State of Connecticut Department of Banking Securities Bulletin Fall 2022

State of Connecticut
Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXVI No. 3 - Fall 2022

Features

Free Cryptocurrency Webinar Set for November 15, 2022

Quarterly Statistical Summaries

Enforcement and Other Highlights

Administrative Actions

Consent Orders

Stipulation and Agreements

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Tuesday, November 15, 2022 12:00 p.m. to 1:00 p.m. via Teams

Scheduled Speakers:

Donna L. Brooks, Esq. [Moderator] Shipman & Goodwin LLP

Peter J. Bilfield, Esq.
Day Pitney LLP

Mark W. Klein, Esq.
Brody Wilkinson PC

Elizabeth Mullin, Esq.
State of Connecticut Dept. of Banking Securities and Business Investments Division

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Administrative Actions

Endeavor Global Partners Corp., Endeavor Global Partners (HK) Ltd. and David Manning Fresne (CRD No. 1091992)

On September 21, 2022, the Banking Commissioner issued Findings of Fact, Conclusions of Law and an Order in the matter of Endeavor Global Partners Corp. of 151 Rowayton Avenue, Rowayton, Connecticut and 30/F Shanghai Square, 138 Middle Huai Hai Road, Shanghai, China; Endeavor Global Partners (HK) Ltd. of Unit 1010, Miramar Tower, 132 Nathan Road, TsimShaTsui, Hong Kong; and former Connecticut resident David Manning Fresne, control person of both entities. The Respondents had been the subject of a November 17, 2021 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. CRF-21-201910905-S) alleging violations of the registration and antifraud provisions of the Connecticut Uniform Securities Act. A hearing on the November 17, 2021 action was held on March 17, 2022.

In rendering the hearing decision, the Commissioner found that, in 2016, Respondents accepted a $500,000 “Equity Participation Investment” and a $10,000 “due diligence” fee from an Alabama investor seeking funding for a Kentucky coal mining operation. In return for the investment, Respondents promised to provide the investor with $5 million in funding and represented that the initial $500,000 would be refunded in the event funding could not be obtained. The Commissioner found that the investment arrangement was a “security” and that the security offered and sold by Respondents was not registered in violation of Section 36b-16 of the Act. The decision also noted that, rather than safeguarding the investor's money pending the promised financing, Respondent Fresne used a portion of the funds invested to pay for his personal expenses and therefore violated the antifraud provisions in Section 36b-4(a) of the Act. The decision also found that Respondent Fresne violated Section 36b-6(a) of the Act by transacting business as an unregistered agent of issuer.

The decision rendered the November 21, 2021 Order to Cease and Desist permanent; directed the Respondents to pay the affected investor $500,000 in restitution plus interest; fined Respondent Fresne $300,000 and fined each entity respondent $100,000 for a total of $500,000.

Clipper Capital Group LLC, T&T Capital Partners LLC and Steven Alan Tavares (CRD No. 3102434)

On August 3, 2022, the Banking Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (No. CRF-22-202022-S) against Clipper Capital Group LLC of 6 Williams Street, Mystic, Connecticut 06355, T&T Capital Partners LLC of 735 Broad Street Extension, Waterford, Connecticut 06385, and Steven Alan Tavares, managing member and control person of Clipper Capital Group LLC and managing partner of T&T Capital Partners LLC. Clipper Capital Group LLC was first formed for the purpose of buying, refurbishing and selling properties, and later transitioned into a lending business. T&T Capital Partners LLC was in the business of commercial lending, and Tavares was involved in “flipping” real estate and engaging in commercial lending.

The action alleged that Respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered securities in the form of promissory notes to investors. In addition, the action alleged that the Respondents violated the antifraud provisions in Section 36b-4(a) of the Act by, among other things, 1) failing to disclose that the terms of the promissory notes could be unilaterally extended by Respondents without the affected investor's approval or consent; and 2) participating in a course of conduct resulting in the affected investors receiving inflated and misleading account statements concerning the value of the securities. The action also alleged that Tavares violated Section 36b-23 of the Act by making materially misleading statements or omissions to the agency in connection with a Division investigation.

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

Consent Orders

Olive Tree Ridge Investment Advisors LLC (IARD No. 305098)

On September 21, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-202236-S) with respect to Olive Tree Ridge Investment Advisors LLC of 34 Knibloe Hill Road, Sharon, Connecticut 06069. The firm was intermittently registered as an investment adviser under the Connecticut Uniform Securities Act and reapplied for investment adviser registration in February 2022. The Consent Order alleged that the firm violated Section 36b-6(c)(1) of the Act by transacting business as an investment adviser at a time when its registration was no longer in effect.

