Signal Lake Management et al - Findings and Order

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IN THE MATTER OF:

BARTON W. STUCK

SIGNAL LAKE MANAGEMENT, LLC

SIGNAL LAKE SIDE FUND, L.P.

SIGNAL LAKE SIDE FUND II, L.P.

SIGNAL LAKE SIDE FUND FUND IIA, L.P.

SIGNAL LAKE GENERAL PARTNER LLC
CRD No. 285438

(Collectively, "Respondents")

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FINDINGS OF FACT,
CONCLUSIONS OF LAW
AND ORDER

DOCKET NO. CF-17-8254-S

I. 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 the regulations promulgated thereunder, Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies.

The above-referenced matter was initiated upon charges brought by the Commissioner to issue a permanent order to cease and desist and impose a fine against each Respondent. On June 27, 2017, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Respondents (“Notice”). The Commissioner alleges that: (1) Barton W. Stuck (“Stuck”), Signal Lake Side Fund, L.P. (“SL Side Fund”), Signal Lake Side Fund II, L.P. (“SL Side Fund II”) and Signal Lake Side Fund IIA, L.P. (a/k/a Signal Lake Side Fund III, LP, “SL Side Fund IIA”) offered and sold securities from Connecticut to at least one investor, which securities were not registered in Connecticut under the Act, in violation of Section 36b-16 of the Act; (2) Signal Lake Management, LLC (“SL Management”) transacted business as an investment adviser in Connecticut absent registration, in violation of Section 36b-6(c)(1) of the Act; (3) Stuck transacted business as an investment adviser agent of SL Management in Connecticut absent registration in violation of Section 36b-6(c)(2) of the Act; (4) SL Management engaged an unregistered investment adviser agent, in violation of Section 36b-6(c)(3) of the Act; (5) the conduct of Stuck and SL Management constituted, 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, in violation of Section 36b-4(a) of the Act; and (6) Stuck, on behalf of Signal Lake General Partner LLC (“SL General Partner”), filed with the Commissioner a Form ADV and an Annual Amendment to Form ADV containing certain statements which were, at the time and in the light of the circumstances under which they were made, false or misleading in a material respect, in violation of Section 36b-23 of the Act.

On July 7, 2017, Respondents requested a hearing. After due notice, a hearing was held at the Department of Banking (“Department”) on November 28 and December 14, 2017. 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, Sections 36a-1-19 to 36a-1-57, inclusive, 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.

