Securities and Business Investments Division
Securities Bulletin
Vol. XV  No. 4	Winter, 2001

Features:

• A Word from the Banking Commissioner
• Joint and Several Liability Undertaking Waived for Certain Employers of Agents Seeking Multiple Registration
• Policy on Posting of Administrative Orders and Settlements to the Agency's Web Site
• Fourth Quarter Statistical Summary

Enforcement Highlights:

• Administrative Actions
• Settlements
• Conditional Registrations

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

As this edition of the Securities Bulletin is being prepared for publication, the lead story in nearly all media outlets continues to be the landmark collapse of Enron Corporation. By all indications, investors may have lost billions of dollars following the company's swift downfall. It is harder to measure the devastating impact of the company's failure on the integrity of the marketplace, as issues involving the credibility of corporate officers and the public's trust in auditors arise.

According to a report from a special investigative committee of the board of Enron Corporation, the company used partnerships "… to accomplish favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk." The report added, "Enron's publicly-filed reports disclosed the existence of [various] partnerships. … However, these disclosures were obtuse, did not communicate the essence of the transactions completely or clearly, and failed to convey the substance of what was going on between Enron and the partnerships." As a result, Enron reported recent profits that were substantially inflated.

When investors cannot determine what companies actually earn and cannot judge how their stocks should be fairly priced, their confidence in the marketplace, so important to the vitality of our economy, inevitably suffers. It is my hope that the various criminal, regulatory and Congressional investigations into the Enron collapse will result in appropriate and meaningful reform that will fully restore investors' confidence that they will not be misled, taken advantage of or defrauded in the marketplace.

The topic of investors "flipping" IPO shares and firms' reaction to the practice has also recently been in the business news. Various firms have enacted anti-flipping rules as a means of cultivating investors with long-term perspectives. Such measures, in themselves, do not raise any regulatory issues.

A related issue worth exploring, however, is whether individual and institutional investors are subject to differing and disparate treatment. Are institutional investors subject to the same anti-flipping rules that apply to individual investors? If not, are firms justified in urging individual investors to take a long-term approach when institutional investors can freely flip their shares? Regulatory scrutiny need not always result in a regulatory response. We hope that industry can establish a best practice regarding this issue that treats all market participants equitably.

ORDER EXEMPTING EMPLOYERS OF AGENTS SEEKING MULTIPLE REGISTRATION FROM THE JOINT AND SEVERAL LIABILITY UNDERTAKING IN SECTION 36b-31-6g(c)  OF THE REGULATIONS UNDER THE CONNECTICUT UNIFORM SECURITIES ACT

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 (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, in part, that: "The 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 ... applications ... 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 provides 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-33, inclusive";

WHEREAS the Commissioner finds that the issuance of this 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 the Act;

WHEREAS Section 36b-31-6g of the Regulations provides, in part, that:

WHEREAS Section 36b-29(c) of the Act imposes joint and several liability as a matter of law on control persons and on broker-dealers who materially aid in an act or transaction constituting a violation of the Act. Section 36b-29(c) states, in part, that: "Every person who directly or indirectly controls a person liable under subsections (a) and (b) of this section … and every broker-dealer … who materially aids in the act or transaction constituting the violation are also liable jointly and severally with and to the same extent as such person, unless the person who is so liable sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There shall be contribution as in cases of contract among the several persons so liable";

WHEREAS Section 36b-29(j) of the Act adds that: "[t]he rights and remedies provided by sections 36b-2 to 36b-33, inclusive, [of the Act] are in addition to any other rights or remedies that may exist at law or in equity";

