Winter 2022 Securities Bulletin

State of Connecticut
Department of Banking

Securities and Business Investments Division Securities Bulletin

Vol. XXXVI No. 4 - Winter 2022

Features

Quarterly Statistical Summaries

Enforcement and Other Highlights

Administrative Actions

Consent Orders

Stipulation and Agreements

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Administrative Actions

Samuel Klein, Visual Group, LLC and KF Pecksland, LLC

On December 27, 2022, the Banking Commissioner entered individual Orders Imposing Fine (No. CDF-22-8408-S) against Samuel Klein of 131 Pecksland Road, Greenwich, Connecticut, Visual Group, LLC of 58 East Main Street, Plainville, Connecticut and KF Pecksland, LLC of 131 Pecksland Road, Greenwich, Connecticut. Respondent Klein was affiliated with the two entities and was the sole member and control person of Visual Group, LLC. Visual Group, LLC purportedly invested in distressed real estate debt. KF Pecksland, LLC purportedly invested in The Bleachers Corporation, a now-defunct stock corporation of which Klein was the president. The three Respondents had been the subject of a June 20, 2022, Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing alleging that 1) Respondents offered and sold unregistered securities in violation of Section 36b-16 of the Connecticut Uniform Securities Act; 2) Respondents violated the antifraud provisions in Section 36b-4(a) of the Act; and 3) Respondent Klein violated Section 36b-6 of the Act by transacting business as an unregistered agent of issuer.

The Order to Cease and Desist, being uncontested, became permanent as to each Respondent on September 10, 2022.

Similarly, the Notice of Intent to Fine was uncontested and the Orders Imposing Fine were entered by default.

Finding that Visual Group, LLC and KF Pecksland, LLC each violated Section 36b-16 of the Act and the antifraud provisions in 36b-4(a) of the Act, the Commissioner fined each of those respondents $100,000 for a total of $200,000. Finding that Samuel Klein violated Sections 36b-16, 36b-4(a) and 36b-6(a) of the Act, the Commissioner fined Samuel Klein $100,000.

In a related matter, on May 3, 2022, following a plea of guilty in an action brought by the Department of Justice, Klein was sentenced to a 36 month term of imprisonment for violating 18 U.S.C. Section 2314 (Interstate Transportation of Property Taken by Fraud) and a 36 month term of imprisonment for violating 18 U.S. C. Section 1957 (Money Laundering) ( United States of America v. Samuel Klein (D. Conn. (Case No. 3:20-CR-00243-JCH(1)). The sentences would run concurrently. The facts underlying the federal action paralleled those in the Commissioner’s June 20, 2022 action. In imposing sentence, the District Court also ordered Klein to pay $1,497,797.52 in restitution to the affected victims. In light of the District Court’s order, although the Commissioner was authorized to order restitution to the affected victims pursuant to Section 36b-27(b) of the Act, the Commissioner elected not to do so since such relief would replicate that ordered by the court.

NYPPEX, LLC (CRD No. 47654) and Laurence Geoffrey Allen (CRD No. 1063970)

On December 7, 2022, the Banking Commissioner issued an Amended Notice of Intent to Deny Registration as Broker-dealer, Amended Notice of Intent to Deny Registration as a Broker-dealer Agent and Amended Notice of Right to Hearing (Docket No. NDR-20-14445-S) with respect to NYPPEX, LLC, an applicant for broker-dealer registration, and Laurence Geoffrey Allen, managing member of the firm. The firm, formerly located at 55 Old Field Point Road, Greenwich, Connecticut, is now based at 120 N. Washington Square, Suite 200, Lansing, Michigan 48933. Allen had been registered as a broker-dealer agent of NYPPEX, LLC under the Connecticut Uniform Securities Act from November 29, 1999 to December 31, 2019 when his broker-dealer agent registration was terminated for failing to renew. On October 30, 2020, Allen reapplied to be a broker-dealer agent under the Act, but then (the same day) filed to withdraw his pending broker-dealer agent application. Both applications remain pending.

The December 7, 2022 action had been preceded by a February 21, 2020 Notice of Intent to Deny Registration as Broker-dealer, Notice of Intent to Revoke Registration as a Broker-dealer Agent and Notice of Right to Hearing (Docket No. NDR-20-14445-S). The Amended Notice reflected Allen’s updated application status as well as additional disciplinary events relating to the respondents.

