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POWERWATER SYSTEMS, 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-13-7869-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 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. |
| 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 upon Respondents pursuant to Section 36b-27(d) of the Act. |
II. RESPONDENTS
| 6. | PSI is an Ontario, Canada corporation whose principal place of business last known to the Commissioner is 159 Main Street, Markham, Ontario, Canada L3P 1Y2. |
| 7. | Cleworth is an individual whose address last known to the Commissioner is 8 Savanah Crescent, Markham, Ontario, Canada L3P 3C7. From at least April 15, 2005, Cleworth has been the President of PUL and the Chairman of PSI. |
| 8. |
PUL is a Connecticut corporation whose principal place of business last known to the Commissioner is One Pond Place, Avon, Connecticut 06001. |
III. STATEMENT OF FACTS
| 9. | From at least September 17, 2004 to the present, PSI has been an issuer of securities in the form of common stock (“PSI Securities”). |
| 10. | From September 17, 2004 to the present, Cleworth, both individually and jointly with PUL, offered and sold PSI Securities on behalf of PSI in or from Connecticut to investors (“Investors”). PUL materially aided Cleworth and PSI in the offer and sale of PSI Securities to the Investors. |
| 11. | The Investors, at Cleworth’s direction, paid PUL for the PSI Securities, which payments were deposited into a bank account that was controlled by Cleworth. Cleworth withdrew some of the funds provided by the Investors from the PUL bank account and used the money for his personal use. |
| 12. | The PSI Securities offered and sold by Respondents were never 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. |
| 13. | At no time were PUL or Cleworth registered in any capacity under the Act. |
| 14. | Cleworth has never been registered in Connecticut as an agent of issuer of PSI. |
| 15. | In connection with the offer and sale of the PSI Securities, Respondents failed to disclose, inter alia, any financial information about Respondents, that [sic] registration status of the securities, that Cleworth was acting as an agent of issuer of PSI in Connecticut absent registration, the estimated cash proceeds of the PSI stock offering, any specific risk factors related to the investment, or that Cleworth would use the some of the Investors’ money for his personal use. Each of these omitted items was material to the Investors and prospective PSI investors. |
IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST
AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 16. | Paragraphs 1 through 15, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 17. |
Respondents offered and sold securities in or from Connecticut, as more fully described in paragraphs 9 through 11, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 12. 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 upon Respondents under Section 36b-27(d) of the Act. |
| 18. | PUL materially aided PSI and Cleworth’s violation of 36b-16 of the Act, as more fully described in paragraphs 10 and 11, which forms a basis for an order to cease and desist to be issued against PUL under Section 36b-27(a) of Act, and for the imposition of a fine upon PUL 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
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
The conduct of Respondents, as more fully described in paragraphs 9 through 15, 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, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the Act. |
c. Violation of Section 36b-6 of the Act –
Unregistered Agent Activity
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
Cleworth transacted business as an agent of issuer in this state absent registration, as more fully described in paragraphs 9 through 15, inclusive. 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 Cleworth under Section 36b-27(a) of the Act, and for the imposition of a fine upon Cleworth under Section 36b-27(d) of the Act. |
| 23. | PSI employed Cleworth as an unregistered agent of issuer in this state, as more fully described in paragraphs 9 through 15, 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 PSI under Section 36b-27(a) of the Act, and for the imposition of a fine upon PSI 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, PSI has committed at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-4(a) of the Act, and at least one violation of Section 36b-6(b) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Cleworth has committed at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-4(a) of the Act, and at least one violation of Section 36b-6(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, PUL has committed at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-4(a) of the Act, and has materially aided in at least one violation of Section 36b-16 of the Act;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist against Respondents 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 upon Respondents;
WHEREAS, the Commissioner ORDERS that PowerWater Systems Inc., CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation: (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing any 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; and (3) employing agents of issuer in this state absent registration;
WHEREAS, the Commissioner ORDERS that Duncan Cleworth CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation: (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing any 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; and (3) acting as an agent of issuer in this state absent registration;
WHEREAS, the Commissioner ORDERS that PowerWater USA Ltd., CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation: (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing any 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; and (3) materially aiding violations of the Act, including without limitation Section 36b-16 of the Act;
THE COMMISSIONER FURTHER ORDERS THAT, pursuant 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 March 5, 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.
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 11th day of January 2013. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 11th day of January 2013, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by registered or certified mail, return receipt requested, to PowerWater Systems Inc., 159 Main Street, Markham, Ontario, Canada L3P 1Y2, registered mail no. RB028020977US; Duncan Cleworth, 8 Savanah Crescent, Markham, Ontario, Canada L3P 3C7 registered mail no. RB028020985US; and PowerWater USA Ltd., One Pond Place, Avon, Connecticut 06001, certified mail no. 7012 1010 0001 7264 6134.
| ____/s/___________ | |
| Paul A. Bobruff | |
| Prosecuting Attorney |