The Consent Order directed the firm to cease and desist from regulatory violations and to pay a $5,000 fine to the department.

James Albert Pettit (CRD No. 733916)

On September 7, 2022, the Banking Commissioner entered a Consent Order (No. NDCDF-17-8218-S) with respect to James Albert Pettit. Pettit was previously associated with Janney Montgomery Scott, LLC as a broker-dealer agent and an investment adviser agent.

The Consent Order had been preceded by a May 15, 2017 Notice of Intent to Deny Registrations as a Broker-dealer Agent and an Investment Adviser Agent, Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing (Docket No. NDCDF-17-8218-S). That action had alleged that Pettit engaged in certain improprieties rising to the level of dishonest or unethical practices in the securities business. These included 1) borrowing money from an account carried for a brokerage customer without the customer’s prior consent and without notice to Janney Montgomery Scott, LLC; 2) borrowing money from an advisory client of Janney Montgomery Scott, LLC; and 3) engaging in outside business activity involving a firm client absent notice to his employing firm. The action had also alleged that Pettit engaged in self-dealing in conjunction with a power of attorney he held over the account of an elderly client, since deceased. Pettit allegedly wrote checks to himself as remuneration, notwithstanding that the power of attorney did not provide for compensation. Following the client’s death, Pettit allegedly paid himself $69,000 for acting as executor of the client’s estate. The action had also alleged that Pettit violated Section 36b-23 of the Connecticut Uniform Securities Act by failing to provide the agency with accurate information concerning accounts over which he had signatory authority, and that Pettit allegedly violated Section 36b-31-14e of the Regulations under the Act by failing to amend his registration filings to disclose the existence of several tax liens.

On May 16, 2016, the Greater Windsor Probate Court issued a Decree ordering Pettit to repay $171,274.59 to the estate of the affected individual. A civil action to enforce the Decree brought by the executor in the Superior Court for the Judicial District of Hartford at Hartford is pending (Gostyla v. Pettit, HHD-CV17-6074354-S).

The Consent Order resolved the allegations in the May 15, 2017 action without a hearing. The Consent Order rendered the May 15, 2017 Order to Cease and Desist permanent; denied Pettit’s registrations as a broker-dealer agent and an investment adviser agent; and barred Pettit 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 an investment adviser registered or required to be registered in Connecticut; and acting in any other capacity requiring a license or registration with the Commissioner. Acknowledging that Pettit provided written documentation that he was unable to pay the $25,000 administrative fine that otherwise would have been imposed against him, the Consent Order temporarily stayed imposition of the fine for three years. Following expiration of the three-year period, if Pettit remained unable to pay the fine, the fine would be waived.

Pusser’s Holdings Investment LLC, Harbor Cap Partners LLC and Stuart Jamieson

On July 20, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-201914440-S) with respect to Pusser’s Holdings Investment LLC (“PHI”) of 649 Fairfield Beach Road, Fairfield, Connecticut; Harbor Cap Partners LLC, manager of PHI; and Stuart Jamieson, managing member of Harbor Cap Partners LLC and the Chief Executive Officer of PHI. The Respondents had been the subject of a January 5, 2022 Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing (No. CRF-21- 201914440-S). The January 5, 2022 action had alleged that, at various times between 2015 and 2017, the Respondents violated Section 36b-16 of the Connecticut Uniform Securities Act by selling unregistered PHI Class A Units and unregistered PHI securities consisting of warrants and promissory notes to the investing public. Approximately $3.2 million was raised from investors in the two offerings.

The July 20, 2022 Consent Order noted that a third party had purchased the securities underlying the PHI debt and rights offering, and had repaid the affected investors in full. By contrast, investors who purchased PHI Class A Units had $1.6 million in outstanding investment losses. However, the Consent Order acknowledged that no purchasers of the PHI Class A Units had complained about the units’ unregistered status, and that all PHI Class A Unit purchasers had represented in writing that they had not been prejudiced by Respondents’ failure to claim an exemption from registration for those units. Since purchasers of the PHI debt and rights offering securities had been repaid, and given the statements of nonprejudice provided by the PHI Class A Unit purchasers, the Commissioner determined not to order restitution although he was authorized by law to pursue a restitutionary remedy.

The Consent Order directed the Respondents to cease and desist from regulatory violations. In addition, the Consent Order required that, for five years, Respondents, their affiliates and successors in interest retain the services of experienced securities legal counsel before offering or selling securities to ensure that they were in compliance with Connecticut law.