II. FINDINGS OF FACT

1.	On June 27, 2017, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Respondents. (HO Ex. 1; Tr. 1 at 7.)¹
2.	On July 7, 2017, the Department received a written request for a hearing from Stuck on behalf of all Respondents. (HO Ex. 2; Tr. 1 at 7.)
3.	On July 18, 2017, the Commissioner appointed Attorney Stacey Serrano as Hearing Officer and scheduled the hearing for September 19, 2017. (HO Ex. 1.)
4.	On September 18, 2017, the Hearing Officer continued the hearing to a date to be determined due to Respondents’ engagement of Robinson & Cole LLP as counsel. (HO Ex. 5; Tr. 1 at 7.)
5.	On September 27, 2017, Robinson & Cole LLP informed the Hearing Officer that its engagement as counsel never commenced because the conditions to its engagement were never satisfied. (HO Ex. 4; Tr. 1 at 7-8.)
6.	On October 6, 2017, the Hearing Officer scheduled the hearing for 10 a.m. on November 28, 2017. (HO Ex. 5.)
7.	The hearing was held on November 28 and December 14, 2017. (Tr. 1 at 4; Tr. 2 at 4.)
8.	Attorney Elena Zweifler appeared at the hearing on behalf of the Department. (Tr. 1 at 4; Tr. 2 at 5.)
9.	Stuck appeared at the hearing on behalf of all Respondents. (Tr. 1 at 5; Tr. 2 at 5.)
10.	Stuck and Mr. Michael Weingarten (“Weingarten”) were the controlling persons behind the Signal Lake entities. (Tr. 1 at 23.) Stuck was a managing member of Signal Lake SF, LLC and SL Management. (DOB Ex. 11 at 55; Tr. 1 at 52.) Weingarten was a managing member of SL Management and SL Side Fund. (Tr. 1 at 24.)
11.	Stuck had approximately 60% ownership in Signal Lake SF, LLC and Weingarten had approximately 40% ownership. Weingarten and Stuck had equal 50/50 ownership in SL Management. (DOB Ex. 27 at 18-19; Tr. 1 at 24-25.)
12.	Stuck’s current address is 148 Greens Farms Road, Westport, Connecticut. (Tr. 2 at 60-61.)
13.	Stuck conducted Signal Lake business from Westport, Connecticut. (Tr. 1 at 54.)
14.	Signal Lake SF, LLC is the general partner of SL Side Fund, SL Side Fund II and SL Side Fund IIA. (DOB Ex. 27 at 15; DOB Ex. 11; Tr. 1 at 52, 110.)
15.	As of August 28, 2017, SL Side Fund, SL Side Fund II and SL Side Fund IIA had not filed any securities registration, securities exemption or securities notice filings with the Department pursuant to Sections 36b-16, 36b-17, 36b-18, 36b-19 or 36b-21 of the Act. (DOB Ex. 17; Tr. 1 at 67-69.)
16.	During Stuck’s deposition with the Securities and Business Investments Division of the Department (“Division”) on January 26, 2016, Stuck stated that accountants have Signal Lake’s books and records. (DOB Ex. 27 at 59.)
17.	Three investors complained to the Division concerning the Signal Lake entities. (Tr. 1 at 22, 119-120.)
18.	The Signal Lake funds raised at least $30 million, but it could have been as high as $40 million for SL Side Fund and $24 million for SL Side Fund II. (Tr. 2 at 11.)
19.	An investment adviser to a fund picks investments for the fund, manages investments on a day-to-day basis and pays rent for the office space. (Tr. 1 at 22-23.)
20.	The Signal Lake investors which Sal Cannata had spoken to stated that they received most of their information from Stuck. (Tr. 1 at 24.)
21.	During the hearing, the Department requested that the maximum fine of $100,000 per violation be imposed on each Respondent. (Tr.1 at 15.)
	A. Signal Lake General Partner LLC
22.	SL General Partner managed the fund Signal Lake Operations, LLC (“SL Operations”). (Tr. 1. at 25.)
23.	SL General Partner had a principal office and place of business of 606 Post Road East #667, Westport, Connecticut 06880. (DOB Ex. 2; Tr. 1 at 30.)
24.	Stuck had been the Managing Director of SL General Partner since August 2013 and owned between 50% and 75%. (DOB Ex. 2.)
25.	SL General Partner filed a Form ADV on the IARD system on October 28, 2016 (“Form ADV”) both with the Securities and Exchange Commission (“SEC”) and the State of Connecticut claiming to be an exempt reporting adviser of the private fund SL Operations because it acts solely as an adviser to private funds and has assets under management in the United States of less than $150 million. (DOB Ex. 2; DOB Ex. 3; Tr. 1 at 31 32.)
26.	The IARD is an electronic database created by all 50 states and the SEC, which allows investment advisers to file all the paperwork electronically in a centralized location. (Tr. 1 at 27.)
27.	The Form ADV indicates that Corporate Formation and Registration Information and Board Minutes for SL General Partner are kept at O’Connor Davies, located at 3001 Summer Street, Fifth Floor East, Stamford, Connecticut. (DOB Ex. 3 at 4; Tr. 1 at 32.)
28.	The Form ADV indicates that $145 million in private fund assets were being managed by SL General Partner. (DOB Ex. 3 at 6, 15; Tr. 1 at 32-33.)
29.	The Form ADV also indicated that SL Operation’s financial statements were subject to an annual audit by O’Connor Davies. (DOB Ex. 3 at 16-17; Tr. 1 at 33.)
30.	Based on an investigation by the Division, the statements that O’Connor Davies kept SL Operations’ books and records and performed its annual audit and that SL Operations had $145 million in assets under management, were false. (Tr. 1 at 33-35.)
31.	SL General Partner filed an amended Form ADV on March 17, 2017 (“Amended Form ADV”). (DOB Ex. 4; Tr. 1 at 35-36.)
32.	The Amended Form ADV also indicated that SL Operations had $145 million in assets under management, its financial statements were subject to an annual audit by O’Connor Davies and that certain books and records of SL Operations were kept at O’Connor Davies. (Tr. 1 at 37-38; DOB Ex. 4.)
33.	By letter dated March 30, 2017 to Stuck, the Division requested additional information and documentation evidencing that the gross asset value of SL Operations was $145 million and that O’Connor Davies was the auditing firm. (DOB Ex. 5; Tr. 1 at 38-39.)
34.	By letter dated April 17, 2017 to the Division, Stuck, on behalf of SL General Partner, responded that “we have been in communication with O’Connor Davies and expect to engage them for the audit of SLO [SL Operations] as soon as the anticipated funds in the amount of $145,000,00 [sic] are received, which we believe will be on or about May 8, 2017.” (DOB Ex. 6; Tr. 1 at 39-40.)
35.	The letter dated April 17, 2017 evidences that, as of the filing of the Form ADV and the Amended Form ADV, SL Operations had not yet engaged O’Connor Davies to perform its annual audit and that it did not yet have $145 million in assets under management. (Tr. 1 at 40-41.)
