. |
ORDER
Having read the record, I hereby ORDER that:
| 1. | Pursuant to Section 36b-27(a) of the Act, the Order to Cease and Desist issued against James E. Neilsen d/b/a Neilsen Financial Services on March 31, 2015, be made PERMANENT with respect to violations of Sections 36b-16, 36b-4(a) and 36b-23 of the Act; | |||||||
| 2. | Pursuant to Section 36b-27(b) of the Act, the Order to Make Restitution issued against James E. Neilsen d/b/a Neilsen Financial Services on March 31, 2015, be made PERMANENT with respect to violations of Sections 36-16 and 36b-4(a) of the Act as follows:
| |||||||
| 3. | Pursuant to Section 36b-27(d) of the Act, a FINE of Three Hundred Thousand Dollars ($300,000) be imposed on James E. Neilsen d/b/a Neilsen Financial Services, 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 forty-five (45) days from the date the Order is mailed; and | |||||||
| 4. | This Order shall become effective when mailed. |
| Dated at Hartford, Connecticut, | _____/s/____________ | |
| this 1st day of December 2015. | Jorge L. Perez | |
| Banking Commissioner |
This Order was sent by certified mail, return receipt requested, to James E. Neilsen d/b/a Neilsen Financial Services, and hand-delivered to Elena Zweifler, Esq., on December 2, 2015.
| James E. Neilsen d/b/a Neilsen Financial Services |
| 121 Murray Street |
| Norwalk, CT 06851 |
| Certified Mail No. 7012 3050 0002 1692 8433 |
Exhibit A
| Investor 1: | $216,000 | |
| Investor 2: | $27,000 |