Winter 2021 Securities Bulletin

State of Connecticut
Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXV No. 4 - Winter 2021

Features

Securities Division Staff to Serve on NASAA Committees and Project Groups

Quarterly Statistical Summaries

Enforcement and Other Highlights

Administrative Actions

Consent Orders

Stipulation and Agreements

---

Securities Division Staff to Serve on NASAA Committees and Project Groups

Several members of the Securities and Business Investments Division volunteered for, and were selected to serve, on NASAA committees and project groups for the upcoming year. NASAA (the North American Securities Administrators Association) is a professional organization comprised of securities regulators from the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

The following committees and project groups will include representation from Connecticut:

CRD/IARD Forms and Process (Jack Horne)

Cybersecurity (Thomas Nugent)

NEMO Training & Support (Michael Bessette)

Professional Development (Klem Klementon)

Broker-dealer Emerging, Alternative and Variable Products (Lynn McKenna-Krumins)

Broker-dealer Training (Klem Klementon, Co-Chair)

Enforcement Training (Elena Zwiefler)

Investment Adviser Resources and Publications (Elizabeth Mullin)

Investment Adviser Training (Kelly Lent)

Also selected to serve on NASAA’s Investor Education Senior Outreach project group was Kathleen Titsworth of the department's Government Relations and Consumer Affairs Division.

Administrative Actions

KJM Securities, Inc. (CRD No. 20277)

On December 23, 2021, the Banking Commissioner issued a Notice of Intent to Revoke and Cancel Registration as a Broker-dealer and Notice of Right to Hearing (Matter No. NRC-21-202027-S) with respect to KJM Securities, Inc., now or formerly of 48 Sagamore Road, Suite 29, Bronxville, New York 10708-1534. The firm was expelled from FINRA membership on January 2, 2020. The expulsion is currently on appeal to the Securities and Exchange Commission. KJM Securities, Inc. no longer has any broker-dealer agents registered in Connecticut.

The action alleged that the firm violated Section 36b-31-14c of the Regulations under the Connecticut Uniform Securities Act by failing to file an annual audited financial report. In addition, the action alleged that the firm’s apparent cessation of business formed a basis for canceling the firm's registration under Section 36b-15(d) of the Act.

KJM Securities, Inc. was afforded an opportunity to request a hearing on the allegations in the action.

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

On November 17, 2021, the 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-21-201910905-S) against 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 David Manning Fresne, the control person of both entities. Respondent Fresne, formerly a Connecticut resident, currently resides in Palm Beach, Florida.

The action alleged that the Respondent entities entered into an Investment Agreement with an investor who was seeking working capital for business purposes. In return for an ultimate investment of $510,000, the Respondent entities represented that the investor would receive a $5 million promissory note paying 7% annual interest with a guaranteed return of principal. In addition, the Respondents represented that they would maintain a sufficient balance on hand pending final distribution to the investor. The action further alleged that, notwithstanding the Respondents' representations to the investor, Fresne proceeded to deplete the balance on hand and use the monies in the account to pay his personal expenses. The investor never received the promised investment return or the return of his principal.

The action alleged that the Respondents sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act and violated the antifraud provisions in Section 36b-4(a) of the Act. The action further alleged that respondent Fresne transacted business as an unregistered agent of issuer in violation of 36b-6(a) of the Act.

The Respondents were afforded an opportunity to request a hearing on the allegations in the action.

Consent Orders

LPL Financial LLC (CRD No. 6413)

On December 3, 2021, the Banking Commissioner entered a Consent Order (Docket No. CO-21-201911026-S) with respect to LPL Financial LLC, a Connecticut-registered broker-dealer. The Consent Order alleged that the firm violated Section 36b-31-6f of the Regulations under the Connecticut Uniform Securities Act by failing to enforce its supervisory procedures with regard to two former agents of the firm, Connecticut residents James Thomas Booth (CRD number 1906145) and Matthew O. Clason (CRD number 4692266).

