Fall 2019 Securities Bulletin

State of Connecticut Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXIII No. 3 - Fall 2019

Features

Use of Client User Names and Passwords by Investment Advisory Personnel - Interpretive Guidance

Quarterly Statistical Summaries

Enforcement and Other Highlights

Consent Orders

Stipulation and Agreements

FEATURES

Use of Client User Names and Passwords by Investment Advisory Personnel - Interpretive Guidance

August 12, 2019

In administering the Connecticut Uniform Securities Act, the Securities and Business Investments Division (the “Division”) of the State of Connecticut Department of Banking has received inquiries from investment advisory personnel concerning the extent to which they may access a client’s account by using the client’s own unique identifying information such as the client’s personal username and password. This scenario is distinct from advisory personnel that access client electronic accounts through the adviser’s own, unique log-in information following authorization from the client. While the latter situation may also raise issues regarding custody and record keeping, it is not the focus of this interpretive position.

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Quarterly Statistical Summaries

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CONSENT ORDERS

Safe Harbour LLC (CRD No. 300265) and Robert William Brinkman (CRD No. 1511170)

On September 27, 2019, the Banking Commissioner entered a Consent Order (No. CO-19-8416-S) with respect to Safe Harbour LLC , an applicant for investment adviser registration located at 1000 Bridgeport Avenue, Suite 2D, Shelton, Connecticut 06484. Also named in the Consent Order was Robert William Brinkman, president of the firm and an applicant for investment adviser agent registration under the Connecticut Uniform Securities Act.

The Consent Order alleged that from approximately January 2016 to January 2019, Brinkman violated Section 36b-6(c) of the Act by transacting business as an investment adviser agent of Horter Investment Management, LLC while unregistered. Horter Investment Management, LLC is an investment adviser registered with the Securities and Exchange Commission. The Consent Order noted that Brinkman received significant compensation in connection with that activity, and that the payments were channeled through Safe Harbor Retirement LLC, an entity headed by Brinkman's spouse. The Consent Order also alleged that, from approximately January 2016 to July 2019, Brinkman violated Section 36b-5 of the Act by falsely holding himself out as an “Advisor for 31 years” and by failing to disclose to the clients he solicited for Horter Investment Management, LLC that he was receiving significant compensation for the solicitation activity.

The Consent Order directed Brinkman to cease and desist from regulatory violations, fined Brinkman $20,000 and required that he pay an additional $450 to the agency as reimbursement for past due registration fees. In addition, the Consent Order placed the following conditions on the registrations of Safe Harbour LLC and Brinkman: 1) for two years, the firm would retain a regulatory consultant to conduct on-site compliance reviews of the firm's operations; 2) for two years, the firm and Brinkman would notify the agency of any securities-related complaints, actions or proceedings (including arbitrations) and furnish the agency with appropriate updates; 3) within 30 days following the entry of the Consent Order, Brinkman would notify his investment advisory clients in writing concerning the existence of the Consent Order; and 4) for two years, neither the firm nor Brinkman would exercise discretionary trading authority over client accounts or maintain custody or control of client funds or securities.

Safe Harbour LLC became registered as an investment adviser in Connecticut on September 27, 2019. On the same day, Robert William Brinkman became registered as an investment adviser agent of Safe Harbour LLC under the Act.

Andrew Seafus Prophet (CRD No. 4016402) and Prophet Financial Planning, LLC

On September 11, 2019, the Banking Commissioner entered a Consent Order (No. CO-19-8437-S) with respect to Prophet Financial Planning, LLC of 3324 Main Street, 2nd Floor, Bridgeport, Connecticut 06606, and Andrew Seafus Prophet , managing member of the firm. Andrew Seafus Prophet is currently licensed as an insurance producer with the State of Connecticut Insurance Department. In 2009, the Financial Industry Regulatory Authority (FINRA) barred Andrew Prophet from association with any FINRA member broker-dealer in any capacity. Neither Andrew Prophet nor Prophet Financial Planning, LLC is currently registered in any capacity under the Connecticut Uniform Securities Act.

The Consent Order alleged that, from at least 2014 forward, Andrew Prophet, individually and on behalf of Prophet Financial Planning, LLC violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities in the form of promissory notes to investors. The Consent Order acknowledged that Andrew Prophet provided the agency with evidence that 1) he had offered approximately $374,000 in rescission to those investors whose promissory notes had not yet matured and who had not yet been repaid; and 2) only one investor accepted that rescission offer. The Consent Order also acknowledged that Andrew Prophet furnished the department with documentation that he had remitted, under the oversight of his legal counsel 1) $141,250 to those investors whose promissory notes had matured; and 2) $28,500 to cover the balance owed to the one investor who had accepted his rescission offer and whose note had not yet matured.