Based on Respondent Jamieson's demonstrated inability to pay the $10,000 fine that otherwise would have been imposed against Respondents, the Commissioner stayed imposition of the fine for three years. If, following expiration of the three year period, the Respondents remained unable to pay the administrative fine, the fine would be waived.

Perkins Fund Marketing, L.L.C. (CRD No. 45642)

On July 13, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-20226-S) with respect to Perkins Fund Marketing, L.L.C., a Connecticut-registered broker-dealer located at 1001 N US Highway 1, Suite 204, Jupiter, Florida 33477. The Consent Order alleged that the firm violated Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act by failing to maintain adequate supervisory policies and procedures relating to the supervision of outside business activities and private securities transactions by its personnel. The Consent Order fined the firm $10,000 and directed it to refrain from violative conduct.

Stipulation and Agreements

Aldwych Securities LLC (CRD No. 167980)

On August 8, 2022, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-22-202223-S) with Aldwych Securities LLC, a Connecticut-registered broker-dealer located at 70 Seaview Avenue, Stamford, Connecticut 06902. The Stipulation and Agreement alleged that, from approximately August 2020 to April 2022, the firm employed two unregistered agents in violation of Section 36b-6(b) of the Connecticut Uniform Securities Act. The agents are no longer associated with the firm. In addition, the Stipulation and Agreement alleged that the firm violated Section 36b-31-9b of the Regulations under the Act by failing to timely notify the Commissioner of a net capital deficiency, since corrected. The Stipulation and Agreement acknowledged the firm’s representation that the net capital deficiency and related failure to report the same were attributable to a misinterpretation of Generally Accepted Accounting Principles by the firm’s prior third party Finance and Operations Principal and that the deficiency was remedied when the relevant service expense was paid in May 2020.

In resolution of the matter, the firm agreed to refrain from violative conduct and to pay a $5,000 fine to the department.

Statistical Summary

Licensing At A Glance

at the end of the quarter

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Broker-dealers Registered

2,023

2,035

2,038

Broker-dealer Agents Registered

190,842

194,086

197,520

Broker-dealer Branch Offices Registered

2,302

2,322

2,314

Investment Advisers Registered

457

452

446

SEC Registered Advisers Filing Notice

2,446

2,495

2,495

Investment Adviser Agents Registered

15,690

15,743

15,603

Exempt Reporting Advisers

162

168

171

Agents of Issuer Registered

3

3

3

Conditional Registrations

1

0

0

Securities and Business Opportunity Filings

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Offerings Reviewed

33

56

34

123

Investment Company Notice Filings

449

403

408

1,260

Exemptions and Exemptive Notices

2,476

2,155

1,670

6,301

Examinations

Broker-dealers

15

20

12

47

Investment Advisers

31

20

14

65

Securities Investigations

Opened

19

8

18

45

Closed

2

7

7

16

Ongoing as of End of Quarter

91

92

102

Subpoenas issued

12

6

6

24

Matters referred from Attorney General

1

0

0

1

Matters referred from Other Agencies

4

4

0

8

Business Opportunity Investigations

Investigations Opened

0

0

1

1

Investigations Closed

1

0

0

1

Ongoing as of End of Quarter

1

1

2

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

0

0

0

0

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

1

1

Suspension Orders (Licensing)

0

1

0

1

Revocation Orders (Licensing)

0

1

0

1

Notices of Intent to Fine

3

2

1

6

Orders Imposing Fine

0

1

1

2

Cease and Desist Orders

3

2

1

6

Notices of Intent to Issue Stop Order

0

1

0

1

Activity Restrictions/Bars

1

3

1

5

Stop Orders

0

0

0

0

Vacating/Withdrawal/ Modification Orders

0

0

0

0

Restitutionary Orders and Disgorgement Orders

2

0

2

4

Injunctive Relief Obtained

0

0

0

0

Proceedings and Settlements

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Administrative Actions

3

3

2

8

Consent Orders

2

5

4

11

Stipulation and Agreements

0

1

1

2

Monetary Relief*

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Monetary Sanctions Imposed

$953,396

$563,000

$520,000

$2,036,396

Portion attributable to settlements

$953,396

$63,000

$20,000

$1,036,396

Attributable to Agency Administrative Orders

0

$100,000

$500,000

$600,000

Attributable to Court-Ordered Penalties

0

$400,000

0

$400,000

Financial Literacy Contribution

0

0

0

0

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$116,687

$490,000

$510,979

$1,117,666

Portion Attributable to Court-Ordered Restitution Obtained by Agency

0

$490,000

0

$490,000

*
Cents eliminated

Securities Referrals

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Criminal Matters

1

0

0

1

Civil (Attorney General)

1

0

0

1

Other Agency Referrals

1

1

0

2