Spring 2023 Securities Bulletin

State of Connecticut
Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXVII No. 1 - Spring 2023

Features

Quarterly Statistical Summaries

Enforcement and Other Highlights

Consent Orders

Stipulation and Agreements

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Consent Orders

Nexo Capital Inc.

On March 17, 2023, the Banking Commissioner entered a Consent Order (No. CO-23-20236-S) with respect to Nexo Capital Inc., a financial services company located in Grand Cayman, Cayman Islands. Nexo Capital Inc. is not registered or licensed in any capacity with the Commissioner. The Consent Order was an outgrowth of a multistate investigation into the entity’s sale of interest bearing digital asset accounts called Earn Interest Product ("EIP") accounts which allowed clients to earn interest on digital assets. That investigation resulted in a multistate settlement in which Connecticut participated. In late 2022, Nexo Capital, Inc. announced that it had permanently ceased U.S. sales of the EIP investments. In a parallel action, on January 19, 2023, the United States Securities and Exchange Commissioner entered an Order Instituting Cease and Desist Proceedings based on the alleged sale of unregistered securities by Nexo Capital, Inc.

The multistate settlement and the SEC action each imposed a $22.5 million penalty against the firm.

As of July 31, 2022, there were 1,069 EIP accounts in Connecticut (1.14 percent of the national total of 93,318) with a savings wallet value of almost $14.8 million (1.84 percent of the national total of $800,260,000).

The Consent Order alleged that the EIP accounts were securities and that Nexo Capital Inc. violated Section 36b-16 of the Connecticut Uniform Securities Act by failing to register those securities under state law. In keeping with the terms of the multistate settlement, the Consent Order directed Nexo Capital, Inc. to cease and desist from regulatory violations and to pay a total fine of $424,528.30 to Connecticut. The fine would be payable in four installments, with the first being due upon signing, and the balance payable in the succeeding three quarters.

Kara Leigh Gagnon (CRD No. 4574455)

On March 9, 2023, the Banking Commissioner entered a Consent Order (No. CO-22-202123-S) with respect to Kara Leigh Gagnon, a former broker-dealer agent of Global Atlantic Distributors, LLC.

The Consent Order alleged that Gagnon violated Section 36b-31-14e of the Regulations under the Connecticut Uniform Securities Act by failing to disclose to the Commissioner on her Form U4 (Uniform Application for Securities Industry Registration or Transfer) certain outside business activity. More specifically, while she was registered as a broker-dealer agent of Global Atlantic Distributors, LLC under the Act, Gagnon allegedly engaged in dishonest and unethical business practices within the meaning of Section 36b-l 5(a)(2)(H) of the Act and Section 36b-3l-15b(c) of the Regulations by engaging in conduct proscribed by self-regulatory organization rules, to wit, participating in outside business activity absent notice to her employing firm.

Gagnon allegedly also used her Global Atlantic Distributors, LLC employee email account to communicate with a third party about a business venture unrelated to Global Atlantic Distributors, LLC. At the direction of the third-party, Gagnon acted as a go-between between the third party and several individuals who believed they were investing in a legitimate business venture run by the third party, including facilitating wire transfers. The purported new business venture of the third party turned out to be a scam. None of the victims in the scam were clients of Global Atlantic Distributors, LLC. Gagnon represented to the agency that she was unaware that the third party was running a scam.

In August, 2022, following a June 21, 2022 suspension for failure to produce documents, the Financial Industry Regulatory Authority (FINRA) had permanently barred Gagnon from association with any FINRA member in any capacities. Gagnon had failed, after multiple requests by FINRA, to produce documents and information relating to multiple wire transfers and bank withdrawals in connection with the activity described above.

The Consent Order barred Gagnon 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 which requires a license or registration from the Commissioner. The Consent Order also directed Gagnon to cease and desist from regulatory violations.

Acknowledging that Gagnon had provided documentation demonstrating her inability to pay the $10,000 fine that otherwise would have been imposed against her, the Commissioner stayed imposition of the fine for three years following which it would be waived if Gagnon remained unable to pay.

J.A.G. Capital, LLC and Joseph Richard Bozzi (CRD No. 6140946)

On February 27, 2023, the Banking Commissioner entered a Consent Order (No. CRF-23-8398-S) with respect to J.A.G. Capital, LLC and its founding member and manager, Joseph Richard Bozzi. J.A.G. Capital, LLC, a Connecticut limited liability company, maintains its principal offices at 33 South Cherry Street, Wallingford, Connecticut and 43 Bayberry Drive, Wallingford, Connecticut.