36.	By letter dated May 8, 2017, Stuck stated that “[w]e have been in communication multiple times with the funding source for the $145,000,000 in anticipated funds and expect to receive those funds in the next seven to ten days. If there is any further delay we will advise you as soon as we know.” (DOB Ex. 7; Tr. 1 at 41-42.)
37.	Stuck made the SL General Partner filings on the IARD system. (Tr. 1 at 25.)
38.	On October 28, 2016 and March 14, 2017, Stuck signed the Form ADV and the Amended Form ADV, respectively, on behalf of SL General Partner. (DOB Ex. 3 and 4; Tr. 1 at 42-43.)
39.	In an affidavit dated May 17, 2017 (“Affidavit”), Bruce Blasnik (“Blasnik”), Partner of O’Connor Davies, represented that “O’Connor Davies does not have custody, control or possession of the books, records, corporate formation documents, and/or registration documents for Signal Lake, Signal Lake General Partners [sic] LLC or any other entity controlled by Mr. Stuck”. (DOB Ex. 8; Tr. 1 at 43-44.)
40.	In the Affidavit, Blasnik also represented that O’Connor Davies is not currently engaged as the auditing firm or in any capacity for SL General Partner or any other entity controlled by Stuck. (DOB Ex. 8.)
41.	In fact, Blasnik represented that SL General Partner was never audited by O’Connor Davies. (DOB Ex. 8.)
	B. Signal Lake Side Fund, L.P.
42.	The address for SL Side Fund was 606 Post Road East, Suite 667, Westport, Connecticut. (DOB Ex. 10; Tr. 1 at 51-52.)
43.	SL Management was the exclusive investment manager for SL Side Fund to manage its investments, including, without limitation, the purchasing, holding, selling, sourcing, investigating, negotiating and monitoring of the partnership investments, and to pay the management fee to the investment manager as provided in the Agreement of Limited Partnership. (DOB Ex. 9 at 37; Tr. 1 at 48; Ex. 11 at 13; Tr. 1 at 49, 52-53; DOB Ex. 30 at 8; Tr. 2 at 17, 21.)
44.	Limited partnership interests of the SL Side Fund were offered and sold by Stuck from Connecticut. (Tr. 1 at 51-54.)
45.	Based on the Division’s investigation, Stuck solicited investors and was the individual who accepted and signed the subscription agreements on behalf of SL Side Fund. (Tr. 1 at 51-54.)
46.	All securities offerings in Connecticut are required to make a registration or exemption filing with the Department. (Tr. 1 at 54-55.)
47.	SL Side Fund did not file an exemption or registration with the Department. (Tr. 1 at 54-55.)
48.	SL Side Fund is a Delaware limited partnership that commenced operations on January 16, 2003. (DOB Ex. 30 at 8; Tr. 2 at 17.)
49.	The Financial Statements for SL Side Fund as of December 31, 2010, indicate that approximately $39 million in capital was raised from its partners, but that those investments were currently valued at $0. (Tr. 2 at 20-21; DOB Ex. 30 at 3, 12.)
50.	SL Side Fund was required to pay to the manager a management fee, payable quarterly in advance, equal to 2% of its total capital commitments. (DOB Ex. 30 at 14.)
51.	For the year ended December 31, 2010, SL Side Fund reported management fees of $648,409. (DOB Ex. 30 at 5.)
	C. Signal Lake Side Fund II, L.P.
52.	SL Management served as the investment manager of the SL Fund II and was responsible for selecting and managing the investments and providing certain management services to the fund. (DOB Ex. 12 at 24, Tr. 1 at 55-56; DOB Ex. 31 at 8; Tr. 2 at 22.)
53.	The address for SL Side Fund II was 606 Post Road East, Suite 667, Westport, Connecticut. (DOB Ex. 13 at 1; Tr. 1 at 57-58.)
54.	The Managing Directors for SL Side Fund II were Stuck and Weingarten. (DOB Ex. 12 at 5.)
55.	Stuck and Weingarten selected the investments for SL Side Fund II. (DOB Ex. 12 at 16-18.)
56.	Through December 31, 2010, SL Side Fund II had received capital commitments of $7,327,500, net of $4,682,500 in unfunded commitments. (DOB Ex. 31 at 13.)
57.	In recognition of the management and administrative services provided by SL Management, SL Side Fund II was required to pay a management fee, payable quarterly in advance, equal to .25% of the fund’s total capital commitments. (DOB Ex. 31 at 14.)
58.	For the year ended December 31, 2010, SL Side Fund II reported management fees of $127,200. (DOB Ex. 31 at 5.)
59.	The Agreement of Limited Partnership of SL Side Fund II (“Fund II Agreement”) provides the fund the authority to appoint SL Management as the exclusive investment manager to manage the Partnership’s investments, including, without limitation, the purchasing, holding, selling, sourcing, investigation, negotiation, and monitoring of partnership investments and to pay the management fee to the investment manager as provided in the Fund II Agreement. (DOB Ex. 14 at 13; Tr. 1 at 58-60.)
60.	Based on the investigation by the Division, the investors in SL Side Fund II were solicited by Stuck. (Tr. 1 at 60.)
61.	SL Side Fund II failed to file a securities registration or exemption claim with the Department. (Tr. 1 at 60-61.)
62.	The 2008 tax return for SL Side Fund II indicates that it received total capital contributions of $3,962,500 in 2008, for a total capital balance of $6,396,461 as of December 31, 2008. (DOB Ex. 24; Tr. 1 at 96, 99-100.)
63.	The 2009 tax return for SL Side Fund II indicates that it received total capital contributions of $2,250,000 in 2009 for a total capital balance of $5,803,641 as of December 31, 2009, after other decreases. (DOB Ex. 25; Tr. 1 at 100-101.)
64.	The 2010 tax return for SL Side Fund II indicates that it received total capital contributions of $510,000 in 2010, for a total capital balance of $1,702,060 as of December 31, 2010, after decreases. (DOB Ex. 25-A; Tr. 1. At 102.)
65.	On September 24, 2015, the Department received a complaint from Investor 1 against Stuck, Weingarten and Signal Lake SF, LLC. Investor 1 invested $500,000 between September 2008 and September 2009 in SL Side Fund II. (DOB Exs. 20, 22; Tr. 1 at 82-83, 86-87.)
66.	Investor 1 met Stuck during an angel investing group sometime around 2007 or 2008. (Tr. 1 at 153.)
67.	Approximately in July 2008, Investor 1 met Stuck in a small diner or café in Westport, Connecticut, to talk about SL Side Fund II. (Tr. 1 at 154.)
68.	Stuck explained to Investor 1 that SL Side Fund II was investing in technology companies, such as InPhase, which had developed holographic storage. (Tr. 1 at 155.)
