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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-13-8014-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 (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if Respondents have 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 order that Respondents make restitution pursuant to Section 36b-27(b) of the Act. |
| 6. | 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
| 7. |
Ulysses Partners, LLC (“Ulysses”) is a now defunct Illinois limited liability company that had its principal place of business at 124 East Avenue, Norwalk, Connecticut 06851. Ulysses was a third-party marketer of hedge funds whose main function was to introduce and market hedge funds to financial institutions in exchange for the hedge funds paying Ulysses a fee. Ulysses is not and has not been registered in any capacity under the Act. |
| 8. | 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. Neilsen was also registered with the National Futures Association (“NFA”) (NFA No. 0419786) as an associated person of Longship Alternative Asset Management (“Longship”) from April 5, 2010 to December 29, 2010. Longship is a registered commodity trading advisor (NFA No. 0394287). In addition, Neilsen has been qualified as a Certified Public Accountant (“CPA”) 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. Neilsen was a founding member, chief financial officer and treasurer of Ulysses. Neilsen handled all of Ulysses’ day-to day financial decisions, including paying its bills. |
III. STATEMENT OF FACTS
9.
Neilsen and three non-respondents formed Ulysses as a self-described “third-party marketer” to solicit and refer prospective institutional investors to hedge funds. Two of the non-respondents resigned from Ulysses within several months of Ulysses’ inception and were never actively involved in Ulysses’ activities. The third non-respondent was Catherine Ann Sheridan (“Sheridan”), an individual whose address last known to the Commissioner is 1872 North Clybourn, Apt. #604, Chicago, Illinois 60614. Sheridan was a founding member, chief executive officer and control person of Ulysses until she resigned from Ulysses in 2010. Sheridan handled all of the marketing and networking functions at Ulysses, including traveling and meeting with potential money sources. Sheridan and Neilsen split revenues generated by Ulysses equally. Sheridan (CRD No. 1203915) was previously registered under the Act as a broker-dealer agent of Tradition from August 10, 2004 to July 2, 2007, and of Sound Securities from July 25, 2007, to October 7, 2010. Sheridan is currently registered with FINRA as a general securities representative, general securities principal, options principal and equity trader of North South Capital, LLC (CRD No. 148158) located at 200 W. Adams, Suite 2230, Chicago, Illinois 60606. Sheridan is also currently registered as an associated person (NFA No. 0418736) of PE Investments LLC, a commodity pool operator located at 75 State Street, 31st Floor, Boston, Massachusetts 02109 (NFA No. 0304985).
10.
During the relevant period of time, Neilsen, on behalf of Ulysses, paid Sheridan a monthly draw, in the form of checks signed by Neilsen, which represented Sheridan’s salary and reimbursement for Sheridan’s travel and business expenses related to her marketing and networking efforts for Ulysses. Sheridan utilized the money she received from Ulysses, which was approximately $2 million in total, for both business expenses and personal expenses unrelated to Ulysses.
11.
From approximately November 2005 through approximately December 2010, in order to finance Ulysses’ business expenses, Neilsen, individually and/or on behalf of Ulysses, offered and sold approximately $10 million of securities to at least ten Connecticut investors, the majority of whom were Neilsen’s CPA clients. Such securities took the form of promissory notes and investment agreements (“Ulysses Investments”), 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. Although Neilsen, on behalf of Ulysses, has partially repaid some of the investors, there is still an outstanding balance owed to investors of approximately $7 million dollars.
12.
Neilsen, individually and/or on behalf of Ulysses, induced Neilsen’s CPA clients to invest in Ulysses by representing to them that the investment was an excellent one that would generate a high rate of return.
13.
In connection with the offer and sale of the Ulysses Investments, Neilsen, individually and/or on behalf of Ulysses, did not provide investors with any offering document (other than the underlying promissory note or investment agreement), describing the business of Ulysses or disclosing any risks associated with investing in Ulysses.
14.
In connection with the offer and sales of the Ulysses Investments, Neilsen, individually and/or on behalf of Ulysses, failed to disclose to investors, inter alia: (a) the nature of Ulysses’ business; (b) the risks associated with investing in Ulysses; (c) that Ulysses used a portion of the offering proceeds to pay Sheridan a monthly draw; (d) that Sheridan used some of the monies she received from Ulysses to pay her personal monthly living expenses; and (e) the registration status of the Ulysses Investments.