WHEREAS Section 36b-27(c) of the Act imposes joint and several liability upon control persons in administrative disgorgement and restitutionary proceedings. Section 36b-27(c) states, in part, that: "The commissioner, in the commissioner's discretion, may order any person who directly or indirectly controls a person liable under subsection (b) of this section to make restitution or to provide disgorgement of any sums shown to have been obtained as a result of a dishonest or unethical practice or in violation of any of the provisions of sections 36b-2 to 36b-33, inclusive, or any regulation, rule or order adopted or issued under said sections. Such controlling person shall be liable jointly and severally with and to the same extent as the person liable under subsection (b) of this section, unless such controlling person allegedly liable under this subsection sustains the burden of proof that such person did not know, and in the exercise of reasonable care could not have known, of the existence of facts by reason of which the liability is alleged to exist";

WHEREAS Section 36b-31-31c of the Regulations provides that: "The commissioner may exempt a person ... from a specified provision of ... the regulations upon a finding that such exemption is in the public interest";

WHEREAS the Commissioner finds that granting the related exemptive relief set forth in this Order is in the public interest since it reduces the regulatory burden on certain employers of applicants for multiple registration;

NOW THEREFORE THE COMMISSIONER ORDERS AS FOLLOWS:

Like the Securities and Exchange Commission, NASD Regulation, Inc., the New York Stock Exchange and fellow state securities regulators, the Department of Banking posts agency administrative orders and settlements relating to securities matters on the Internet. 

The department's securities-related administrative orders and settlements are public documents, and they have always been readily available upon request.

The Internet allows the agency to make this public information accessible to all of its customers quickly and conveniently. Customers benefiting from the efficient delivery of this information include the securities industry, the bar, the news media and fellow regulators. We're pleased that the number of visitors to our Web site has increased, and that we have also witnessed growth in the number of visitors viewing administrative orders and settlements. This tells us that our Web posting service is meeting a public need.

It is our policy to retain securities and other agency administrative orders and settlements on our Internet Web site for a period of ten years, after which time they will be removed from our Web archive. We post administrative orders and settlements in full text form to allow viewers complete access to matters of interest. Visitors to our Web site may locate securities-related orders and settlements by scanning lists organized by the year the order or settlement was issued, or by using a search form that queries all orders and settlements. Presently, there are approximately 250 securities-related orders and settlements, dating back to 1998, on our Web site.

Our Web site also contains a prominent disclaimer regarding posted administrative orders. The disclaimer advises visitors that some orders may involve allegations that may be contested in a hearing and which are not yet resolved. The disclaimer further adds that administrative proceedings may, in the end, be resolved in favor of the firm or individual named as a party, or they may be concluded through a negotiated settlement with no admission of wrongdoing.

We encourage Web site visitors to contact the department if they with to obtain further information on a matter addressed in an administrative order.

Administrative Actions

First Providence Financial Group, LLC (CRD # 39469) - Broker-dealer Registration Revoked for Failure to Pay Fine

On December 19, 2001, the Banking Commissioner entered an Order Revoking Registration as Broker-dealer (Docket No. NRF 2001-5482-S) with respect to First Providence Financial Group, LLC of 90 Broad Street, 10th Floor, New York, New York.

First Providence Financial Group, LLC had been the subject of a November 27, 2000 Corrected Financial Decision and Final Order fining the firm $30,000 for violating the Connecticut Uniform Securities Act. Since the respondent failed to pay the $30,000 fine within the prescribed time period, the Commissioner issued a Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing on January 3, 2001. Ensuing litigation resulted in the Superior Court for the Judicial District of New Britain (Administrative Appeals Court) issuing a November 15, 2001 Memorandum of Decision holding that the firm violated Sections 36b-14(d) and 36b-15(a)(2)(H) of the Connecticut Uniform Securities Act as well as Section 36b-31-6f(b) of the Regulations under the Act (First Providence Financial Group, LLC v. John P. Burke et al., Docket No. CV-01-506208S).

On December 5, 2001, the Commissioner entered into a Settlement Agreement with the respondent. Pursuant to the Settlement Agreement, the respondent paid a $20,000 fine to the Office of the Attorney General, acting on behalf of the Banking Commissioner, and agreed not to contest the revocation of its broker-dealer registration in Connecticut. The firm's broker-dealer registration was formally revoked on December 19, 2001. Also on December 19, 2001, the Commissioner issued an Order withdrawing the January 3, 2001 Notice of Intent to Fine.