69.	On September 2, 2008, Investor 1 committed to investing $250,000 in SL Side Fund II. (DOB Ex. 21; Tr. 1 at 85, 155-156.)
70.	Investor 1 invested a total of $500,000 in SL Side Fund II from September 2008 to September 2009 through five transactions: $150,000 on September 2, 2008; $50,000 on September 25, 2008; $50,000 on February 13, 2009; $125,000 on September 3, 2009; and $125,000 on September 14, 2009. (DOB Ex. 22; Tr. 1 at 86-87.)
71.	In an e-mail communication between Investor 1 and Stuck on August 31, 2009, Investor 1 inquired: “Since the funding is the most important point for me, my understanding is that the balance of SLSFII [SL Side Fund II] is being filled out and that another approx. 120 mil is coming. Do you know what the timetable is for the other money.” Stuck responded: “we are about to draw down $50M of commitment THIS WEEK An additional $25M minimum will be drawn down by end of year, and the rest next year”. (DOB Ex. 23 at 2; Tr. 1 at 90.)
72.	In an e-mail communication with Investor 1 on September 2, 2009, Stuck stated, in pertinent part: “Checking in on your decision: . . . and two other investors will be adding another $75M to Signal Lake in the October time frame, just got off the phone on this”. Investor 1 responded: “Bart: As I understand it, new money coming in will be . . . $75 M and another $75M next year . . . and 2 other investors in October $75M . . . please advise”. Stuck responded: “You have it correct, we are on track to clear $225M”. (DOB Ex. 23 at 4-5; Tr. 1 at 162-164.) There was no discussion of any contingency in order for such capital commitment to occur. (Tr. 1 at 94.)
73.	On September 9, 2009, in an e-mail exchange with Investor 1, Stuck stated that “Our lead investor is putting 85% of $11M capital commitment into Signal Lake Side Fund II LP, and is asking that all other investors similarly take their capital commitments up to at least 80% or higher. Can you handle this?” Investor 1 subsequently asked: “What happens if the $11M doesn’t come in?” Stuck responded: “It is coming in, they called to say that it coming, and want to know how much to the penny to wire”. (DOB Ex. 23 at 6-7; Tr. 1 at 165-168.)
74.	On September 11, 2009, Stuck e-mailed Investor 1 stating: “Wire hit at 9:42AM to Signal Lake bank account for $11M Can you handle your wire of remaining capital commitment”. (DOB Ex. 23 at 8; Tr. 1 at 95, 167-168.) There was no evidence of such $11 million investment. (Tr. 1 at 95, DOB Ex. 25; Tr. 1 at 100-102.)
75.	Investor 1 had invested the additional $250,000 in September 2009 because he was impressed by the amount of money that was going to be available, considering that Stuck had represented in previous conversations that the only thing standing in the way of the success of InPhase was money. (Tr. 1 at 160.)
76.	Investor 1 stated that he never would have invested the additional $250,000 in September 2009 if Stuck had not made the representations concerning the $150 million capital commitment. (Tr. 1 at 163.) The capital commitment of $150 million never materialized. (Tr. 1 at 93-94.)
77.	The additional $250,000 invested by Investor 1 in September 2009 was allegedly part of $11 million needed for SL Side Fund II to reach its cap. (Tr. 1 at 165.)
78.	On October 6, 2009, Investor 1 inquired whether an investor had put in the $39M into SL Side Fund IIA. Stuck responded that “[i]t is now increasing to $89M and an initial drawn [sic] down has occurred.” (DOB Ex. 23 at 11; Tr. 1 at 168-169.)
79.	Investor 1 visited InPhase and learned that, in January 2010, they had withdrawn all of their staff. (Tr. 1 at 174.)
80.	Investor 1 had wired the $500,000 to the bank account of SL Side Fund held at Bank of America. (Tr. 1 at 176-177.)
81.	In Signal Lake’s annual investor meeting in November 2010, Stuck failed to disclose that InPhase was dead and that the $11 million investment in 2009 was pulled back. (Tr. 1 at 181-183.)
	D. Signal Lake Side Fund IIA, L.P.
82.	The names Signal Lake Side Fund III, LP (“SL Side Fund III”) and Signal Lake Side Fund IIA, LP were used interchangeably. (Tr. 1 at 61; DOB Ex. 16, Tr. 1 at 63-64.)
83.	The address for SL Side Fund IIA is 606 Post Road East, Suite 667, Westport, Connecticut 06880. (DOB Ex. 16; Tr. 1 at 66-67.)
84.	The Agreement of Limited Partnership of SL Side Fund III dated August 15, 2009, stated that the General Partner was authorized to appoint SL Management as exclusive investment manager to manage the Partnership’s investments, including, without limitation, the purchasing, holding, selling, sourcing, investigating, negotiating and monitoring of partnership investments and to pay the management fee to the investment manager as provided within the Agreement. (DOB Ex. 15 at 12; Tr. 1 at 61-63.)
85.	SL Management was entitled to a management fee of 2% of committed capital and 20% of the profits of SL Side Fund IIA for its services. (Tr. 1 at 69-71.)
86.	For the year ended December 31, 2011, there were 14 limited partners in SL Side Fund IIA. (DOB Ex. 16; Tr. 1 at 65.)
	E. Signal Lake Management, LLC
87.	As an investment manager for SL Side Fund, SL Management was entitled to a fee for services of 2% of the capital that had been committed to the Fund. (DOB Ex. 9 at 41; Tr. 1 at 48, 70-71.)
88.	SL Management paid salaries and wages to Stuck and Weingarten of $353,934 in 2008, $361,445 in 2009, $237,947 in 2010 and $0 in 2011. (DOB Ex. 18, Tr. 1 at 75-77; DOB Ex. 27 at 26, Tr. 1 at 110.)
89.	Stuck and Weingarten were the individuals behind SL Management choosing investments for the Signal Lake funds. (Tr. 1 at 71, 73.)
90.	As of November 28, 2017, SL Management had not registered as an investment adviser with the Division or filed a claim of exempt reporting adviser status. (Tr. 1 at 73-74.)
91.	Stuck was never registered with the Division as an agent of SL Management. (Tr. 1 at 75.)
92.	SL Side Fund paid management fees of $607,198 in 2008, SL Side Fund II paid management fees of $127,200 in 2010 and SL Side Fund IIA paid management fees of $51,000 in 2011. (DOB Ex. 19; Tr. 1 at 78-79.)
93.	Stuck has been with SL Management since 1998. (DOB Ex. 27 at 14.)
94.	SL Management paid the bills for the Signal Lake Side Funds and received fees of 0.5% per quarter, for a total of 2 % per year through 2010. (DOB Ex. 27 at 24-25.)