ORDER TO MAKE RESTITUTION AND ORDER IMPOSING FINE
a. Violation of Section 36b-6(a) of the Act by Ulysses -
Unregistered Broker-dealer Activity
| 15. | Paragraphs 1 through 14, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 16. |
Ulysses transacted business as a broker-dealer in Connecticut absent registration, as more fully described in paragraphs 11 through 14, 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 Ulysses under Section 36b-27(a) of the Act, and for the imposition of a fine upon Ulysses under Section 36b-27(d) of the Act. |
b. Violation of Section 36b-6(a) of the Act by Neilsen –
Unregistered Broker-dealer Agent Activity
| 17. | Paragraphs 1 through 16, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 18. |
Neilsen transacted business as a broker-dealer agent of Ulysses in Connecticut absent registration, as more fully described in paragraphs 11 through 14, 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 Neilsen under Section 36b-27(a) of the Act, and for the imposition of a fine upon Neilsen under Section 36b-27(d) of the Act. |
c. Violation of Section 36b-16 of the Act by Respondents –
Sale of Unregistered Securities
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
Respondents offered and sold securities in or from Connecticut to at least ten investors, as more fully described in paragraphs 11 through 14, 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, an order that Respondents make restitution under Section 36b-27(b) of the Act, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the Act. |
d. Violation of Section 36b-4(a) of the Act by Respondents –
Fraud in Connection with the Offer, Sale
or Purchase of any Security
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
The conduct of Respondents, as more fully described in paragraphs 11 through 14, 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, an order that Respondents make restitution under Section 36b-27(b) of the Act, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the Act. |
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, Ulysses has committed at least one violation of Section 36b-6(a) of the Act, at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Neilsen has committed at least one violation of Section 36b-6(a) of the Act, at least one violation Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist, Order to Make Restitution 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 each Respondent;
WHEREAS, the Commissioner ORDERS that ULYSSES PARTNERS, LLC CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) transacting business as an unregistered broker-dealer in Connecticut; (2) offering and selling unregistered securities in or from Connecticut; and (3) 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;
WHEREAS, the Commissioner ORDERS that JAMES E. NEILSEN CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) transacting business as an unregistered broker-dealer agent in Connecticut; (2) offering and selling unregistered securities in or from Connecticut; and (3) 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;
WHEREAS, the Commissioner ORDERS that RESPONDENTS MAKE RESTITUTION of any sums obtained as a result of Respondents’ violations of Sections 36b-4(a) and 36b-16 of the Act, plus interest at the legal rate set forth in Section 37-1 of the General Statutes of Connecticut. Specifically, the Commissioner ORDERS that:
| 1. | Within thirty (30) days from the date this Order to Make Restitution becomes permanent, Respondents shall provide the Division with a written disclosure which contains (a) the name and address of each of the individuals investors who purchased the Ulysses Investments from November 2005 through December 2010, (b) the amount collected from each investor, (c) the date of each investment, and (d) the amount of any refunds of principal or purported interest payments made to each investor; |
| 2. | Within forty-five (45) days from the date this Order to Make Restitution becomes permanent, Respondents shall reimburse each investor the amount of funds collected from the investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to each investor’s purchase of the Ulysses Investments. Such restitution shall be made by certified check, and shall be sent by certified mail, return receipt requested, to each affected investor; and |
| 3. | Within ninety days (90) days from the date this Order to Make Restitution becomes permanent, Respondents shall provide the Division with proof in the form of copies of the certified checks and the return receipts required by paragraph 2 of Section V of this Order to Cease and Desist, Order to make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (collectively “Order”), that Respondents have reimbursed each investor the amount of funds collected from the investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to each investor’s purchase of the Ulysses Investments. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to 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. If a hearing is requested, the hearing will be held on March 4, 2014, 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.
This Order to Make Restitution 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 9th day of January 2014. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 9th day of January 2014, the foregoing Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Ulysses Partners, LLC, c/o Brian Woolf, Esq., Woolf Law Firm, LLC, 50 Founders Plaza, East Hartford, Connecticut 06108, certified mail no. 7012 3050 0002 1692 6255; and James E. Neilsen, c/o Brian Woolf, Esq., Woolf Law Firm, LLC, 50 Founders Plaza, East Hartford, Connecticut 06108, certified mail no. 7012 3050 0002 1692 6262.
| ____/s/___________ |
| Elena Zweifler |
| Prosecuting Attorney |