Drexel Aqua Technologies, Inc. Fined $10,000

On November 14, 2001, the Banking Commissioner entered an Order Imposing Fine (Docket No. CF-2001-6228-S) against Drexel Aqua Technologies, Inc. of 47 Florida Street, Farmingdale, New York. The concern had been the subject of a July 9, 2001 Order to Cease and Desist based upon similar facts. The Order to Cease and Desist, being uncontested, had become permanent on September 13, 2001.

In fining Drexel Aqua Technologies, Inc. $10,000 the Commissioner found that from at least March 1999 forward, the respondent sold shares of its unregistered non-exempt common stock through at least one unregistered agent of issuer in violation of Sections 36b-16 and 36b-6(b) of the Connecticut Uniform Securities Act. Drexel Aqua Technologies, Inc. did not appear or contest the imposition of the fine.

Donald R. Bisson (CRD # 817246) Ordered to Cease and Desist From Alleged Violations in Connection With Promissory Note Sales; Notice of Intent to Fine Issued

On November 7, 2001, the Banking Commissioner entered an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2001-6110-S) against Donald R. Bisson of Windsor, Connecticut. The Order to Cease and Desist and Notice of Intent to Fine claimed that, from January 1999 to December 1999, while employed as a broker-dealer agent of Bannon, Ohanesian & Lecours, Inc., respondent Bisson sold at least $60,000 of promissory notes issued by Pacific Air Transport, Inc., Corlogic Corporation, Quality Automotive Enterprises, LLC and Technical Support Services, Inc. The respondent allegedly sold the notes outside the scope of his employment with Bannon, Ohanesian & Lecours, Inc. and without notice to the brokerage firm in violation of Section 36b-31-6e of the Regulations under the Connecticut Uniform Securities Act. The Order to Cease and Desist and Notice of Intent to Fine also alleged that, in selling the notes, the respondent 1) transacted business as an unregistered agent of the issuers involved in violation of Section 36b-6(a) of the Connecticut Uniform Securities Act; and 2) violated Section 36b-16 of the Act by offering and selling unregistered, non-exempt securities.

The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine is pending.

Edward F. O'Hara (CRD # 1601797) Ordered to Cease and Desist From Unregistered Activity in Conjunction With Promissory Note Sales; Notice of Intent to Fine Issued

On October 9, 2001, the Banking Commissioner entered an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2001-6115-S) against Edward F. O'Hara of Wallingford, Connecticut. The action alleged that, from at least April 1997 forward, the respondent sold unregistered non-exempt promissory notes of Lifeblood Biomedical, Inc., Canko Environmental Technologies, Inc., Ameritech Petroleum, Inc. and ALumaLex, Inc. f/k/a Auto Shutter, Inc. in violation of Section 36b-16 of the Connecticut Uniform Securities Act and without registering as an agent of the issuers under the Act. In addition, the Order to Cease and Desist and Notice of Intent to Fine claimed that, from at least October 1998 forward, the respondent violated the Act by selling unregistered non-exempt shares of Palm Beach Investment Group, Inc. preferred stock in Connecticut; by transacting business as an unregistered broker- dealer in connection with the preferred stock sales; and by employing unregistered broker-dealer agents.

Since the respondent did not request a hearing on the Order to Cease and Desist, the Order to Cease and Desist became permanent on December 3, 2001. A hearing on the Notice of Intent to Fine is pending.