III. CONCLUSIONS OF LAW

The Commissioner is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, and the regulations promulgated thereunder, Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies. The Commissioner’s authority includes the power to issue an order to cease and desist against each Respondent pursuant to Section 36b-27(a) of the Act and impose a fine upon each Respondent pursuant to Section 36b-27(d) of the Act.

Standard of Evidence

The applicable standard of proof in Connecticut administrative cases, including those involving fraud and severe sanctions, is the preponderance of the evidence standard. Goldstar Medical Services v. Department of Social Services, 288 Conn. 790, 819 (2008). “[I]t is the exclusive province of the trier of fact to make determinations of credibility, crediting some, all, or none of a given witness’ testimony. . . . [A]n agency [is not] required to use in any particular fashion any of the materials presented to it as long as the conduct of the hearing is fundamentally fair.” Id. at 830 (internal citations omitted).

“Review of an administrative agency decision requires a court to determine whether there is substantial evidence in the administrative record to support the agency’s findings of basic fact and whether the conclusions drawn from those facts are reasonable.” Id. at 833. “An administrative finding is supported by substantial evidence if the record affords a substantial basis of fact from which the fact in issue can be reasonably inferred.” Id. “[T]here is no distinction between direct and circumstantial evidence so far as probative force is concerned. . . . In fact, circumstantial evidence may be more certain, satisfying and persuasive than direct evidence.” Id. at 834 (internal citations omitted).