The Consent Order directed Andrew Seafus Prophet and Prophet Financial Planning, LLC to cease and desist from securities regulatory violations and, for a five year period, to retain and consult with legal counsel prior to issuing, offering or selling securities in or from Connecticut. In addition, the Consent Order fined Andrew Seafus Prophet $10,000.

David E. Houge - Consent Order Entered

On July 8, 2019, the Banking Commissioner entered a Consent Order (No. CO-19-8434-S) with respect to David E. Houge , now or formerly of Lexington, Kentucky. The Consent Order alleged that in 2015, David Houge violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities issued by Vintage Foods Ltd., a medical/recreational marijuana and hemp manufacturer. In May, 2018, David Houge repaid the affected Connecticut investor $19,000, representing the investor's total investment in Vintage Foods Ltd.

The Consent Order directed David Houge to cease and desist from regulatory violations and barred him for seven years from offering or selling securities in or from Connecticut; transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent; and acting in any other capacity requiring a license or registration from the Commissioner.

STIPULATION AND AGREEMENTS

JC Franchising Group LLC

On September 19, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-895-B) with JC Franchising Group LLC of 2929 Stewart Drive, Suite 103, State College, Pennsylvania 16801. JC Franchising Group previously offered franchises under the "Mosquitoes Terminators" brand. The Stipulation and Agreement alleged that, prior to becoming eligible to claim an exclusion under the Connecticut Business Opportunity Investment Act, the franchisor rebranded its franchise offerings and sold unregistered "Green Home Solutions" franchises to Connecticut residents. In resolution of the matter, the franchisor agreed to refrain from regulatory violations and to pay $3,500 to the agency. Of that amount, $3,100 constituted an administrative fine and $400 represented past due business opportunity registration fees.

A&M Capital Advisors, LP (IARD No. 163576)

On September 12, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-8419-S) with A&M Capital Advisors, LP of 1 Pickwick Plaza, Third Floor, Greenwich, Connecticut 06830. The firm is registered as an investment adviser with the Securities and Exchange Commission. Federally registered investment advisers are generally required to make a state notice filing with the jurisdictions in which they do business. The Stipulation and Agreement alleged that, since moving to Connecticut from New York in 2013, the firm was remiss in making the notice filing required by Section 36b-6(e) of the Connecticut Uniform Securities Act. The filing delinquency was rectified in 2018. In resolution of the matter, the firm agreed to refrain from violative conduct and to pay $3,275 to the agency. Of that amount $2,500 constituted an administrative fine and $775 represented reimbursement for past due investment advisory notice filing fees.

Archview Investment Group LP (IARD No. 154787)

On September 5, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-8471-S) with Archview Investment Group LP, an investment adviser located at 687 Smith Ridge Road, New Canaan, Connecticut. The firm's business focuses on rendering investment advisory services to affiliated pooled investment vehicles. Archview Investment Group LP is currently registered as an investment adviser with the Securities and Exchange Commission.

The Stipulation and Agreement alleged that from 2015 until October 15, 2018 when a notice was filed, the firm failed to make the investment advisory notice filing required of SEC-registered firms by Section 36b-6(e) of the Connecticut Uniform Securities Act.

In resolution of the matter, Archview Investment Group LP, its affiliates and successors in interest agreed to refrain from engaging in violative conduct and to pay $2,625 to the department. Of that amount, $2,000 constituted an administrative penalty and $625 represented reimbursement for past due investment advisory notice filing fees.

Bridgeways, Inc. f/k/a Xandros, Inc.

On September 5, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. St-19-8407-S) with Bridgeways, Inc. f/k/a Xandros, Inc., now or formerly of 900 Chapel Street, New Haven, Connecticut. The Stipulation and Agreement alleged that, in 2013, Bridgeways, Inc. offered and/or sold securities in or from Connecticut to at least one investor at a time when those securities were not registered under the Connecticut Uniform Securities Act. In resolution of the matter, Bridgeways, Inc., its affiliates and successors in interest agreed to refrain from offering or selling securities absent compliance with Connecticut's securities laws and to pay a $3,000 fine to the agency.

TAM Capital Management Inc.