The Consent Order had been preceded by a February 18, 2022 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing. That action alleged that, beginning in April 2016, Bozzi, individually and on behalf of J.A.G. Capital, LLC, sold interests in an investment vehicle to at least seven Connecticut residents, promising that investor funds would be pooled and that Bozzi would make all investment decisions. Rather than benefiting investors, Bozzi purportedly commingled investor funds with his own money, diverted investor funds for his personal use and provided at least one Connecticut investor with a falsified brokerage statement. The action also alleged that the Respondents violated the Connecticut Uniform Securities Act by 1) selling unregistered securities in contravention of Section 36b-16 of the Act; 2) engaging in conduct prohibited by the antifraud provisions in Section 36b-4(a) of the Act; 3) engaging in dishonest or unethical practices in violation of Sections 36b-4(b) and 36b-5(f) of the Act; 4) engaging in fraudulent investment advisory activity in contravention of Section 36b-5(a) of the Act; and 5) violating Section 36b-23 of the Act by filing materially false or misleading documents with the Commissioner. The action further alleged that Bozzi, individually and under the auspices of J.A.G. Capital, LLC, transacted business as an investment adviser while unregistered in violation of Section 36b-6(c)(1) of the Act.

Respondents agreed to the entry of the Consent Order in lieu of an adjudicative hearing. The Consent Order acknowledged that, while the Respondents had repaid a portion of the $12,800 in investment proceeds remitted to them for the purported purpose of investing in an account that Bozzi managed, Respondents still owed three investors an aggregate remaining balance of $7,500. The Consent Order also acknowledged that the Respondents had provided the agency with documentation demonstrating that they were financially unable to pay the administrative fine that otherwise would have been imposed against them. Accordingly, the Consent Order stayed for three years the $20,000 fine that would have been imposed against the Respondents. If, after three years, Respondents remained unable to pay the fine, the fine would be waived.

Finding that the Respondents violated Sections 36b-16, 36b-4(a), 36b-4(b), 36b-5(a), 36b-5(f), 36b-6(c)(1) and 36b-23 of the Act, the Consent Order directed the Respondents to cease and desist from regulatory violations. In addition, the Consent Order barred Bozzi for ten years from transacting business in or from Connecticut as an agent, broker-dealer, investment adviser or investment adviser agent; maintaining a direct or indirect ownership interest in a broker-dealer or investment adviser registered or required to be registered in Connecticut; and acting in any other capacity requiring a license or registration under laws administered by the Commissioner.

The Consent Order also directed the Respondents, through the department, to pay the remaining $7,500 restitutionary amount to the affected investors on a monthly schedule, concluding on September 1, 2023. A failure to make the monthly restitutionary payments to the investors would result in the imposition of a $40,000 fine against the Respondents, which would not be waived, and the Order to Cease and Desist and Order to Make Restitution being made permanent.

Laidlaw & Company (UK) Ltd. (CRD No. 119037)

On January 23, 2023, the Banking Commissioner entered a Consent Order (No. CO-22-202018-S) with respect to Laidlaw & Company (UK) Ltd., a Connecticut-registered broker-dealer. The firm previously maintained a Connecticut branch office from April 2009 to June 2021.

The Consent Order alleged that, from approximately 2017 to 2019, the firm 1) caused or induced trading in at least one customer’s account which was excessive in size or frequency in view of the customer’s financial situation and needs as disclosed by the customer; 2) exercised discretionary trading authority for at least one client account without first obtaining written discretionary authority from the client; and 3) offered and/or sold unregistered securities from Connecticut to at least one investor. The Consent Order also alleged that from approximately 2017 to 2021, the firm: 1) compensated at least one unregistered sales assistant with a percentage of the commissions earned by the firm's broker-dealer agents; 2) transacted business in Connecticut as an unregistered investment adviser in connection with at least one “fee in lieu” account in which clients were charged a fee based on a percentage of their assets under management; and 3) failed to enforce its established procedures for supervising the activities of its agents and Connecticut office operations.

The Consent Order added that, as a result, the firm engaged in dishonest or unethical business practices within the meaning of Section 36b-31-15a of the Regulations under the Connecticut Uniform Securities Act; transacted business as an unregistered investment adviser in violation of Section 36b-6(c)(1) of the Act; violated the prohibition on selling unregistered securities in 36b-16 of the Act; and failed to observe the supervisory requirements in Section 36b-31-6f of the Regulations.