Booth allegedly misappropriated approximately $1.1 million from his LPL Financial LLC clients, and plead guilty to one count of securities fraud in federal court (United States v. James T. Booth, Crim. No. 19-cr-00699-JGK (S.D.N.Y.)). On November 17, 2020, Booth was sentenced to a 42-month prison term. Booth’s conduct also involved generating consolidated client account statements with fictitious investments and sending those statements to clients in an effort to deceive clients about the value of their accounts. Booth had been the subject of a June 18, 2020 Order issued by the Commissioner revoking Booth’s registration as a broker-dealer agent and investment adviser agent and fining Booth $100,000, a penalty amount that remains unpaid. The revocation was uncontested.

The Consent Order acknowledged that LPL Financial LLC had entered into settlements with those firm clients who were affected by Booth’s scheme, and that the firm had repaid those clients a total of $1,636,347.07.

Clason purportedly opened a joint bank account with an LPL Financial, LLC customer without the firm’s knowledge, then transferred approximately $668,000 from the customer’s brokerage account to the joint account. Clason then proceeded to withdraw at least $620,000 from the joint account for his personal use without the customer’s knowledge or consent. On May 12, 2021, in connection with the foregoing conduct, Clason plead guilty to one count of wire fraud in federal court (United States v. Matthew O. Clason, Crim. No. 3:21-cr-00066 (D. Conn)). Clason is currently scheduled to be sentenced on December 7, 2021.

The LPL Financial LLC customer affected by Clason’s conduct has since been fully compensated through a February 25, 2021 settlement involving the firm and other parties. LPL Financial, LLC contributed $500,000 to that settlement.

The Consent Order directed LPL Financial, LLC to cease and desist from violating Section 36b-31-6f of the Regulations and to comply with the Act, its Regulations and any order under the Act. The Consent Order also fined the firm $350,000 and required that it pay an additional $150,000 to the department to be used, at the Commissioner's discretion, for financial literacy and investor education initiatives, training and related materials.

Stipulation and Agreements

Lifestyle Freedom Advisory Group, LLC (CRD No. 283512)

On December 22, 2021, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-21-202044-S) with Lifestyle Freedom Advisory Group, LLC, a Connecticut registered investment adviser located at 9040 Town Center Parkway, Bradenton, Florida 34202. The Stipulation and Agreement alleged that the firm violated Section 36b-6(d) of the Connecticut Uniform Securities Act by transacting business from an unregistered location, since closed, in Milford, Connecticut. The Stipulation and Agreement also alleged that the firm violated Section 36b-6(c)(3) of the Act by engaging an unregistered investment adviser agent. The firm registered the investment adviser agent on November 23, 2020.

In resolution of the matter, the firm agreed to refrain from regulatory violations and to remit $7,650 to the department. Of that amount, $7,500 constituted an administrative fine and $150 represented reimbursement for past due registration fees.

Stone Beach Investment Management, LLC (IARD No. 163163)

On December 2, 2021, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-21-202042-S) with Stone Beach Investment Management, LLC of 51 Riverside Avenue, Westport, Connecticut 06880. The firm is registered as an investment adviser with the Securities and Exchange Commission. The Stipulation and Agreement alleged that from June 5, 2014 until March 31, 2021, the firm failed to make the notice filings required by Section 36b-6(e) of the Connecticut Uniform Securities Act. The firm has since made a curative filing.

Pursuant to the Stipulation and Agreement, Stone Beach Investment Management, LLC agreed to refrain from violative conduct and to pay $3,625 to the department. Of that amount, $2,500 constituted an administrative penalty and $1,125 represented reimbursement for past due investment advisory notice filing fees.

Davinci Capital Management, Inc. (CRD No. 46897)

On October 12, 2021, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-21-2020799-S) with Davinci Capital Management, Inc., a Connecticut-registered broker-dealer located at 801 Cambridge Street, Cambridge, Massachusetts 02141. The Stipulation and Agreement alleged that from approximately April 2015 through May 2021, the firm transacted business from an unregistered branch office at 662 Wethersfield Avenue, Hartford, Connecticut in violation of Section 36b-6(d) of the Connecticut Uniform Securities Act.