Violations of the Connecticut Uniform Securities Act ²

1.	The Department alleges that Stuck, SL Side Fund, SL Side Fund II and SL Side Fund IIA each offered and sold securities from Connecticut to at least one investor, which securities were not registered in Connecticut under the Act, in violation of Section 36b-16 of the Act nor the subject of a filed exemption claim or claim of covered security status. Section 36b-16 of the Act, states that: No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-34, 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 “security”, in pertinent part, as: [I]nterests of limited partners in a limited partnership . . . investment contract . . . [and] includes . . . (B) as an “investment contract”, an interest in a limited liability company or limited liability partnership . . . . The evidence establishes that SL Side Fund, SL Side Fund II and SL Side Fund IIA are limited partnerships established in Connecticut that had numerous investors prior to the hearing. In particular, through December 31, 2010, SL Side Fund raised at least $39 million, SL Side Fund II raised at least $7 million and SL Side Fund IIA had 14 limited partners as of December 31, 2011. Such evidence establishes that SL Side Fund, SL Side Fund II and SL Side Fund IIA were securities sold from Connecticut. The evidence also establishes that SL Side Fund, SL Side Fund II and SL Side Fund IIA were never registered or the subject of a claimed exemption filing in Connecticut. Section 36b-21(g) of the Act provides, in pertinent part, that “the burden of proving an exemption, preemption, exclusion or an exception from a definition is upon the person claiming it”. No evidence was produced by Respondents supporting a claim of exemption or exclusion in connection with the offer and sale of SL Side Fund, SL Side Fund II and SL Side Fund IIA from Connecticut. With respect to the offer and sale of such securities, Investor 1 described numerous conversations that he had with Stuck in which Stuck discussed SL Side Fund II and encouraged his investment in the security. In addition, the Division’s investigation found that Stuck solicited investments in SL Side Fund and SL Side Fund II. However, there was no discussion during the hearing concerning the offering and solicitation of SL Side Fund IIA. As a result, the record only establishes that Stuck offered and sold SL Side Fund and SL Side Fund II securities in violation of Section 36b-16 of the Act.
2.	The Department alleges that SL Management transacted business as an investment adviser in Connecticut absent registration, in violation of Section 36b-6(c)(1) of the Act. Section 36b-6(c)(1) of the Act states, in pertinent part, that: No person shall transact business in this state as an investment adviser unless registered as such by the commissioner as provided in sections 36b-2 to 36b-34, inclusive, or exempted pursuant to subsection (e) of this section. . . . Section 36b-3(11) of the Act states, in pertinent part, that: “Investment adviser” means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation as a part of a regular business, issues or promulgates analyses or reports concerning securities. The evidence establishes that from approximately 2008 to at least 2010, SL Management transacted business as an investment adviser in Connecticut absent registration by managing the investments for SL Side Fund, SL Side Fund II and SL Side Fund IIA and receiving compensation for such services, in violation of Section 36b-6(c)(1) of the Act.
3.	The Department alleges that Stuck transacted business as an investment adviser agent of SL Management in Connecticut absent registration, in violation of Section 36b-6(c)(2) of the Act. Section 36b-6(c)(2) of the Act states, in pertinent part, that: No individual shall transact business in this state as an investment adviser agent unless such individual is registered as an investment adviser agent of the investment adviser for which such individual acts in transacting such business. Section 36b-3(12)(A) of the Act states that: “Investment adviser agent” includes (i) any individual, including an officer, partner or director of an investment adviser, or an individual occupying a similar status or performing similar functions, employed, appointed or authorized by or associated with an investment adviser to solicit business from any person for such investment adviser in this this state and who receives compensation or other remuneration, directly or indirectly, for such solicitation; or (ii) any partner, officer, or director of an investment adviser, or an individual occupying a similar status or performing similar functions, or other individual employed, appointed, or authorized by or associated with an investment adviser, who makes any recommendation or otherwise renders advice regarding securities to clients and who receives compensation or other remuneration, directly or indirectly, for such advisory services. The record establishes that Stuck was a managing member of SL Management and advised SL Side Fund, SL Side Fund II and SL Side Fund IIA in their selection of investments, but was never registered under the Act. Stuck also admitted to receiving a salary from the management fees paid by such funds to SL Management. As a result, from at least 2008 to 2010, Stuck transacted business as an investment adviser agent in Connecticut absent registration, in violation of Section 36b-6(c)(2) of the Act.
4.	The Department alleges SL Management engaged an unregistered investment adviser agent, in violation of Section 36b-6(c)(3) of the Act. Section 36b-6(c)(3) of the Act states, in pertinent part, that: No investment adviser shall engage an investment adviser agent unless such investment adviser agent is registered under sections 36b-2 to 36b 34, inclusive. As previously discussed, the record reflects that SL Management engaged Stuck as an unregistered investment adviser agent in violation of Section 36b-6(c)(3) of the Act.
5.	The Department alleges that the conduct of Stuck and SL Management 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, in violation of Section 36b-4(a) of the Act. Section 36b-4(a) ³ of the Act states 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. Section 36b-3(8) of the Act states that “fraud”, “deceit” and “defraud” “are not limited to common-law deceit”. In particular, the Department alleged that from August to October 2009, Stuck and SL Management made several false representations concerning the amount of money that was going to be invested in SL Side Fund 2 by other persons in order to induce a second investment of $250,000 from Investor 1. Since the first prong of Section 36b-4(a) of the Act may be interpreted to require intent by the violator and Respondents’ intent was not discussed during the hearing and the record is unclear on behalf of which entity Stuck was acting when he made the representations ⁴, this section will be limited to an analysis of whether Stuck’s conduct violated Section 36b-4(a)(2) or 36b-4(a)(3) of the Act. The evidence demonstrates that the investment amounts touted by Stuck in his e-mails to Investor 1 dated August 31, 2009, September 11, 2009 and October 6, 2009 were never received by SL Side Fund II. Such statements by Stuck painted a false impression that millions of dollars were imminently being invested in SL Fund II. At no time did Stuck qualify or attempt to clarify the statements he had made depicting that such investments were a certainty. Rather, Stuck continued with such false representations for at least another year, stating to investors at the annual meeting in November 2010 that Signal Lake had obtained a $150 million to $225 million funding commitment that would fully fund SL Side Fund II. (Resp. Ex. 4 at 3; Tr. 1 at 141.) Through his repeated communications with Investor 1, Stuck perpetrated the fraud that SL Side Fund II was a very successful partnership with capital commitments in excess of $150 million. Furthermore, from Investor 1’s previous interactions with Stuck, Investor 1 had trusted his representations. As a result, Investor 1 was truly deceived by Stuck’s representations until he uncovered the truth by personally visiting the operations of InPhase in January 2010. Such conduct by Stuck constitutes making untrue statements of a material fact or omissions of a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in violation of Section 36b-4(a)(2) of the Act, and engaging in an act, practice or course of business that operated as a fraud or deceit upon a person, in violation of Section 36b-4(a)(3) of the Act. ⁵
6.	The Department alleges that Stuck, on behalf of SL General Partner, filed with the Commissioner a Form ADV and an Amended Form ADV containing certain statements that were, at the time and in the light of the circumstances under which they were made, false or misleading in a material respect, in violation of Section 36b-23 of the Act. Section 36b-23 of the Act states: No person shall make or cause to be made orally or in any document filed with the commissioner or in any proceeding, investigation or examination under sections 36b-2 to 36b-34, inclusive, any statement that is, at the time and in the light of the circumstances under which it is made, false or misleading in any material respect or, in connection with the statement, omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not false or misleading. The evidence establishes that Stuck made several statements to the Commissioner that were false or misleading in a material respect in connection with his filing of SL General Partners’ Form ADV on October 28, 2016, and Amended Form ADV on March 17, 2017. In such filings, Stuck, as Managing Director of SL General Partner stated that SL Operations had assets under management of $145 million and that O’Connor Davies performed its annual audit and maintained its books and records, statements which were proven false or misleading by the Division during the hearing. Such conduct reflects that both Stuck and SL General Partner violated Section 36b-23 of the Act. Furthermore, throughout the Division’s investigation, Stuck continued to make false and misleading statements. For example, by letter dated April 17, 2017, Stuck represented to the Division that SL Operations would receive $145 million on or about May 8, 2017, and by letter dated May 8, 2017, Stuck represented to the Division that the $145 million is expected to be received within seven to ten days. Yet, the hearing record is devoid of any evidence that such monies were ever received. Instead, the hearing record is full of baseless assertions and argument by Stuck that the Department, through its issuance of the Order to Cease and Desist, somehow interfered with the ability of SL Operations to receive the $145 million. Stuck’s tenuous relationship with the truth is further demonstrated by his attempt to introduce an exhibit purporting to be bank statements evidencing funds committed to Signal Lake. (See Resp. Ex. 2; Tr. 1 at 127-128.) The Division quickly attacked the veracity of the document, pointing out that the bank statements were nothing more than a document publicly available on the Whistleblowers website (thewhistleblowers.info), under the header “Mark Anthony Owenby + Counterfeit 2013 ABN AMRO Bank Documents.” (See DOB Ex. 29; Tr. 1 at 148-150.) As further discussed below, such conduct supports the finding that the issuance of an order against Stuck is both necessary and for the protection of investors.