On August 6, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-8527-S) with TAM Capital Management Inc., an investment adviser located at 63 Crane Road North, Stamford, Connecticut 06902. The firm, which moved to Connecticut from Brooklyn, New York in 2014, was registered as an investment adviser with the Securities and Exchange Commission from 2011 to April, 2019. The Stipulation and Agreement alleged that, from September 15, 2014 until March 25, 2019 when a notice was filed, the firm failed to make the investment advisory notice filing required of SEC-registered advisers by Section 36b-6(e) of the Connecticut Uniform Securities Act and failed to pay the fees required by that section. Anticipating that its assets under management would no longer qualify it for federal investment adviser registration, TAM Capital Management Inc. has since applied for state registration as an investment adviser in Connecticut.

In resolution of the matter, the firm agreed to refrain from engaging in violative conduct and to pay $1,875 to the agency. Of that amount, $1,000 constituted an administrative penalty and $875 represented reimbursement for past due investment advisory notice filing fees.

TAM Capital Management Inc. became registered as an investment adviser under the Connecticut Uniform Securities Act on August 6, 2019.

Fastsigns International, Inc.

On August 5, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-894-B) with Fastsigns International, Inc., a franchisor of business opportunities located at 2542 Highlander Way, Carrollton, Texas 75006. Prior to January 31, 2000, Fastsigns International, Inc. was known as American Fastsigns, Inc. The Stipulation and Agreement alleged that, prior to its qualifying for an exclusion under Section 36b-61(2)(D) of the Connecticut Business Opportunity Investment Act, the corporation sold an unregistered business opportunity to a Connecticut resident in contravention of Sections 36b-67(1) and 36b-62(a) of the Act.

In resolution of the matter, Fastsigns International, Inc. agreed to refrain from regulatory violations and to pay $2,500 to the department. Of that amount, $2,100 constituted an administrative fine and $400 represented past due business opportunity registration fees.

STATISTICAL SUMMARY

Licensing At A Glance

at the end of the quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Broker-dealers Registered

2,085

2,103

2,106

Broker-dealer Agents Registered

171,305

172,601

175,348

Broker-dealer Branch Offices Registered

2,531

2,527

2,533

Investment Advisers Registered

496

506

506

SEC Registered Advisers Filing Notice

2,251

2,278

2,286

Investment Adviser Agents Registered

14,639

14,733

15,018

Exempt Reporting Advisers

138

137

140

Agents of Issuer Registered

5

5

5

Conditional Registrations

0

0

1

Securities and Business Opportunity Filings

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Offerings Reviewed

29

33

47

109

Investment Company Notice Filings

504

532

442

1,478

Exemptions and Exemptive Notices

972

1,155

1,151

3,278

Examinations

Broker-dealers

22

31

44

97

Investment Advisers

46

44

25

115

Securities Investigations

Opened

12

22

7

41

Closed

23

12

7

42

Ongoing as of End of Quarter

81

90

90

Subpoenas issued

7

16

10

33

Matters referred from Attorney General

0

2

0

2

Matters referred from Other Agencies

3

6

1

10

Business Opportunity Investigations

Investigations Opened

0

0

2

2

Investigations Closed

0

0

2

2

Ongoing as of End of Quarter

0

0

0

0

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

1

1

0

2

Notices of Intent to Suspend (Licensing)

0

0

0

0

Notices of Intent to Revoke (Licensing)

0

0

0

0

Denial Orders (Licensing)

0

0

0

0

Suspension Orders (Licensing)

0

0

0

0

Revocation Orders (Licensing)

0

0

0

0

Notices of Intent to Fine

2

2

0

4

Orders Imposing Fine

0

0

0

0

Cease and Desist Orders

2

2

0

4

Notices of Intent to Issue Stop Order

0

0

0

0

Activity Restrictions/Bars

1

0

1

2

Stop Orders

0

0

0

0

Vacating/Withdrawal/ Modification Orders

0

0

0

0

Restitutionary Orders and Disgorgement Orders

2

2

0

4

Injunctive Relief Obtained

0

0

0

0

Proceedings and Settlements

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Administrative Actions

2

2

0

4

Consent Orders

5

0

3

8

Stipulation and Agreements

3

3

6

12

Monetary Relief*

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Monetary Sanctions Imposed

$143,590

$6,475

$47,225

$197,290

Portion attributable to settlements

$143,590

$6,475

$47,225

$197,290

Attributable to Court-Ordered Penalties

0

0

0

0

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$1,299,312

$49,306

$721,250

$2,069,868

Cents eliminated

Securities Referrals

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year to Date

Criminal Matters

1

1

0

2

Civil (Attorney General)

2

1

0

3

Other Agency Referrals

0

0

1

1