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ORDER TO CEASE AND DESIST ORDER TO MAKE RESTITUTION AND NOTICE OF RIGHT TO HEARING DOCKET NO. CRF-18-8268-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 reason to believe that a basis exists to issue a cease and desist order against Respondents pursuant to Section 36b-27(a) of the 2018 Supplement to the General Statutes (“2018 Supplement”). |
| 5. |
As a result of the Investigation, the Commissioner has reason to believe that a basis exists to order that Respondents make restitution pursuant to Section 36b-27(b) of the 2018 Supplement. |
| 6. | As a result of the Investigation, the Commissioner has reason to believe that a basis exists to impose a fine upon Respondents pursuant to Section 36b-27(d) of the 2018 Supplement. |
II. RESPONDENTS
| 7. |
Christopher Murphy (“Murphy”) is an individual whose address last known to the Commissioner is 2840 West Bay Drive, #212, Belleair Bluffs, Florida 33770. Murphy is not and has not been registered in any capacity under the Act. |
| 8. | Vir-Sec, Inc. (“Vir-Sec”) is a currently inactive Delaware corporation involved in the development of internet security software. Vir-Sec’s principal place of business and address last known to the Commissioner is 2840 West Bay Drive, #212, Belleair Bluffs, Florida 33770. During all relevant times, Murphy was the control person and President of Vir-Sec. |
III. STATEMENT OF FACTS
9.
On February 20, 2009, Vir-Sec, as issuer, filed with the Division an exemption from securities registration pursuant to Section 4(2) (now Section 4(a)(2)) of the Securities Act of 1933 exempting the sale of Vir-Sec common stock pursuant to Section 36b-21(b)(10) of the Act.
10.
In approximately March 2012, Murphy, on behalf of Vir-Sec, gave a PowerPoint presentation at a hotel in Connecticut regarding Vir-Sec’s security and encryption technology, wherein Murphy solicited individuals to invest in Vir-Sec. Murphy made several representations about Vir-Sec, including that an investment in Vir-Sec would be profitable. Approximately 30 to 40 individuals who were not affiliated in any way with Vir-Sec attended this presentation.
11.
As a result of this presentation, in approximately April 2012, at least one Connecticut investor (“Investor A”) was provided with a Subscription Agreement from Vir-Sec (“Vir-Sec Subscription Agreement”) for the purchase of Vir-Sec common stock. However, Investor A did not receive any offering documents, such as a private placement memorandum, or have access to any information regarding Vir-Sec other than what was contained in the Vir-Sec Subscription Agreement. Importantly, Respondents failed to provide Investor A with complete material information regarding Vir-Sec and the offering that would have enabled Investor A to make an informed investment decision. Such information included, inter alia, (a) information relating to Vir-Sec’s financial condition; (b) the specific risks associated with investing in Vir-Sec; and (c) background information on Vir-Sec’s officers and directors and their compensation.
12.
Section 4(2) of the Securities Act of 1933 as judicially and administratively construed, does not permit the use of general solicitation. Consequently, Vir-Sec and Murphy’s general solicitation of Vir Sec to Connecticut investors in 2012 voided any potential Section 4(2) exemption Vir Sec could claim in conjunction with its offering.
ORDER TO MAKE RESTITUTION, AND ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act by Respondents –
Offer and/or Sale of Unregistered Securities
| 13. | Paragraphs 1 through 12, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 14. |
Respondents offered and sold unregistered nonexempt securities in or from Connecticut to at least one investor, as more fully described in paragraphs 8 through 12, inclusive. The offer and sale of such securities absent registration or exemption 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 2018 Supplement, an order of restitution to be issued against Respondents under Section 36b-27(b) of the 2018 Supplement, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the 2018 Supplement. |
b. Violation of Section 36b-4(a)(2) of the Act by Respondents –
Fraud in Connection with the Offer, Sale or Purchase of any Security
| 15. | Paragraphs 1 through 14 inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 16. |
The conduct of Respondents, as more fully described in paragraphs 10 and 11 constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly 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. Such conduct constitutes a violation of Section 36b-4(a)(2) 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 2018 Supplement, an order of restitution to be issued against Respondents under Section 36b-27(b) of the 2018 Supplement, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the 2018 Supplement. |
V. ORDER
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, Murphy has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a)(2) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Vir-Sec has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a)(2) 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 each Respondent that the Commissioner intends to impose a fine not to exceed the maximum allowed by statute of one hundred thousand dollars ($100,000) per violation upon each Respondent;
WHEREAS, the Commissioner ORDERS that CHRISTOPHER MURPHY CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered nonexempt securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly 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;
WHEREAS, the Commissioner ORDERS that VIR-SEC, INC. CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) offering and selling unregistered nonexempt securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly 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;
WHEREAS, the Commissioner ORDERS that RESPONDENTS MAKE RESTITUTION of any sums obtained as a result of Respondents’ violations of Sections 36b-4(a)(2) 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 covers the period from March 1, 2012 to the date this Order to Make Restitution becomes permanent and which contains (a) the name and address of each investor, (b) the amount Respondents collected from each investor, and (c) the amount of any refunds of principal or purported interest payments Respondents 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 made to the investor, with respect to all transactions effected from March 1, 2012 to the date this Order to Make Restitution becomes permanent. 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 each such investor plus interest, less funds returned in the form of purported refunds of principal and purported interest payments, with respect to all transactions effected from March 1, 2012 to the date this Order to Make Restitution becomes permanent. |
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to Section 36b-27 of the 2018 Supplement, 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. To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form 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”. If a hearing is requested, the hearing will be held on August 30, 2018, 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.
If any Respondent does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein against any such Respondent will be deemed admitted. Accordingly, the Order to Cease and Desist and Order to Make Restitution shall remain in effect and become permanent against any such Respondent and the Commissioner may order that the maximum fine be imposed upon any such Respondent.
| Dated at Hartford, Connecticut, | ____/s/_____________ | |
| this 20th day of July 2018. | Jorge L. Perez | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 20th day of July 2018, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing to: Christopher Murphy at: 2840 West Bay Drive, #212, Belleair Bluffs, Florida 33770, certified mail no. 7016 2710 0000 5896 8776; P.O. Box 449, Largo, Florida 33779 0449, certified mail no. 7016 2710 0000 5896 8783; and 158 Sand Key Estates Drive, Clearwater Beach, Florida 33767-2981, certified mail no. 7016 2710 0000 5896 8790; and Vir-Sec, Inc., 2840 West Bay Drive, #212, Belleair Bluffs, Florida 33770, certified mail no. 7016 2710 0000 5896 8806.
| ___/s/____ |
| W. C. Hall |
| Paralegal |