Securities and Business Investments Division
Securities Bulletin
Vol. XIV  No. 3	Fall 2000

Features:

• A Word from the Banking Commissioner
• Commissioner Issues Order Governing
  Foreign Broker-dealers Exempt from SEC Registration
• Commissioner Sets Out Guidelines for IARD Implementation
• Third Quarter Statistical Summary

Enforcement Highlights:

• Settlements
• Civil Litigation

Contributors:

Ralph Lambiase, Division Director

Cynthia Antanaitis, Assistant Director and Bulletin Editor

Eric Wilder, Assistant Director

Marge Kagan, Subscription Coordinator

A WORD FROM THE BANKING COMMISSIONER

The Securities Division successfully presented its 12th annual Securities Forum conference in October as a means to provide industry, the bar association and others with up-to-date information on new regulatory developments. We were pleased to have as our keynote speaker Deborah Bortner, the new President of the North American Securities Administrators Association ("NASAA") and the Director of Securities for the Washington State Department of Financial Institutions. In her remarks, Ms. Bortner discussed both the challenges and the opportunities that rapidly evolving technology poses for industry and regulators. One beneficial development triggered by technology is the new Internet-based Investment Adviser Registration Depository, or IARD, operated by NASD under contracts with the SEC and NASAA.

Designed to accept electronic filings from investment advisers, and eventually investment adviser agents, the IARD promises to make the licensing process more efficient. At the same time, the IARD will further our goal of seeking uniformity in state regulation. In addition, the IARD will provide the investing public with easy web access to background information, including critical disciplinary history, on investment advisory personnel. Such information would be comparable to that now publicly available with respect to broker-dealer firms and their agents.

For these reasons, I signed an order in September adopting the SEC's revisions to Part 1 of Form ADV in Connecticut and providing guidance on use of the new IARD. Effective January 1, 2001, SEC-registered investment advisers will be required to use the IARD to make their Connecticut notice filings and remit notice filing fees. On that date, state-registered investment advisers would have the option to either file Part 1 of Form ADV electronically through the IARD or continue to make a paper filing with the department. I would encourage state-registered investment advisers to take advantage of this evolving technology in January. We are hopeful that the IARD will be able to accommodate the electronic filing of Part 2 of Form ADV within the next year as well as the filing of investment adviser agent registrations. In the meantime, we are actively participating in the IARD pilot program, and bringing our staff up to speed to ensure a smooth transition for you, the investment advisory community.

Connecticut prides itself on opening its economic doors to domestic and international financial services firms while maintaining a commitment to protect local investors. Adopting a course parallel to that of the SEC, I signed an order in August, 2000 that granted foreign-based broker-dealers an exemption from Connecticut licensing so they could provide accommodation services to their customers temporarily in the state.

ORDER GOVERNING TRANSACTIONS BY
FOREIGN BROKER-DEALERS EXEMPT FROM FEDERAL REGISTRATION
AND TRANSACTIONS EXEMPT UNDER SEC RULE 237

WHEREAS the Commissioner of Banking (the "Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, as amended by P.A. 00-61, (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-31(a) of the Act provides that "[t]he commissioner may from time to time make ... such ... orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including ... orders governing registration statements, applications, and reports, and defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes.";

WHEREAS Section 36b-31(b) of the Act adds that "[n]o ... order may be made, amended or rescinded 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-33, inclusive. In prescribing ... orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of said sections to achieve maximum uniformity in the form and content of registration statements, applications and reports wherever practicable.

WHEREAS Section 36b-6(a) of the Act provides, in part, that "[n]o person shall transact business in this state as a broker-dealer unless he is registered under ... [the Act]. No individual shall transact business as an agent in this state unless he is ... registered as an agent of the broker-dealer ... whom he represents in transacting such business";

WHEREAS Section 36b-3(5) of the Act states, in part, that the term "broker-dealer" means "any person engaged in the business of effecting transactions in securities for the account of others or for his own account. 'Broker-dealer' does not include ... (E) such other persons not within the intent of this subdivision as the Commissioner may by ... order determine";

WHEREAS the United States Securities and Exchange Commission (the "SEC") has promulgated Rule 15a-6 under the Securities Exchange Act of 1934 (the "'34 Act") exempting foreign brokers and dealers engaging in specific transactions from the registration requirements of Sections 15(a)(1) and 15B(a)(1) of the '34 Act;

WHEREAS Rule 15a-6 would exempt, without limitation, a foreign broker-dealer engaging in one or more of the following transactions: 1) effecting transactions in securities with or for persons that have not been solicited by the foreign broker or dealer; 2) subject to certain conditions, inducing or attempting to induce the purchase or sale of any security by a "U.S. institutional investor" or a "major U.S. institutional investor" as those terms are defined in the rule; and 3) effecting transactions in securities with or for, or inducing or attempting to induce the purchase or sale of any security by a foreign person temporarily present in the United States with whom the foreign broker or dealer had a bona fide, pre-existing relationship before the foreign person entered the United States;