Paul A. Golub (CRD # 1001665) Ordered to Cease and Desist From Unregistered Activity in Conjunction With Promissory Note Sales; Notice of Intent to Fine Issued

On October 9, 2001, the Banking Commissioner entered an Order to Cease and Desist and Notice of Intent to Fine (Docket No. CF-2001-6114-S) against Paul A. Golub of Middlefield, Connecticut. The action alleged that, from at least April 1997 forward, the respondent sold unregistered non-exempt promissory notes of Lifeblood Biomedical, Inc., Canko Environmental Technologies, Inc., Ameritech Petroleum, Inc. and ALumaLex, Inc. f/k/a Auto Shutter, Inc. in violation of Section 36b-16 of the Connecticut Uniform Securities Act and without registering as an agent of the issuers under the Act. In addition, the Order to Cease and Desist and Notice of Intent to Fine claimed that, from at least October 1998 forward, the respondent violated the Act by selling unregistered non-exempt shares of Palm Beach Investment Group, Inc. preferred stock in Connecticut; by transacting business as an unregistered broker- dealer in connection with the preferred stock sales; and by employing unregistered broker-dealer agents.

The respondent was afforded an opportunity to request a hearing on the Order to Cease and Desist. A hearing on the Notice of Intent to Fine is pending.

Settlements

The Seidler Companies, Inc. (CRD # 3911) Assessed $13,100 for Unregistered Broker-dealer Activity

On December 19, 2001, the Banking Commissioner entered a Consent Order (File No. CO-01-6389-S) with respect to The Seidler Companies, Inc., an applicant for broker-dealer registration located at 515 South Figueroa Street, Suite 1100, Los Angeles, California. The Commissioner maintained that the firm's broker-dealer registration had disclosed, and the department's investigation confirmed, that at various time from 1996 to 2000, the firm had serviced five or fewer individual accounts and several institutional and corporate accounts in Connecticut at a time when neither the firm nor the agents were registered under the Connecticut Uniform Securities Act.

The Consent Order required that the firm pay $13,100 to the department. Of that amount, $10,000 constituted an administrative fine, $2,100 represented reimbursement for past due registration fees and $1,000 constituted reimbursement for agency investigative costs. The Consent Order also mandated that the firm implement revised supervisory and compliance procedures designed to improve the monitoring of state broker-dealer and agent licensing requirements. In addition, the Consent Order obligated the firm to file quarterly reports for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents.

The firm became registered as a broker-dealer in Connecticut on December 19, 2001.

Electronic Trading Group, L.L.C. a/k/a ETG, L.L.C. (CRD # 37453) Assessed $7,500 for Unregistered Branch Activity

On December 19, 2001, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-01-6276-S) with Electronic Trading Group, L.L.C. a/k/a ETG, L.L.C., a Connecticut-registered broker-dealer having its principal office located at 111 Broadway, New York, New York. The Stipulation and Agreement alleged that 1) from approximately 1998 to January 2001, the firm transacted business from 440 Main Street in Ridgefield prior to that location being registered as a branch office under the Connecticut Uniform Securities Act; 2) that the firm continued to transact business from the site notwithstanding more than one written notice by the department that such conduct could be construed as a wilful violation of the Act; and 3) from approximately 1998 through April 2001, the firm knowingly employed unregistered agents from the Ridgefield office in alleged contravention of Section 36b-6(b) of the Act.

The Stipulation and Agreement required that the firm pay $7,500 to the department. Of that amount $5,000 constituted an administrative fine, $750 represented reimbursement for past due registration fees; and $1,750 represented reimbursement for agency investigative costs. The Stipulation and Agreement also required that the firm revise and implement supervisory and compliance procedures designed to prevent and detect violations of the branch office registration provisions of the Connecticut Uniform Securities Act and its regulations.

Marathon Financial Group, Inc. (CRD # 41181) Assessed $6,950 in Conjunction With Unregistered Broker-dealer Activity

On December 10, 2001, the Banking Commissioner entered a Consent Order (File No. CO-01-6351-S) with respect to Marathon Financial Group, Inc., an applicant for broker-dealer registration under the Connecticut Uniform Securities Act. The firm maintains its principal office at 150 South Wacker Drive, Chicago, Illinois. The Consent Order alleged that, in at least two instances in 2000, the firm transacted business as a broker-dealer absent registration in violation of Section 36b-6(a) of the Act. The Commissioner acknowledged the firm's representations that the investors in questions were accredited and had formerly been employed in the securities industry.