The Commissioner’s amended action alleged that on February 4, 2020, in a proceeding brought by the Attorney General of the State of New York, the Supreme Court of the State of New York entered a preliminary injunction enjoining NYPPEX, LLC, Allen and others from, inter alia, engaging in fraudulent, deceptive and illegal acts in conjunction with limited partnership investments ( People v. Allen, Laurence G ., No. 2378/2019 (Supreme Ct. N.Y. Cnty. 2019). On February 4, 2021, the court in the New York action issued a Decision After Trial wherein the court entered a permanent injunction enjoining NYPPEX and Allen from, among other things, making any distributions from ACPX (the underlying investment fund) except to investors. People v. Allen, Laurence , No. 452378/2019 (Supreme Ct. N.Y. Cnty. 2021) (NYSCEF Doc. No. 538). The Decision After Trial also found that Allen made frequent, material misrepresentations and misleading omissions in communications to the investors and made false and misleading reports on the value of ACPX’s interest in NYPPEX to the investors and caused ACPX to purchase NYPPEX stock at wildly inflated prices. NYPPEX appealed the Decision After Trial to the Supreme Court Appellate Division, First Judicial Department, which decided on October 21, 2021 to uphold the Decision After Trial in full. James, AG SNY v Allen , N.Y. App. Div., 198 A.D.3d 531 (1st Dep’t 2021). In July 2022, NYPPEX and Allen appealed the First Judicial Department Decision to the New York Court of Appeals, which appeal was denied on October 20, 2022. People of State of New York, by Letitia James, etc. v Laurence G. Allen , Slip Opinion No: 2022 NY Slip Op. 73209, October 20, 2022.

The Commissioner’s amended action also noted that the respondents had been the subject of the several additional regulatory proceedings which included: 1) an August 26, 2022 Financial Industry Regulatory Authority (“FINRA”) Extended Hearing Panel Decision, currently on appeal, expelling NYPPEX from FINRA membership and barring Allen from association with any FINRA member firm in any capacity based on allegations of securities fraud (FINRA Disciplinary Proceeding No. 2019064813801); and 2) a May 13, 2022 Final Order of Default entered by the State of Kentucky revoking NYPPEX’s broker-dealer registration in that state. The amended action alleged that the New York, FINRA and Kentucky disciplinary actions supported denial proceedings against the respondents under the Connecticut Uniform Securities Act.

Both respondents were afforded an opportunity to request a hearing on the allegations in the amended action.

Consent Orders

Summit Investment Management, LLC (CRD No. 149793)

On December 23, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-202225-S) with respect to Summit Investment Management, LLC, a Connecticut-registered investment adviser located at 42 Pond Hill Road, Lyme, Connecticut 06371. The Consent Order alleged that the firm violated 1) Section 36b- l 4(a)(l) of the Connecticut Uniform Securities Act and Section 36b-3 l-l 4b(a) of the Regulations under the Act by failing to maintain client billing invoices for the first quarter of 2021 for at least three clients; and 2) Section 36b-23 of the Act by inaccurately representing to the Division that client invoices furnished to Division staff had been sent to clients when this was not the case. The Consent Order acknowledged that no evidence of client harm had been detected to date and that the billing invoices clients ultimately did receive were correct.

The Consent Order directed the firm to cease and desist from regulatory violations and fined the firm $10,000.

The Hop Knot Franchising Corp. and Michael T. Boney

On December 20, 2022, the Banking Commissioner entered a Consent Order (No. CSF-22-14433B) with respect to The Hop Knot Franchising Corp., formerly of 170 Main Street, #6, Middletown, Connecticut and 505 Main Street, Middletown, Connecticut, and Michael T. Boney, president of the corporation. The Hop Knot Franchising Corp., since dissolved, was in the business of offering beer and gourmet pretzel franchises. The Respondents had been the subject of an April 1, 2022 Notice of Intent to Issue Stop Order Denying Effectiveness to a Business Opportunity Registration, Order to Cease and Desist and Notice of Intent to Fine. The April 1, 2022 action alleged that 1) at various times in 2018 and 2019, respondents sold unregistered business opportunities in violation of Sections 36b-62(a) and 36b-67(1) of the Connecticut Business Opportunity Investment Act; 2) the corporation's subsequently filed registration application misrepresented the extent of the company’s prior unregistered activity in violation of Section 36b-80 of the Act; and 3) the respondents violated Section 36b-66(a) of the Act by failing to provide a purchaser-investor with a signed copy of the business opportunity contract.

The Consent Order barred Boney for three years from associating in any proprietary or supervisory capacity with any business opportunity seller and from offering or selling business opportunities. The Consent Order also directed the Respondents to cease and desist from regulatory violations, and denied effectiveness to The Hop Knot Franchising Corp.'s pending business opportunity registration. Acknowledging that the Respondents had provided documentation demonstrating their inability to pay the $50,000 fine that otherwise would have been imposed against them, the Commissioner stayed imposition of the fine for three years following which it would be waived if Respondents remained unable to pay.