WHEREAS on June 7, 2000, the SEC entered an Order (hereinafter, the "Canadian Broker-dealer Order") granting Canadian broker-dealers servicing "Canadian Retirement Accounts", as defined in Rule 237 under the Securities Act of 1933 (the "'33 Act") a narrow exemption from the broker-dealer registration requirement in Section 15(a)(1) of the '34 Act to enable them "to conduct activities necessary to allow individuals, who have established Canadian Retirement Accounts and later moved to the U.S., to effectively manage the assets in those accounts" (Release No. 34-42906);

WHEREAS Section 36b-16 of the Act provides, in part, that: "No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, 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";

WHEREAS Section 36b-21(b)(17) of the Act provides that: The following transactions are exempted from sections 36b-16 and 36b-22 ... any other transaction that the commissioner may exempt, conditionally or unconditionally, on a finding that registration is not necessary or appropriate in the public interest or for the protection of investors";

WHEREAS the SEC has promulgated Rule 237 exempting from the securities registration requirements of Section 5 of the '33 Act offers and sales of Eligible Securities, as defined in the Rule to certain Canadian tax-deferred retirement accounts, including, without limitation Registered Retirement Savings Plans and Registered Retirement Income Funds administered and established under Canadian law to provide for qualified tax-deferred treatment;

WHEREAS the Commissioner finds that the entry of this Order, which recognizes the increasing globalization of the securities markets and the need for state and federal uniformity, is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act";

WHEREAS the Commissioner determines, pursuant to Section 36b-3(5)(E) of the Act, that those broker-dealers meeting the criteria set forth in this Order do not fall within the intent of Section 36-3(5) of the Act;

WHEREAS the Commissioner also finds that the registration under Section 36b-16 of the Act of securities transactions effected in accordance with SEC Rule 237 is not necessary or appropriate in the public interest or for the protection of investors.

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS:

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WHEREAS the Commissioner of Banking (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, as amended by P.A. 00-61 (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-6(c) of the Act states, in part, that: "No person shall transact business as an investment adviser, within or from this state, unless registered as such by the commissioner as provided in sections 36b-2 to 36b-33, inclusive, or exempted pursuant to subsection (e) of this section. No individual shall transact business as an investment adviser agent, within or from this state, unless he is registered as an investment adviser agent of the investment adviser for whom he acts in transacting such business";

WHEREAS Section 36b-32(a) of the Act provides that: "A document is filed when it is received by the commissioner or any other person designated in writing by the commissioner";

WHEREAS on July 25, 1997, the Commissioner issued a Notice (Impact Of The National Securities Markets Improvements Act of 1996 On Investment Advisers) (the "Notice") prescribing the Connecticut filing requirements for investment advisers registered with the Securities and Exchange Commission (the "SEC") following enactment of P.L. 104-290, the National Securities Markets Improvement Act of 1996 ("NSMIA");

WHEREAS the Notice required that SEC-registered investment advisers making an initial notice filing include: an executed Form ADV with all schedules as filed with the SEC, including new Schedule I (Schedule for Declaring Eligibility for SEC Registration); and updates corresponding in form and frequency to SEC-filed amendments where the updates affected the investment adviser's operations in Connecticut (e.g., name or address change; change in contact person);

WHEREAS the Notice also provided that SEC-registered investment advisers seeking to renew a notice filing should file an executed page 1 of Form ADV, together with their most recent Schedule I and the $150 renewal fee;

WHEREAS on September 12, 2000, the SEC issued Release No. IA-1897 (Electronic Filing by Investment Advisers; Amendments to Form ADV; File No. S7-10-00) which, effective October 10, 2000 and among other things, revised Part 1 of Form ADV to eliminate Schedule I and Schedule E, revised Form ADV-W and mandated that SEC-registered investment advisers file Part 1 of Form ADV electronically with the SEC through the Investment Adviser Registration Depository (the "IARD") commencing January 1, 2001;

WHEREAS in Release No. IA-1897, the SEC deferred the adoption of amendments to Part 2 of Form ADV, stating that, Part 2, if maintained by SEC-registered investment advisers, would be deemed "filed" with the SEC for purposes of SEC Rule 203-1(b)(2);

WHEREAS Release No. IA-1897 contemplated that the IARD would be capable of accepting filings and fees for investment adviser agents at a future date;

WHEREAS the IARD is an Internet-based filing depository operated by NASD Regulation, Inc. ("NASDR") under contracts with the SEC and the North American Securities Administrators Association ("NASAA") which depository is designed to accept filings made electronically by SEC-and state registered investment advisers as well as their investment adviser agents; collect associated regulatory filing fees on behalf of affected jurisdictions; and provide the investing public with Internet-based access to background information on state and federally regulated investment advisory personnel;