In resolution of the matter, the firm agreed to refrain from regulatory violations and to pay a $2,500 fine to the department.

Monomoy Capital Management, L.P. (CRD No. 160759)

On October 7, 2021, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-21-202041-S) with Monomoy Capital Management, L.P., an investment adviser having its principal office at 1 Greenwich Office Park, Building 1S, 2nd Floor, Greenwich, Connecticut 06831. The firm is registered as an investment adviser with the federal Securities and Exchange Commission. The Stipulation and Agreement alleged that, between October 2017 and November 29, 2020, the firm failed to make the notice filing required of SEC-registered investment advisers by Section 36b-6(e) of the Connecticut Uniform Securities Act. The firm has since made a curative filing.

In resolution of the matter, the firm agreed to refrain from regulatory violations and to remit $3,025 to the agency. Of that amount, $2,500 constituted an administrative fine and $525 represented reimbursement for past due notice filing fees.

Statistical Summary

Licensing At A Glance

at the end of the quarter

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Broker-dealers Registered

2,004

2,018

2,026

1,992

Broker-dealer Agents Registered

179,584

181,835

185,938

181,638

Broker-dealer Branch Offices Registered

2,370

2,338

2,341

2,301

Investment Advisers Registered

476

484

477

451

SEC Registered Advisers Filing Notice

2,338

2,380

2,408

2,302

Investment Adviser Agents Registered

15,711

15,715

15,899

15,292

Exempt Reporting Advisers

150

152

153

156

Agents of Issuer Registered

3

3

3

3

Conditional Registrations

0

0

0

0

Securities and Business
Opportunity Filings

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Offerings Reviewed

23

30

31

29

113

Investment Company Notice Filings

174

432

470

7,291

8,367

Exemptions and Exemptive Notices

1,862

2,212

2,085

2,519

8,678

Examinations

Broker-dealers

17

21

19

19

76

Investment Advisers

26

28

22

33

109

Securities Investigations

Opened

18

10

8

8

44

Closed

7

6

22

20

55

Ongoing as of End of Quarter

96

100

86

74

Subpoenas issued

7

2

3

6

18

Matters referred from Attorney General

6

1

0

1

8

Matters referred from Other Agencies

5

2

3

2

12

Business Opportunity Investigations

Investigations Opened

0

0

0

0

0

Investigations Closed

0

0

0

0

0

Ongoing as of End of Quarter

2

2

2

2

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

0

0

0

0

0

Notices of Intent to Suspend (Licensing)

0

0

0

0

0

Notices of Intent to Revoke (Licensing)

0

1

0

1

2

Denial Orders (Licensing)

0

0

0

0

0

Suspension Orders (Licensing)

0

0

0

0

0

Revocation Orders (Licensing)

0

0

1

0

1

Notices of Intent to Fine

1

1

0

1

3

Orders Imposing Fine

0

1

1

0

2

Cease and Desist Orders

1

1

0

1

3

Notices of Intent to Issue Stop Order

0

0

0

0

0

Activity Restrictions/Bars

2

0

1

0

3

Stop Orders

0

0

0

0

0

Vacating/Withdrawal/ Modification Orders

0

1

1

0

2

Restitutionary Orders and Disgorgement Orders

1

0

1

1

3

Injunctive Relief Obtained

0

0

0

0

0

Proceedings and Settlements

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Administrative Actions

1

3

2

2

8

Consent Orders

3

0

3

1

7

Stipulation and Agreements

3

0

2

4

9

Monetary Relief*

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Monetary Sanctions Imposed

$24,555

$330,000

$230,000

$366,800

$951,355

Portion attributable to settlements

$24,555

$30,000

$130,000

$366,800

$551,355

Attributable to Court-Ordered Penalties

0

0

0

0

0

Financial Literacy Contribution

0

0

0

$150,000

$150,000

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$122,431

$150,000

$1,320,000

$2,756,347

$4,348,778

*
Cents eliminated

Securities Referrals

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Criminal Matters

0

0

0

0

0

Civil (Attorney General)

0

0

0

1

1

Other Agency Referrals

0

0

2

0

2