Authority to Issue Order to Cease and Desist and
Order Imposing Fine

Section 36b-27 of the Act provides, in pertinent part, that:

(a) 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-34, inclusive, . . . 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 . . . . 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.

(d) (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-34, inclusive, . . . the commissioner may send a notice to (A) such person . . . by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt or the date seven days after the date on which such notice was mailed or sent. 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; (iv) a statement indicating that such person may file a written request for a hearing on the matters asserted not later than fourteen days after receipt of the notice; and (v) the time and place for the hearing.

(2) If a hearing is requested within the time specified in the notice, 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-34, 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 or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to any person named in such order.

No evidence of mitigating circumstances was provided during the hearing. I am imposing a fine of Five Hundred Thousand Dollars ($500,000) on Stuck, a fine of One Hundred Thousand Dollars ($100,000) on SL Management and a fine of One Hundred Thousand Dollars ($100,000) on SL General Partner.

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 Notice issued by the Commissioner complied with subsections (a) and (d) of Section 36b-27 of the Act and Section 4-177 of the Connecticut General Statutes.

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-34, inclusive. . . .

Section 36b-31(b) of the Act requires that the Commissioner find that an order 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-34, inclusive. In this case, the activities of Stuck, SL Management and SL General Partner involved failing to register as an investment adviser and investment adviser agent, in violation of Section 36b-6 of the Act; offering and selling unregistered securities, in violation of Section 36b-16 of the Act; making untrue statements of material fact or omitting material facts necessary to make statements made not misleading, in violation of Section 36b-4(a)(2) of the Act; engaging in an act, practice or course of business that operated as a fraud or deceit, in violation of Section 36b-4(a)(3) of the Act; and making false or misleading statements to the Commissioner, in violation of Section 36b-23 of the Act. Prohibition of such practices is consistent with the purpose of the Act as discussed by the Connecticut Legislature in 1977. “Securities laws generally contain three basic elements—registration of brokers and salesmen, antifraud provisions and registration of securities . . . .” Connecticut Nat. Bank v. Giacomi, 233 Conn. 304, 320, 659 A.2d 1166, 1173 (1995). By publicly sanctioning Stuck, SL Management and SL General Partner through the issuance of an order to cease and desist and order imposing fine, other securities personnel and investors should be warned and future violative conduct deterred.

