Spring 2019 Securities Bulletin

State of Connecticut
Department of Banking

Securities and Business Investments Division
Securities Bulletin

Vol. XXXIII No. 1 - Spring 2019

Features

Quarterly Statistical Summaries

Enforcement and Other Highlights

Administrative Actions

Consent Orders

Stipulation and Agreements

ADMINISTRATIVE ACTIONS

North American Drilling Corporation, Brown Well 1 Joint Venture, Brown Well 1A Joint Venture, Brazelton Well 2A Joint Venture and Larry Michael Koonce (CRD No. 4603240) - Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine Issued

On March 27, 2019, the Banking Commissioner entered an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-19-8287-S) against North American Drilling Corporation of 1417 Gables Court, Suite 101, Plano, Texas 75075. North American Drilling Corporation was the manager of corespondents Brown Well 1 Joint Venture , Brown Well 1A Joint Venture and Brazelton Well 2A Joint Venture , all three of which were Texas joint ventures engaged in the oil and gas business. Also named in the action was Larry Michael Koonce of Plano, Texas. Koonce was the president of North American Drilling Corporation and a control person of the joint ventures. According to the action, at least three Connecticut individuals invested in the joint ventures.

The action alleged that the respondents violated the antifraud provisions in Section 36b-4(a) of the Connecticut Uniform Securities Act by representing to investors that the investment had little risk and by channeling investment proceeds to Wildcat Resources, LC, an affiliated entity, in contravention of statements made in the offering materials. In addition, investors were not apprised that at least a portion of the monies transferred to the Wildcat Resources, LC account were used to benefit Koonce and/or his relatives. The action also alleged that respondents Koonce and North American Drilling Corporation violated Section 36b-23 of the Act by making a misleading statement to the Commissioner concerning the source of Koonce's compensation in connection with the joint ventures.

Each of the respondents was afforded an opportunity to request a hearing on the allegations in the Order to Cease and Desist, Order to Make Restitution and Notice of Intent to Fine.

Adam Westphalen (CRD No. 2821723) and Mosaic Financial Strategies LLC (CRD Numbers 288997 and 149364)

On March 11, 2019, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Deny Registrations as an Investment Adviser and as an Investment Adviser Agent, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRNDF-19-8408-S) against Mosaic Financial Strategies LLC ( f/k/a Mosaic Portfolio Strategists LLC and doing business as Mosaic Advisory Partners ) (“Mosaic”) of 40 Maple Road, Easton, Connecticut 06612 and Adam Westphalen , principal of the firm. Mosaic had previously been registered as an investment adviser in Connecticut until 2014, and reapplied for investment adviser registration under a different CRD number. Adam Westphalen also reapplied for registration as an investment adviser agent of Mosaic.

The action alleged that 1) from approximately 2004 forward, Westphalen was involved with various businesses, to wit, Triton Investment Partners LLC, Vista Financial Strategies LLC, Vista Investment Advisors LLC and Mosaic College Planners; and 2) Westphalen and Mosaic failed to amend their Connecticut registration filings to disclose their affiliations with Triton Investment Partners LLC, Vista Financial Strategies LLC and Mosaic College Planners in violation of Section 36b-31-14e of the Regulations under the Connecticut Uniform Securities Act. The action also alleged that, following the expirations of their prior registrations, Mosaic and Westphalen transacted business as an unregistered investment adviser and an unregistered investment adviser agent, respectively, in contravention of Sections 36b-6(c)(1) and 36b-6(c)(2) of the Act, and that Mosaic falsely represented on its reapplication that it had not rendered investment advisory services.

In addition, the action alleged that Westphalen sold unregistered securities in violation of Section 36b-16 of the Act and violated the antifraud provisions in Section 36b-4(a) of the Act. More specifically, Westphalen purportedly solicited a Connecticut couple to invest $67,500 in Omni Oil and Gas Inc., a Texas based oil and gas concern whose securities were not registered under the Act. Westphalen also allegedly solicited multiple investors to invest in Triton Investment Partners LLC and failed to provide them with key disclosures. In neither offering was Westphalen registered as an agent of issuer as required by Section 36b-6(a) of the Act.