Heron Bay Capital, LLC (IARD No. 311176)

On December 7, 2022, the Banking Commissioner entered a Consent Order (No. CO-22-202237-S) with respect to Heron Bay Capital, LLC of 112 Southfield Avenue, Apt. PH01, Stamford, Connecticut 06902. The firm was previously registered as an investment adviser with the Securities and Exchange Commission from November 12, 2020 to March 4, 2021. The Consent Order alleged that 1) prior to its SEC registration, the firm violated Section 36b-6(c)(1) of the Connecticut Uniform Securities Act by transacting business as an investment adviser absent state registration; 2) during the period when it was SEC-registered, the firm violated Section 36b-6(e) of the Act by failing to make the notice filing required of SEC-registered investment advisers; and 3) following the 2021 termination of its SEC registration, the firm continued to transact business as an investment adviser in Connecticut at a time when no Connecticut investment adviser registration was in effect. The Consent Order acknowledged the firm’s representation that, effective August 31, 2022, it had ceased conducting advisory activities.

The Consent Order directed Heron Bay Capital, LLC to cease and desist from regulatory violations and to pay $6,005 to the department. Of that amount, $5,000 constituted an administrative fine and $1,005 represented reimbursement for past due registration and notice filing fees.

Stipulation and Agreements

Hudson Bay Capital Management LP (IARD No. 155910)

On October 24, 2022, the Banking Commissioner entered into a Stipulation and Agreement (No. ST-22-202246-S) with Hudson Bay Capital Management LP of 28 Havemeyer Place, 2nd Floor, Greenwich, Connecticut 06830. The Stipulation and Agreement alleged that the firm, which is registered as an investment adviser with the Securities and Exchange Commission, violated the Connecticut Uniform Securities Act by failing to make the notice filing required by Section 36b-6(e) of the Act. In resolution of the matter, the firm agreed to refrain from regulatory violations and to pay a $2,500 fine to the agency.

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

2,003

Broker-dealer Agents Registered

190,842

194,086

197,520

195,230

Broker-dealer Branch Offices Registered

2,302

2,322

2,314

2,298

Investment Advisers Registered

457

452

446

423

SEC Registered Advisers Filing Notice

2,446

2,495

2,495

2,441

Investment Adviser Agents Registered

15,690

15,743

15,603

15,257

Exempt Reporting Advisers

162

168

171

179

Agents of Issuer Registered

3

3

3

1

Conditional Registrations

1

0

0

0

Securities and Business Opportunity Filings

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Offerings Reviewed

33

56

34

29

152

Investment Company Notice Filings

449

403

408

7,170

8,430

Exemptions and Exemptive Notices

2,476

2,155

1,670

1,511

7,812

Examinations

Broker-dealers

15

20

12

19

66

Investment Advisers

31

20

14

12

77

Securities Investigations

Opened

19

8

18

8

53

Closed

2

7

7

11

27

Ongoing as of End of Quarter

91

92

102

96

Subpoenas issued

12

6

6

11

35

Matters referred from Attorney General

1

0

0

0

1

Matters referred from Other Agencies

4

4

0

0

8

Business Opportunity Investigations

Investigations Opened

0

0

1

0

1

Investigations Closed

1

0

0

0

1

Ongoing as of End of Quarter

1

1

2

2

Enforcement: Remedies and Sanctions

Notices of Intent to Deny (Licensing)

0

0

0

1

1

Notices of Intent to Suspend (Licensing)

0

0

0

0

0

Notices of Intent to Revoke (Licensing)

0

0

0

0

0

Denial Orders (Licensing)

0

0

1

0

1

Suspension Orders (Licensing)

0

1

0

0

1

Revocation Orders (Licensing)

0

1

0

0

1

Notices of Intent to Fine

3

2

1

0

6

Orders Imposing Fine

0

1

1

3

5

Cease and Desist Orders

3

2

1

0

6

Notices of Intent to Issue Stop Order

0

1

0

0

1

Activity Restrictions/Bars

1

3

1

1

6

Stop Orders

0

0

0

1

1

Vacating/Withdrawal/ Modification Orders

0

0

0

0

0

Restitutionary Orders and Disgorgement Orders

2

0

2

0

4

Injunctive Relief Obtained

0

0

0

0

0

Proceedings and Settlements

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Administrative Actions

3

3

2

2

10

Consent Orders

2

5

4

3

14

Stipulation and Agreements

0

1

1

1

3

Monetary Relief*

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Monetary Sanctions Imposed

$953,396

$563,000

$520,000

$318,505

$2,354,901

Portion attributable to settlements

$953,396

$63,000

$20,000

$18,505

$1,054,901

Attributable to Agency Administrative Orders

0

$100,000

$500,000

$300,000

$900,000

Attributable to Court-Ordered Penalties

0

$400,000

0

0

$400,000

Financial Literacy Contribution

0

0

0

0

0

Restitution or Other Monetary Relief ( includes rescission offer amounts )

$116,687

$490,000

$510,979

0

$1,117,666

Portion Attributable to Court-Ordered Restitution Obtained by Agency

0

$490,000

0

0

$490,000

*
Cents eliminated

Securities Referrals

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year to Date

Criminal Matters

1

0

0

0

1

Civil (Attorney General)

1

0

0

0

1

Other Agency Referrals

1

1

0

0

2