The Consent Order required that the firm furnish proof that it had advised the investors of their statutory rights and remedies under the state's securities laws, and directed the firm to implement revised supervisory and compliance procedures designed to improve regulatory compliance. The Consent Order also required that the firm provide quarterly reports for two years concerning any securities-related complaints, actions or proceedings involving Connecticut residents. In addition, the Consent Order required that the firm pay $6,950 to the department. Of that amount, $5,000 constituted an administrative fine, $1,500 constituted reimbursement for division investigative costs and $450 represented reimbursement for past due registration fees.

Marathon Financial Group became registered as a broker-dealer under the Act on December 10, 2001.

Royal Alliance Associates, Inc. (CRD # 23131) Assessed $14,500 for Violating Prior Stipulation and Agreement; Transacting Business from Unregistered Branch Offices

On December 10, 2001, the Banking Commissioner entered a Consent Order (File No. CO-01-6315-S) with respect to Royal Alliance Associates, Inc. of 733 Third Avenue, New York, New York. The Consent Order claimed that, commencing in 1994 and 1995, respectively, the firm transacted business from two unregistered branch offices in violation of Section 36b-6(d) of the Connecticut Uniform Securities Act. The offices were located at 66 Crown Street in Trumbull and 320 West Hill Road in Stamford. Royal Alliance Associates, Inc. had been the subject of an October 14, 1992 Stipulation and Agreement (File No. ST-92-2280-S) that obligated the firm not to transact business from any Connecticut place of business unless that location was effectively registered as a branch office.

The Consent Order fined the firm $10,000 for violating the prior Stipulation and Agreement with the agency; imposed a $3,000 fine for failing to register the Stamford and Trumbull sites as branch offices; and required that the firm reimburse the department $1,500 for investigative costs. In addition, the Consent Order mandated that the firm engage an independent consultant to make recommendations on improving the firm's compliance and supervisory procedures as they relate to state and SRO branch office registration requirements. In addition, the Consent Order directed to firm to issue to each of its Connecticut agents a written compliance notice explaining Connecticut's branch office registration requirements as well as the firm's supervisory obligations in connection with those requirements.

Albert Williams Barred from Conducting Securities Activity for Two Years Following Sales of Unregistered Promissory Notes and Preferred Stock

On December 10, 2001, the Banking Commissioner entered a Consent Order (No. CO-01-5595-S) with respect to Albert Williams of 945 Main Street, Suite 312, Manchester, Connecticut. The Consent Order alleged that, between December 1998 and September 1999, respondent Williams sold unregistered non-exempt promissory notes of Tri-National Development Corporation and preferred stock of Palm Beach Investment Group, Inc. in violation of Section 36b-16 of the Connecticut Uniform Securities Act, and that, in so doing, respondent Williams acted as an unregistered agent of issuer in contravention of Section 36b-6(a) of the Act. In entering the Consent Order, the Commissioner acknowledged that the one Palm Beach Investment Group, Inc. investor had received back the investor's principal plus interest in full.

The Consent Order barred respondent Williams for two years from transacting business in Connecticut as a broker-dealer, investment adviser, broker-dealer agent, investment adviser agent, agent of issuer or seller of business opportunities. In addition, the Consent Order fined respondent Williams $2,000 and required that he reimburse the department $500 for agency investigative costs. The Consent Order also directed respondent Williams to cease and desist from engaging in conduct that would violate the state's securities laws.