The Respondents were afforded an opportunity to request a hearing on the Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Deny Registrations as an Investment Adviser and as an Investment Adviser Agent and Notice of Intent to Fine.

CONSENT ORDERS

Vaughn Lee Andrews-McKay (CRD No. 6491985) - Consent Order Entered

On March 25, 2019, the Banking Commissioner entered a Consent Order (No. CO-18-8450-S) with respect to Vaughn Lee Andrews-McKay of Enfield, Connecticut. Andrews-McKay was previously registered as a broker-dealer agent of PruCo Securities, LLC under the Connecticut Uniform Securities Act. The Consent Order alleged that from approximately January 2017 to October 2017, Andrews-McKay engaged in dishonest or unethical practices by misappropriating approximately $48,000 from two of his clients at PruCo Securities, LLC and diverting those funds for his personal use. In 2018, FINRA sanctioned Andrews-McKay for the foregoing misconduct, barring him from associating with any FINRA member in any capacity (AWC No. 2018058343001).

The Consent Order acknowledged that PruCo Securities, LLC had remitted $49,097.87 (including interest) to the affected clients as full restitution for the monies misappropriated by Andrews-McKay.

The Consent Order permanently barred Andrews-McKay from transacting business in or from Connecticut as a broker-dealer, agent, investment adviser or investment adviser agent and from acting in any other capacity that required a license or registration from the Commissioner. The Consent Order also directed Andrews-McKay to cease and desist from regulatory violations. Based on financial documentation provided by the respondent, the Commissioner stayed the imposition of a $50,000 fine for three years. If the respondent became able to pay the fine or failed to disclose material financial information in his financial affidavit, the fine would immediately become due. At the conclusion of the three year period, if Andrews-McKay still was unable to pay the fine, the fine would be waived.

Voya Financial Advisors, Inc. (CRD No. 2882) - Consent Order Entered

On March 11, 2019, the Banking Commissioner entered a Consent Order (Docket No. CO-18-8430-S) with respect to Voya Financial Advisors, Inc. f/k/a ING Financial Partners, Inc. The firm is registered as a broker-dealer under the Connecticut Uniform Securities Act and maintains its principal office at 699 Walnut Street, Suite 1000, Des Moines, Iowa 50309. The Consent Order had been preceded by an April 23, 2018, Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing alleging that the firm failed to exercise supervisory controls over its operations. Notably, Connecticut agent Dale Joseph Quesnel, Sr. (CRD No. 2231152) allegedly engaged in improper selling away, and sold $1.9 million of securities issued by Overtime Marketing, LLC, Overtime Sports Southeast, LLC and Overtime Sports Southwest, LLC, as well as $250,000 of securities issued by Floridel, LLC. The original Order was amended and restated on November 13, 2018.

Hearing proceedings were initiated but not completed during the latter part of January 2019.

Pursuant to the Consent Order, Voya Financial Advisors, Inc., agreed to establish a $915,000 fund to provide outstanding restitution to affected Voya clients.

Voya Financial Advisors, Inc., also agreed to pay a $100,000 fine to the agency and to cease and desist from regulatory violations.

Vir-Sec, Inc. and Christopher Murphy - Consent Order Entered

On January 17, 2019, the Commissioner entered a Consent Order (Docket No. CRF-18-8268-S) with respect to Vir-Sec, Inc. of 2840 West Bay Drive, #212, Belleair Bluffs, Florida 33770 and Christopher Murphy , president and control person of the corporation. Vir-Sec, Inc., a currently inactive Delaware corporation, was involved in the development of Internet security software. The respondents had been the subject of a July 20, 2018 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing alleging that the respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by offering and/or selling unregistered securities. The offering was allegedly conducted through general solicitation at a Connecticut hotel. The action had also alleged that the respondents violated the antifraud provisions in Section 36b-4(a)(2) of the Act by failing to provide investors with material information concerning the issuer's financial condition, the specific risks associated with investing in Vir-Sec, Inc. and background information on the issuer's officers, directors and their compensation.