WHEREAS Section 36b-7 of the Act provides, in part, that: "A[n] ... investment adviser or investment adviser agent may obtain an initial or renewal registration by filing with the commissioner or other depository as the commissioner may by regulation or order designate an application together with a consent to service of process pursuant to subsection (g) of section 36b-33. The application shall contain such information as the commissioner may require";

WHEREAS Section 36b-12(a) of the Act states that: "Each person applying for registration as ... [an] investment adviser shall pay to the commissioner or to any person designated by the commissioner in writing to collect such fee on his behalf a fee of two hundred fifty dollars which shall not be refunded";

WHEREAS Section 36b-12(b) of the Act states, in part, that: "Each person applying for registration as an ... investment adviser agent shall pay to the commissioner or to any person designated by the commissioner to collect such fee on his behalf a fee of fifty dollars which shall not be refunded";

WHEREAS Section 36b-12(d) of the Act provides, in part, that: "Each person registered as an ... investment adviser agent, requesting transfer of his registration to another registered ... investment adviser, shall pay to the commissioner or to any person designated by the commissioner in writing to collect such fee on his behalf a fee of fifty dollars for each transfer requested";

WHEREAS Section 36b-13(a) of the Act states that: "Each person registered as ... [an] investment adviser may renew such registration for a one-year period not later than December thirty-first of each calendar year by making application in such manner as prescribed by the commissioner. The fee for renewal of registration for each registered ... investment adviser shall be one hundred fifty dollars per renewal application, nonrefundable, payable at the time of renewal, and shall be submitted, together with the renewal application, to the commissioner or any person designated in writing by the commissioner to collect such fee on his behalf";

WHEREAS Section 36b-13(b) of the Act adds that: "Each person registered as an ... investment adviser agent may renew such registration for a one-year period by December thirty-first of each calendar year by making application in such manner as prescribed by the commissioner. The fee for renewal of registration for each person registered as an ... investment adviser agent shall be fifty dollars, nonrefundable, payable at the time of renewal, and shall be submitted, together with the renewal application, to the commissioner or any person designated in writing by the commissioner to collect such fee on his behalf";

WHEREAS Section 36b-31-14e(a) of the Regulations provides that: "If the information contained in any application for registration as ... [an] investment adviser or investment adviser agent, or in any amendment thereto, is or becomes inaccurate or incomplete in any material respect for any reason, the applicant or registrant shall promptly file a correcting amendment with the commissioner";

WHEREAS Section 36b-31-31a(a) of the Regulation provides that: "The following forms, as amended from time to time, are prescribed for use under the Act ... (9) Uniform Application for Registration as Investment Adviser or to Amend such an Application (Form ADV) [and] (10) Uniform Notice of Withdrawal from Registration as an Investment Adviser (Form ADV-W)";

WHEREAS Section 36b-31(a) of the Act states, in part, that: "The commissioner may from time to time make, amend and rescind such ... forms and orders as are necessary to carry out the provisions of ... [the Act], including ... forms and orders governing ... applications, and reports, and defining any terms, whether or not used in ... [the Act], insofar as the definitions are not inconsistent with the provisions of ... [the Act]. For the purpose of ... forms and orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes";

WHEREAS Section 36b-31(b) of the Act provides that: "No ... form or order may be made, amended or rescinded 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 ... [the Act]. In prescribing ... forms and orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of ... [the Act] to achieve maximum uniformity in the form and content of .... applications and reports wherever practicable";

WHEREAS Section 36b-31(c) of the Act adds that: "To encourage uniform interpretation and administration of ... [the Act] and effective securities regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of other states ... [and] the Securities and Exchange Commission ...The cooperation authorized by this subsection includes, but is not limited to, the following actions: (1) Establishing central depositories for the registration of ... securities industry personnel under ... [the Act], and for documents or records required or allowed to be filed with or maintained by the commissioner under ... [the Act]";

WHEREAS the Commissioner finds that the issuance of this Order and the prescription of forms described herein are 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 the Act;

NOW THEREFORE THE COMMISSIONER ORDERS AS FOLLOWS:

Settlements

Civil Litigation

STATISTICAL SUMMARY

The Securities and Business Investments Division is also charged with
administering the Connecticut Business Opportunity Investment Act.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year to Date Business Opportunities Investigations Opened 5 3 7 15 Investigations Closed 3 5 8 16 Investigations ongoing as of September 30, 2000 10 8 7 Cases referred by Attorney General 0 0 1 1 Cases referred by Other Agencies 0 0 0 0 Subpoenas issued 0 0 0 0 Cease and Desist Orders 5 0 0 5 Notices of Intent to Issue Stop Order 0 0 0 0 Stop Orders 0 0 0 0 Notices of Intent to Fine 5 0 0 5 Orders Imposing Fine 0 2 0 2 Monetary Sanctions Imposed 0 $20,000 0 $20,000 Voluntary Restitution 0 $22,220 0 $22,220 Criminal Referrals (Chief State's Attorney) 0 0 0 0 Civil Referrals (Attorney General) 0 0 0 0 Other Agency Referrals 0 0 1 1

Securities Division