Child Care Choices, Inc. Fined $7,500 for Business Opportunity Violations; Ordered to Repay Purchaser-investor in Full; Order to Cease and Desist Made Permanent

On October 2, 2001, the Banking Commissioner entered a Consent Order (Docket No. CF-2001-769-B) with respect to Child Care Choices, Inc. of 15050 Carter Road, Philadelphia, Pennsylvania. The Consent Order contained findings that the respondent 1) offered and sold an unregistered child care provider network business opportunity in violation of Section 36b-67(1) of the Connecticut Business Opportunity Investment Act; 2) failed to provide a disclosure statement prior to the signing of the business opportunity contract or the receipt of money in violation of Section 36b-63(a) of the Act; and 3) failed to provide a disclosure statement that complied with Section 36b-63 of the Act. Child Care Choices, Inc. had been the subject of a May 8, 2001 Order to Cease and Desist and Notice of Intent to Fine based upon the same conduct.

The Consent Order rendered permanent the May 8, 2001 Order to Cease and Desist, and fined the respondent $7,500. In addition, the Consent Order prohibited the respondent from offering or selling business opportunities in or from Connecticut for twenty-four months and from seeking to register its business opportunity during that time period. After twenty-four months, the respondent was required to seek the advice of experienced legal counsel prior to offering or selling a business opportunity in or from Connecticut, and, if relying on a statutory exclusion or exemption, to obtain a written advisory interpretation from the department beforehand. The Order also required that the respondent provide a full refund to the affected purchaser-investor, and furnish proof within 30 days following entry of the Consent Order that it had paid the refund balance due.

Conditional Registrations

David Hajdasz (CRD # 4385227) d/b/a Prodeo Financial Services (CRD # 111791)

On December 10, 2001, the Banking Commissioner issued a Consent Order (No. CO-01-6381-S) under the Connecticut Uniform Securities Act conditioning the investment adviser registration of David Hajdasz d/b/a Prodeo Financial Services of 45 Jimmy Lane, Meriden, Connecticut. In conditioning the registration, the Commissioner noted that David Hajdasz had not been employed previously in the securities business as an agent, investment adviser agent, broker-dealer, investment adviser or related capacity for the three-year period prescribed by the Regulations under the Act.

Pursuant to the Consent Order, David Hajdasz agreed to 1) refrain from having custody or control of client funds or securities for three years; 2) refrain for three years from exercising discretionary authority over client accounts; 3) limit his investment advisory business for three years to fee-only financial planning and not receive any securities sales-related remuneration; 4) limit his investment advice for three years to securities listed on the New York Stock Exchange, the American Stock Exchange and/or NASDAQ-NMS; certificates of deposit; corporate debt; municipal securities; investment company securities; and United States Government securities; 5) complete at least 16 hours of professional training relating to the fiduciary, ethical and blue sky compliance obligations of securities industry personnel within 18 months; and 6) for three years, provide quarterly reports to the department concerning any securities-related complaints, actions or proceedings.

David Hajdasz d/b/a Prodeo Financial Services became registered as an investment adviser in Connecticut on December 10, 2001.

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 2 1 1 1 5 Investigations Closed 5 0 3 2 10 Investigations ongoing as of December 31, 2001 4 5 3 2 Cases referred by Attorney General 0 0 0 0 0 Cases referred by Other Agencies 0 0 0 0 0 Subpoenas issued 0 0 0 0 0 Cease and Desist Orders 0 1 0 0 1 Notices of Intent to Issue Stop Order 0 0 0 0 0 Stop Orders 1 0 0 0 1 Notices of Intent to Fine 0 1 0 0 1 Orders Imposing Fine 0 0 0 0 0 Consent Orders 0 0 0 1 1 Monetary Sanctions Imposed 0 0 0 $7,500 $7,500 Restitution or Other Monetary Relief $6,000 0 0 $1,500 $7,500 Criminal Referrals (Chief State's Attorney) 0 0 0 0 0 Civil Referrals (Attorney General) 0 0 0 0 0 Other Agency Referrals 0 0 0 0 0

Securities Division