The Consent Order noted that respondent Murphy had provided the agency with a sworn financial affidavit attesting to his financial inability to pay the restitution contemplated by the administrative action, and that he maintained that he had relied on the advice of legal counsel in connection with the securities registration issues. The Consent Order also reflected a voluntarily undertaking by Murphy not to engage in any activity requiring registration under Connecticut's securities laws for three years.

The Consent Order directed the respondents to cease and desist from regulatory violations. Based on Murphy's financial affidavit, enforcement of the July 20, 2018 Order to Make Restitution was stayed for three years unless either respondent became able to pay restitution during that period or if it was determined that Murphy's financial affidavit contained material misstatements or omissions. In the latter instances, the restitutionary amount would become immediately due and payable.

Quarve Associates, LLC (CRD No. 112160) Fined $7,500 for Financial Reporting Violations

On January 11, 2019, the Banking Commissioner entered a Consent Order (No. CO-19-8470-S) with respect to Quarve Associates, LLC , a Connecticut-registered investment adviser located One Atlantic Street, Stamford, Connecticut 06901. The Consent Order alleged that the firm violated Section 36b-31-14d(a) of the Regulations under the Connecticut Uniform Securities Act by failing to timely file audited reports of its financial condition on more than one occasion. Such reports are required of investment advisers having custody of client funds and securities. The Consent Order fined the firm $7,500 and directed it to cease and desist from regulatory violations.

First Allied Securities, Inc. (CRD No. 32444) and First Allied Advisory Services, Inc. (CRD No. 137888)

On January 2, 2019, the Banking Commissioner entered a Consent Order (No. CO-18-8399-S) with respect to First Allied Securities, Inc. , a Connecticut-registered broker-dealer located at 655 West Broadway, 12 th Floor, San Diego, California 92101, and the firm’s advisory affiliate First Allied Advisory Services, Inc. (collectively, “First Allied”). The Consent Order alleged that First Allied violated Section 36b-31-6f(b) of the Regulations under the Connecticut Uniform Securities Act by failing to establish, enforce and maintain an adequate supervisory system. More specifically, the Consent Order focused on the conduct of one Matthew Charles Woodard, a former broker-dealer agent of ProEquities, Inc. who was also associated with First Allied Securities, Inc. in an unregistered capacity and worked from the firm’s office at 1031 Farmington Avenue, Farmington, Connecticut. Also working from that location was First Allied agent Walter J. Dubiel (CRD No. 4234689). The Consent Order alleged that Dubiel, in contravention of First Allied policies and procedures, shared his First Allied confidential client account log-in credentials with Woodard who then used the credentials to access a First Allied client’s account without the client’s knowledge or consent. As a result, the affected investor incurred trading losses of $19,265.89.

The Consent Order required that First Allied reimburse the affected investor $19,265.89 no later than the date the Consent Order was entered by the Commissioner and provide proof of payment to the agency. In addition, the Consent Order fined First Allied $30,000 and directed it to cease and desist from regulatory violations.

STIPULATION AND AGREEMENTS

Soma Equity Partners, LP (IARD No. 283613)

On March 20, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-8487-S) with Soma Equity Partners, LP , an investment adviser registered with the Securities and Exchange Commission. The firm, which renders advice exclusively to pooled investment vehicles, maintains its principal office at 44 Montgomery Street, Suite 3710, San Francisco, California 94104. The Stipulation and Agreement alleged that, although the firm maintained an additional office in Connecticut, the firm failed to make the notice filing required of SEC-registered investment advisers pursuant to Section 36b-6(e) of the Connecticut Uniform Securities Act over a two year period.

Upon being apprised of the agency’s concerns, the firm was responsive to agency inquiries, made the notice filing and paid the fee required by Section 36b-6(e) of the Act and renewed its notice filing for calendar year 2019.