The Consent Order fined Laidlaw & Company (UK) Ltd. $200,000 and directed it to cease and desist from regulatory violations. The Consent Order also required that, for two years, the firm retain an independent consultant to 1) conduct twice yearly reviews of the firm's operations across all offices (with a special emphasis on the firm’s 521 Fifth Avenue, New York, New York location) as well as the firm's internal supervisory and compliance procedures to ensure compliance with the Act and its regulations; and 2) ensure implementation of revised procedures in accordance with the Consent Order and with applicable law.

Finally, the Consent Order restricted the firm and its agents for two years from: 1) exercising discretionary trading authority in any Connecticut client account; 2) utilizing margin in any Connecticut client account opened after the entry of the Consent Order; 3) maintaining any Connecticut branch offices; 4) selling any private placement securities offerings to any Connecticut client unless the client was an accredited investor as defined in Rule 501(a) under the Securities Act of 1933 (17 CFR 230.501(a)); 5) engaging in broker-dealer and broker-dealer agent activity in any Connecticut client account unless the activity involved the offer and sale of securities listed on the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market or the NASDAQ Global; securities issued by investment companies regulated under the Investment Company Act of 1940; commercial paper; certificates of deposit; corporate debt securities; municipal securities; United States government securities; private placements sold to accredited investors; and insurance products subject to regulation by the Connecticut Insurance Commissioner.

The Consent Order also obligated the firm to pay the cost, not to exceed $10,000, of one or more examinations to be conducted by the agency within 18 months.

Stipulation and Agreements

Parker Street Securities LLC (CRD No. 316044)

On February 17, 2023, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-2022-47-S) with Parker Street Securities LLC of 751 Park of Commerce Drive, Suite 128, Boca Raton, Florida. The Stipulation and Agreement alleged that, between May 2022 and August 2022, the firm violated Section 36b-6 of the Connecticut Uniform Securities Act by transacting business as an unregistered broker-dealer and employing an unregistered agent. More specifically, the firm sold interests in two private equity funds to a single Connecticut investor whom the firm represented was accredited under federal Regulation D. The firm self-reported the issue in connection with its currently effective broker-dealer registration.

The firm represented to the department that it had extended a $400,000 rescission offer to the affected investor, and that the investor had declined the rescission offer. The firm also represented that it had hired a new Chief Compliance Officer to ensure compliance with Connecticut requirements.

In resolution of the matter, the firm agreed to refrain from regulatory violations and to remit $5,340 to the department. Of that amount, $5,000 constituted an administrative fine and $340 represented payment of past due broker-dealer and agent 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

2,020

Broker-dealer Agents Registered

203,752

Broker-dealer Branch Offices Registered

2,314

Investment Advisers Registered

429

SEC Registered Advisers Filing Notice

2,476

Investment Adviser Agents Registered

15,400

Exempt Reporting Advisers

180

Agents of Issuer Registered

1

Conditional Registrations

0

Securities and Business
Opportunity Filings

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Offerings Reviewed

27

27

Investment Company Notice Filings

430

430

Exemptions and Exemptive Notices

1,376

1,376

Examinations

Broker-dealers

17

17

Investment Advisers

13

13

Securities Investigations

Opened

9

9

Closed

2

2

Ongoing as of End of Quarter

94

Subpoenas issued

13

13

Matters referred from Attorney General

0

0

Matters referred from Other Agencies

0

0

Business Opportunity Investigations

Investigations Opened

0

0

Investigations Closed

0

0

Ongoing as of End of Quarter

1

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

0

0

Notices of Intent to Suspend (Licensing)

0

0

Notices of Intent to Revoke (Licensing)

0

0

Denial Orders (Licensing)

0

0

Suspension Orders (Licensing)

0

0

Revocation Orders (Licensing)

0

0

Notices of Intent to Fine

0

0

Orders Imposing Fine

0

0

Cease and Desist Orders

0

0

Notices of Intent to Issue Stop Order

0

0

Activity Restrictions/Bars

3

3

Stop Orders

0

0

Vacating/Withdrawal/ Modification Orders

0

0

Restitutionary Orders and Disgorgement Orders

1

1

Injunctive Relief Obtained

0

0

Proceedings and Settlements

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Administrative Actions

0

0

Consent Orders

4

4

Stipulation and Agreements

1

1

Monetary Relief*

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Monetary Sanctions Imposed

$629,868

$629,868

Portion attributable to settlements

$629,868

$629,868

Attributable to Court-Ordered Penalties

0

0

Financial Literacy Contribution

0

0

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$551,959

$551,959

Cents eliminated

Securities Referrals

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Criminal Matters

0

0

Civil (Attorney General)

1

1

Other Agency Referrals

0

0