I conclude that it 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 to issue the following order.

IV. ORDER

Having read the record, I hereby ORDER, pursuant to Sections 36b-27(a) and 36b-27(d) of the Act, that:

1.	The Order to Cease and Desist issued against Barton W. Stuck on June 27, 2017, be made PERMANENT with respect to violations of Sections 36b-16, 36b-6(c)(2), 36b-4(a)(2), 36b-4(a)(3) and 36b-23 of the Act;
2.	The Order to Cease and Desist issued against Signal Lake Management, LLC on June 27, 2017, be made PERMANENT with respect to violations of Sections 36b-6(c)(1) and 36b-6(c)(3) of the Act;
3.	The Order to Cease and Desist issued against Signal Lake General Partner LLC on June 27, 2017, be made PERMANENT with respect to violations of Section 36b-23 of the Act;
4.	A FINE of Five Hundred Thousand Dollars ($500,000) be imposed upon Barton W. Stuck, to be remitted to the Department of Banking by wire transfer, cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days after this Order is mailed;
5.	A FINE of One Hundred Thousand Dollars ($100,000) be imposed upon Signal Lake Management, LLC, to be remitted to the Department of Banking by wire transfer, cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days after this Order is mailed;
6.	A FINE of One Hundred Thousand Dollars ($100,000) be imposed upon Signal Lake General Partner LLC, to be remitted to the Department of Banking by wire transfer, cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days after this Order is mailed; and
7.	This Order shall become effective when mailed.

Dated at Hartford, Connecticut,		____/s/____________
this 2nd day of May 2018.	Jorge L. Perez
Banking Commissioner

This Order was sent by certified mail,
return receipt requested, to Barton W.
Stuck on behalf of all Respondents, and
hand delivered to Elena Zweifler, Esq.,
on May 3, 2018.

Barton W. Stuck
148 Greens Farms Road
Westport, CT 06880
Certified Mail No. 7012 3050 0000 6999 5460

Barton W. Stuck
606 Post Road East # 667
Westport, CT 06880
Certified Mail No. 7012 3050 0000 6999 5477

ENDNOTES

¹	Parenthetical references relate to exhibits entered into the hearing record by the Hearing Officer (“HO Ex.”) or the Department (“DOB Ex.”). Transcript (“Tr.”) pages reflect where an exhibit was entered into the record or where relevant testimony was given. “Tr. 1” refers to the hearing held on November 28, 2017, and “Tr. 2” refers to the continued hearing held on December 14, 2017.
²	Citations to the Act reflect the most recent statutory text applicable during the time period of underlying conduct.
³	This provision, as originally drafted, was modeled on Section 17(a) of the Federal Securities Act of 1933. “Section 36b-4 corresponds to § 101 of the Uniform Securities Act of 1956 (Uniform Securities Act).” Demiraj v. Uljaj, 137 Conn. App. 800, 806 (2012). “Section 101 of the Uniform Act was modeled on Rule 10b-5 of the Securities and Exchange Commission (SEC), which, in turn, was modeled on § 17(a) of the federal Securities Act of 1933. L. Loss, Commentary on the Uniform Securities Act (1976) official comment to § 101, p. 6.” Connecticut Nat’l. Bank v. Giacomi, 233 Conn. 304, 321 (1995).
⁴		In construing similar language in Section 17(a) of the Securities Act, the U.S. Supreme Court stated, “[t]he language of § 17(a) strongly suggests that Congress contemplated a scienter requirement under § 17(a)(1), but not under § 17(a)(2) or § 17(a)(3). The language of § 17(a)(1), which makes it unlawful ‘to employ any device, scheme, or artifice to defraud,’ plainly evinces an intent on the part of Congress to proscribe only knowing or intentional misconduct. Even if it be assumed that the term ‘defraud’ is ambiguous, given its varied meanings at law and in equity, the terms ‘device,’ ‘scheme,’ and ‘artifice’ all connote knowing or intentional practices”. Aaron v. SEC, 446 U.S. 680, 695-96 (1980).
⁵	Since the Act is a substantial adoption of the Uniform Securities Act, analysis performed by other states construing similar securities provisions is instructive. In Maryland Securities Commissioner v. U.S. Securities Corp, 122 Md. App. 574 (1998) the court upheld a securities administrative decision which found that a broker’s failure to disclose certain information in connection with the registration status of the securities sold to investors acted as a deceit upon the investors, regardless of whether the deceit involved a material fact. The court looked at the effect on the investors, stating that “[c]learly, the Maryland residents were deceived by acts or a course of business in connection with the offer and sale of stock.” Id. at 597. This is consistent with the U.S. Supreme Court’s interpretation of Section 17 in Aaron v. SEC, which states: “[T]he language of § 17(a)(3), under which it is unlawful for any person ‘to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit,’ . . . quite plainly focuses upon the effect of particular conduct on members of the investing public, rather than upon the culpability of the person responsible.’” Aaron v. SEC, 446 U.S. 680, 696-97 (1980). (Emphasis in original).

Administrative Orders and Settlements

State of Connecticut Department of Banking