| * * * * * * * * * * * * * * * * * * IN THE MATTER OF: TDA ADVANTAGE TRUST ("TDA") THOMAS F. DESTEPH (Collectively "Respondents") * * * * * * * * * * * * * * * * * * |
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AMENDED AND RESTATED AND AMENDED AND RESTATED DOCKET NO. CF-2008-7555-S |
I. AMENDED AND RESTATED 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 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 Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if they have violated, are violating or are about to violate provisions of the Act or Regulations. Section 36b-26(a) of the Act 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 Act, 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. |
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Section 36b-27(d) of the Act currently provides, in pertinent part:
(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-33, inclusive, . . . the commissioner may send a notice to (A) such person . . . by registered mail, return receipt requested . . . . 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; and (iv) the time and place for the hearing. Any 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 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-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 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 mail, return receipt requested, . . . to any person named in such order. | |
| 6. | As a result of the investigation conducted by the Division, the Commissioner issued an Order to Cease and Desist (“C&D”), Notice of Intent to Fine (“Fine”) and Notice of Right to Hearing on April 7, 2009 (collectively “Notices”) against Respondents, which Notices are hereby restated and superseded. |
| 7. | The Notices provided that a hearing on the Fine would be held on May 20, 2009, and if Respondents requested a hearing on the C&D, such hearing would also be held on May 20, 2009. |
| 8. | Respondents requested a hearing concerning the C&D, and both hearings have currently been granted open-ended continuances. |
II. AMENDED AND RESTATED RESPONDENTS
| 9. | TDA is a purported New Hampshire entity with its principal place of business last known to the Commissioner at 1 Dustin Lane, Jaffrey, New Hampshire 03452. |
| 10. |
Desteph is an individual whose address last known to the Commissioner is 1 Dustin Lane, Jaffrey, New Hampshire 03452. |
III. AMENDED AND RESTATED STATEMENT OF FACTS
| 11. | From at least March 10, 2003, to the present, TDA has been an issuer of securities in the form of promissory notes (“TDA Note”). |
| 12. | For all relevant periods, DeSteph owned and managed TDA, as well as the Desteph Agency, an insurance and financial planner which claims that it uses innovative financial and insurance solutions that have pleased the most discerning clients and claims to be proficient in arranging or brokering such investments as tax-deferred annuities, individual retirement accounts, long-term care insurance polices, life insurance and group benefits. |
| 13. | In or about October 2002, Desteph was referred by a mutual friend to a Connecticut investor (“Investor”) to provide investment advice in relation to a One Hundred Thousand Dollars ($100,000) inheritance the Investor had recently received from her mother’s estate. |
| 14. | Desteph, on behalf of TDA, offered TDA Notes to the Investor claiming that while she would only get 5% interest on a traditional certificate of deposit, with a special investment in TDA Notes she would earn 6.15% with monthly payouts of Five Hundred Twelve and 50/100 Dollars ($512.50) on her investment of One Hundred Thousand Dollars ($100,000). |
| 15. | On or about March 10, 2003, Desteph, on behalf of TDA, effected the sale of a TDA Note to the Investor in the amount of One Hundred Thousand Dollars ($100,000). |
| 16. | However, when the Investor actually received the TDA Note, it provided that TDA promised to: (a) pay Four Hundred Twelve and 50/100 Dollars ($412.50) per month, not the Five Hundred Twelve and 50/100 Dollars ($512.50) previously promised, less a Twelve Dollar ($12) “service charge” for five years; (b) pay a “prorated share” of TDA’s profits over that five-year period; and (c) return the original principal plus all profits due on or before January 10, 2008. |
| 17. | The Investor did not receive any of the promised monthly payments. In April 2003, the Investor asked DeSteph for her investment, and he informed her that the TDA Note would be followed “to the letter”. Desteph also stated that the monthly payments were being “reinvested” in TDA, which was “routine”. |
| 18. | The Investor did not receive any payment from TDA or DeSteph on or before January 10, 2008, as was provided for in the TDA Note. |
| 19. | Both TDA and Desteph failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or Desteph, that TDA and Desteph would not make a single monthly payment or that Desteph would use the Investor’s money to pay for his personal and household expenses. |