In resolution of the matter, the firm agreed to refrain from violative conduct and to remit $1,825 to the department. Of that amount, $1,500 constituted an administrative penalty and $325 represented reimbursement for past due investment advisory notice filing fees.

Silver Pine Capital, LLC (IARD No. 150461)

On February 15, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-19-8479-S) with Silver Pine Capital, LLC , an applicant for investment adviser registration located at 70 North Street, Suite 2A, Medfield, Massachusetts 02052. The firm had previously been registered as an investment adviser in Connecticut. In conjunction with its reapplication, the firm disclosed that, from 2018 forward, the number of Connecticut clients to whom it had rendered investment advisory services exceeded the ceiling for claiming an exemption from registration under Section 36b-6(e) of the Connecticut Uniform Securities Act.

In resolution of the matter, the firm agreed to comply with all statutory requirements governing investment advisers and their operations and to pay $1,265 to the agency. Of that amount, $1,000 constituted an administrative penalty and $265 represented reimbursement for past due registration fees for the firm and its investment adviser agents.

Silver Pine Capital, LLC became registered as an investment adviser in Connecticut on February 15, 2019.

Aquila Municipal Trust

On January 25, 2019, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-18-8488-S) with Aquila Municipal Trust , an open-end management investment company located at 120 West 45th Street, Suite 3600, New York, New York 10036. Aquila Narragansett Tax-Free Income Fund is a series of the trust. The Stipulation and Agreement alleged that the trust, through its filing service provider, reported that in 2015 and 2016, sales of Aquila Narragansett Tax-Free Income Fund had been made to two Connecticut purchasers at a time when no exemption was available for the sales and no notice filing for the fund had been made under Section 36b-21(c) of the Connecticut Uniform Securities Act. A curative notice filing was subsequently made on June 22, 2018.

In resolution of the matter, Aquila Municipal Trust agreed to refrain from offering or selling securities absent timely compliance with the filing requirements in Section 36b-21(c) of the Act. In addition, the trust agreed to pay $3,000 to the agency. Of that amount, $1,500 represented reimbursement for past due notice filing fees and $1,500 constituted an administrative fine.

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

Broker-dealer Agents Registered

171,305

Broker-dealer Branch Offices Registered

2,531

Investment Advisers Registered

496

SEC Registered Advisers Filing Notice

2,251

Investment Adviser Agents Registered

14,639

Exempt Reporting Advisers

138

Agents of Issuer Registered

Conditional Registrations

Securities and Business
Opportunity Filings

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Offerings Reviewed

Investment Company Notice Filings

504

Exemptions and Exemptive Notices

972

Examinations

Broker-dealers

Investment Advisers

Securities Investigations

Opened

Closed

Ongoing as of End of Quarter

Subpoenas issued

Matters referred from Attorney General

Matters referred from Other Agencies

Business Opportunity Investigations

Investigations Opened

Investigations Closed

Ongoing as of End of Quarter

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

Notices of Intent to Suspend (Licensing)

Notices of Intent to Revoke (Licensing)

Denial Orders (Licensing)

Suspension Orders (Licensing)

Revocation Orders (Licensing)

Notices of Intent to Fine

Orders Imposing Fine

Cease and Desist Orders

Notices of Intent to Issue Stop Order

Activity Restrictions/Bars

Stop Orders

Vacating/Withdrawal/ Modification Orders

Restitutionary Orders and Disgorgement Orders

Injunctive Relief Obtained

Proceedings and Settlements

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Administrative Actions

Consent Orders

Stipulation and Agreements

Monetary Relief*

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Monetary Sanctions Imposed

$143,590

Portion attributable to settlements

$143,590

Attributable to Court-Ordered Penalties

Restitution or Other Monetary Relief
( includes rescission offer amounts
)

$1,299,312

Cents eliminated

Securities Referrals

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Criminal Matters

Civil (Attorney General)

Other Agency Referrals