| 20. | To date, no funds have been returned to the Investor by TDA or Desteph. |
| 21. | The TDA Note that was offered and sold by Respondents was never registered in Connecticut, nor was it exempt from registration, nor was it a covered security. |
| 22. |
Desteph has never been registered in Connecticut as an agent of TDA, nor was he an associated person. |
IV. AMENDED AND RESTATED STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND
ORDER IMPOSING FINE AGAINST RESPONDENTS
a. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 23. | Paragraphs 1 through 22, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 24. |
Respondents offered and sold an unregistered security to at least one Connecticut investor, as more fully described in paragraphs 14 and 15, which security was not registered in Connecticut under the Act, as more fully described in paragraph 21. The offer and sale of such security 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 against Respondents under Section 36b-27(d) of the Act in effect prior to October 1, 2003. |
b. Violation of Section 36b-6 of the Act –
Unregistered Agent Activity
| 25. | Paragraphs 1 through 24, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 26. | Desteph acted as an agent of issuer on at least one occasion, absent registration, as more fully described in paragraphs 14, 15 and 22. 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 Desteph under Section 36b 27(a) of the Act, and for the imposition of a fine against Desteph under Section 36b-27(d) of the Act in effect prior to October 1, 2003. |
| 27. |
TDA employed Desteph as an agent of issuer on at least one occasion, absent registration, as more fully described in paragraphs 14, 15 and 22. 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 TDA under Section 36b 27(a) of the Act, and for the imposition of a fine against TDA under Section 36b-27(d) of the Act in effect prior to October 1, 2003. |
c. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. |
The conduct of Respondents, as more fully described in paragraphs 14 through 20, inclusive, constitutes, in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts 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, as amended by Public Act 09-174, 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 against Respondents under Section 36b-27(d) of the Act prior to October 1, 2003. |
V. AMENDED AND RESTATED ORDER TO CEASE AND DESIST
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS that, with respect to the activity described herein, TDA Advantage Trust and Thomas F. Desteph have violated Sections 36b-16 and 36b-6 of the Act and Section 36b-4 of the Act, as amended;
THE COMMISSIONER FURTHER FINDS that the issuance of this Amended and Restated 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 TDA Advantage Trust CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; (2) employing an agent of issuer absent registration, and (3) in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts 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;
THE COMMISSIONER ALSO THEREFORE ORDERS that Thomas F. Desteph CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered securities; (2) acting as an agent of issuer absent registration; and (3) in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making untrue statements of material facts 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;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the Act, TDA Advantage Trust and Thomas F. Desteph will be afforded an opportunity for a hearing on the allegations set forth above.
VI. AMENDED AND RESTATED NOTICE OF INTENT TO FINE RESPONDENTS
WHEREAS, the Commissioner finds as a result of an investigation by the Division that TDA and Desteph each committed at least one violation of Section 36b-16 of the Act, at least one violation of Section 36b-6 of the Act and at least one violation of 36b-4 of the Act, as amended;
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 Respondents 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 against TDA of Thirty Thousand Dollars ($30,000) and a maximum fine against Desteph of Thirty Thousand Dollars ($30,000).
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act and Chapter 54 of the General Statutes of Connecticut. The hearing will be held at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut at a time to be determined by the designated Hearing Officer. 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 16th day of July 2009. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 16th day of July 2009, the foregoing Amended and Restated Order to Cease and Desist and Amended and Restated Notice of Intent to Fine was sent by registered mail, return receipt requested, to TDA Advantage Trust, 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869308US; and to Thomas F. Desteph, 1 Dustin Lane, Jaffrey, New Hampshire 03452, registered mail no. RB027869311US.
________/s/_________
Jesse B. Silverman
Prosecuting Attorney